By Martin Hutchinson
Contributing Editor
Money Morning
India remains a great long-term profit play. But global investors should beware of the near-term exuberance that followed that nation’s weekend elections.
The Indian market zoomed 17% on Monday on the news that the Congress Party had been re-elected with an increased majority. It’s certainly true that some of the other alternatives - for example a weak leftist Third Force coalition including the spectacularly corrupt Mayawati Kumari (India’s richest politician, a keenly fought title) - would have been worse.
Nevertheless, you have to remember that the Congress Party (also known as the India National Congress, and referred to by its initials, INC) is responsible for most of India’s woes, both recently and in the 60 years since independence, and that putting it back into power is unlikely to bring much of a step forward - economically speaking.
Condemned to Slow Growth
For more than 40 years after independence - albeit with one short exception - India was ruled by the Congress party and condemned to slow economic growth. Then, after 1991, then finance minister Manmohan Singh began opening up the economy. However, growth had already slowed again in the mid 1990s and it was only under the Bharatiya Janata Party (BJP) government of Atal Bihari Vajpayee in 1998-2004 that India removed many of its longstanding statist obstacles to growth, and began to enjoy economic growth rates comparable to those of China.
The Vajpayee government was rejected by the Indian electorate in 2004, in a stunning act of electoral ingratitude second only to Britain’s shocking 1945 rejection of Winston Churchill, who had helped engineer the Allied victory in World War II.
Since 2004, India’s Congress Party has been back in power under Singh - this time as prime minister - in a coalition with the left. The nation’s leadership has made endless promises of reform, but has really accomplished very little. Economic growth has continued to be rapid, largely because of the Vajpayee government’s reforms, which were particularly extensive during that administration’s last two years in power in 2002-2004.
