Let us take it that the election outcome is not worth betting about. BJP/NDA will be the largest single party/coalition and Narendra Modi will be the Prime Minister. The dreams of the 160-170 club deep inside the BJP will remain dreams. The issue is now what will the new government do and whether it will fulfil the extremely high expectations held about its success.
Manifestos are not worth the paper they are printed on. But there are palpable signs that the incoming government needs to make sure it does not make mistakes at the very outset. News came only last week that some in the BJP wanted the scalp of Raghuram Rajan because he was refusing to cut interest rates and that the incoming government wanted rapid growth. If that is anywhere near the truth, we can write off the BJP/NDA government right away. Sack your Central Bank chief and the world will read the signal that India will have a profligate fiscal and monetary policy. FIIs, as well as a lot of Indian capital, will leave the shores of India and the rupee will fold up. It will cost two to three years of backtracking to recover from that self-inflicted wound.
So, let us hope that no such nonsense is being thought about. The incoming government faces a tough inflation problem. While it may do things on the supply side which may solve the inflation issue, it cannot make any progress without a Central Banker who has a good reputation for fighting inflation. The government, for its part, has to reduce the deficit as soon as possible. The first Budget in June 2014 may be too soon. All it can do then is to clarify the mess P Chidambaram left behind in his vote-on-account and lay bare the real extent of the hole in government finances. But by the Budget in February 2015, it should have a credible path for
reducing the deficit to zero within the lifetime of the government.
The nub of Modi’s development agenda is a massive infrastructure programme. We read about a hundred new cities, a hundred IITs and IIMs and AIIMS in many more cities. This is ambitious indeed but it cannot just be a programme of buildings and roads. India lacks the trained and high quality human resources to staff the IITs and IIMs and AIIMS. A hundred IIMs may require ten thousand academic personnel