In the forthcoming elections, a government led by Narendra Modi of the Bharatiya Janata party seems likely to assume power, and to do so without being too dependent on the support of regional leaders, including some prime ministerial wannabees. A vote for Mr Modi will be a vote indicting the Congress-led government, despite it having overseen India's most rapid growth. Congress will be indicted for presiding over epic corruption; emphasising handouts over opportunities; and squandering the opportunities created by the government itself and by a favourable economic environment characterised by a global boom and easy global liquidity.
But the vote will also reflect abhorrence of the power vacuum at the heart of the nation. Indians want the Congress-as-Hamlet to be replaced by Modi-as-the-Macbeths. They want the ditherers in Delhi replaced by the go-getter from Gujarat. (For now, the Aam Aadmi Party is too narrow in its geographic appeal, too confused about its policy vision, and too immature in its attitude to power, to be a serious alternative to the Congress.)
How can Mr Modi wield power to revive the economy, which is his priority?
Consider the background. The Indian macro-economy has improved since last year. The external vulnerability, reflected in a high and rising current account deficit, has been reduced, inflation is down, courtesy of the rupee depreciation, exports have stirred, and foreign investors are back, scenting opportunities.
But the macro-economy is still problematic and the underlying causes largely unaddressed. Inflation hovers at 8-8.5 per cent; the current account deficit has been reduced through old-fashioned protectionist tightening of gold imports; and private investment remains shackled by the overhang of debt from the bubbly days before 2008, causing growth to remain anaemic. Agricultural sector policies that have increased rural wages and prices have not been tackled. Above all, the deep driver of macro-economic vulnerability - the overall fiscal deficit, at 8-9 per cent of GDP - remains large. Obscured by opaque accounting and given a pass by credulous foreign investors, this deficit has not commanded urgent attention.
Mr Modi's early objectives will be restoring macroeconomic stability and reviving investment, especially in infrastructure. On the former, the good news is that a Prime Minister Modi would control the policy levers. He can, through executive action, reform policies in agriculture to put a lid on rapid rural wage and price rises. He can also phase out fertiliser and fuel subsidies to cut the fiscal deficit. Another action to put the fiscal position on a durable medium-term trajectory - implementing the goods and services tax, India's version of the value-added tax - will require parliamentary approval and support from Congress. The party has already worked hard to implement the GST; in opposition, it is unlikely to block one of its own most important initiatives.
Prime Minister Modi, the decider and fixer, would relish kick-starting growth by reviving investment because that is his signature achievement in Gujarat, where he has been chief minister for 13 years. On arrival in office, he is expected to identify the 25-50 most important stalled infrastructure projects, locate the bottlenecks and authorise their removal. Hyperactivity on resuscitating big projects will be the most visible sign of the new regime.
But this hyperactivity will face two challenges. Economic decentralisation being well advanced, the levers of economic power affecting infrastructure projects - in power and land, for example - reside with the states. A majority, including the large states, will be controlled by opposition parties.
No less important, power has shifted not just from New Delhi but also from the executive to other institutions. In recent years bodies such as the Supreme Court, the Election Commission and the office of the comptroller and auditor general have filled the vacuum left both by this shift and by the discredited executive. The Supreme Court, for example, has ruled on telecommunications, taxes and coal, all of which affect project execution and investment. Mr Modi, in other words, cannot call all the shots.
The second challenge in reviving the economy will be to manage the tensions between short-term expediency and long-term efficiency, between the perils of ad hocery and the requirements of durable institutional reform. For example, restoring some projects may require decisions on land allocation that are at variance with stringent land laws.
Similarly, getting the large private sector infrastructure companies to invest might require taking some of the debts off their books, which will raise concerns about cronyism, create moral hazard and weaken further bank balance sheets. Stock prices of companies perceived to be close to Mr Modi have soared, anticipating such actions.
Getting the power sector back on track in the medium term is difficult without reforming pricing policies. Yet in the short term those reforms may be hard to achieve, not least because offering subsidised power retains great political appeal even in states controlled by Mr Modi's BJP.
A Prime Minister Modi will expose a paradoxical tension between his mandate and mission. His electoral appeal is based on his ability to wield power, ruthlessly if necessary. His success in governing the economy will depend on coming to grips with, and making the best of, highly circumscribed power.
The writer is a senior fellow at the Peterson Institute for International Economics and Center for Global Development. This is an elaborated version of a piece that appeared in the Financial Times on April 2
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