I was deeply embarrassed last week before a distinguished audience of sophisticated investors abroad—they virtually called me a liar. A year ago I had reassured them that our stellar reformers–Manmohan Singh, Chidambaram and Montek–would not only ensure that our economic reforms would continue but they might even accelerate. A year later, the reforms are stuck and they were angry. I could not pretend that the reformers had become victims of coalition politics, for insiders tell me that the problem is with the Congress Party itself, which has lost the will to reform.
 
Luckily, I was bailed out by the Indian economy, which continues to grow robustly, and has been doing so for two decades, contemptuously ignoring our governments. The only way to explain this contradiction is that politics and economics are increasingly getting divorced in India, and we may have become like Italy, where they used to say, the economy grows at night when the government is asleep. Stephen Roach, the chief economist of Morgan Stanley, who exercises considerable influence on investor minds, explains the reason behind India's economic dynamism: “India is on the cusp of something big. After my third trip there in 18 months, I am as enthusiastic about India as I was about China in the late 1990s. What excites me is the potential for an increasingly powerful internal consumption dynamic - the missing link in most development models.”

Roach points out that India's consumption share of GDP is 64%–higher than that of Europe (58%), Japan (55%), and China (42%). The world economy needs another major consumption-led growth nation other than America. Thus, “India's consumption-led approach to growth may be better balanced than the resource-mobilization model of China”. That consumption is a virtue is an idea that Lord Keynes made popular, and serious economists still believe it, but Indians with their streak of asceticism are less confident. Roach suggests that this government's populist programs, which go under the code name “inclusion”, such as the Employment Guarantee Act, might even generate a consumption dividend in the hands of the poor. I would agree with him if I had any hope that its benefits would actually reach the poor.

Vijay Kelkar reminded us recently in his Gadgil Memorial lecture that India ought not to take its “golden age of growth” for granted. The window of opportunity for “a grand demographic dividend” will be a limited to the next two decades, and if our leaders do not reform aggressively, and if they continue down “the slippery path of state capitalism and populism”, we will lose the opportunity, become economically stagnant as we did before.

So, how do we get our government off its “slippery path of state capitalism”? The political scientist, Bhanu Pratap Mehta offers an answer. “In this situation, any imaginative party would propose a new social contract. It would expand the social security functions of the state in areas such as health, education and employment. But it would also argue that reforms elsewhere - creating an integrated goods and services tax, furthering disinvestment, committing to genuine special export zones and fiscal prudence - are not incompatible with, but might actually further, social objectives.”
 
Our entire political class must buy this new social contract with urgency, and especially the Congress Party. The great failure of reformers in all parties is that they did not convince the rank and file that the reforms would not lose them votes. Will our stellar reformers do it now or must we resign to snatch defeat from our golden age of growth?