Is the Indian economic giant finally awaking?

Napoleon famously said that when China woke, the world would shudder. With Indian Prime Minister Narendra Modi visiting Washington, President Obama might be advised to consider whether the same might be said of India, the world’s most populous democracy. After many years of slumber, the Indian economy is at last showing signs of awakening. And with reform-minded Modi now at India’s helm, there is the very real prospect that India could emulate China’s impressive economic growth performance of the last two decades

{mosads}Long after India gained independence in 1947, it was thought the country was condemned to so-called Hindu-style low economic growth of around 3 percent a year. However, following the progressive liberalization of the Indian economy initiated in 1992 by then-Finance Minister Manmohan Singh, India began to experience Chinese-style economic growth. In the years immediately preceding the 2008 global economic crisis, the Indian economy grew at annual rates of 8 percent to 9 percent, making it, along with China, among the world’s most dynamic economies.

Sadly, following the 2008 crisis, India’s economy lost momentum as a variety of its economic weaknesses was exposed by a more challenging global economic environment. Among those weaknesses was the deepening of corruption scandals around the National Congress Party, which had ruled India for almost all of its 70 years of independence, and an overbearing government bureaucracy that found itself increasingly tied down by red tape. Not helping matters was a prime minister’s office that became increasingly ineffective at coordinating policies among the different government ministries.

Fortunately for India, its economic prospects have brightened considerably with the landslide election in May 2014 of Modi’s Bharatiya Janata Party. Not only does Modi have a well-deserved reputation as an effective economic reformer in his native state of Gujarat, he also won the election on a pro-business reform agenda that promised to fundamentally shake up the Indian economy. If he manages to deliver on that agenda — especially in the areas of labor market reform, infrastructural investment and financial market reform — there is every reason to believe that the Indian economy’s best days lie ahead.

To be sure, Modi will face considerable challenges in trying to deliver on his mandate that will test his political abilities to the full. While he does have control of India’s lower house of parliament, he faces strong opposition in the upper house where elections are only scheduled to be held in 2016. At the same time, he faces a cumbersome bureaucracy that is very much set in its ways and that is no friend to basic economic reform.

From a U.S. perspective, India has several advantages over China that might favor its economy over the longer run and that warrant U.S. support. As the world’s largest democracy, India shares certain common values with the U.S and is not prone to the same political and social upheaval that China might eventually face. India also has a very much younger and more rapidly growing population than does China, which implies that it can sustain rapid economic growth for longer than can China. Also favoring India is the fact that it is starting from a very much lower base than China, which affords India with great opportunities of catching up with the world’s more advanced economies.

One has to hope that President Obama gives Prime Minister Modi’s economic reform efforts his whole-hearted support. For not only will a faster growing Indian economy that is opening up to international investment offer U.S. business great opportunities abroad, it will also help lift millions of Indians out of poverty and provide the U.S. with a potentially strong ally as a counterbalance to China’s foreign policy ambitions across the Asian continent.

Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.