By Fareed Zakaria, CNN
Last week marked exactly 10 years since the term BRIC was coined. The catchy acronym for Brazil, Russia, India and China used to describe the new powerhouse emerging markets. But the man who invented the moniker now says one of the four has been a great disappointment. No, not Russia, with all its recent troubles; not Brazil, whose economy contracted in the last quarter; and certainly not China, which continues to power on.
Goldman Sachs' Jim O'Neill says that the country that has been the biggest letdown has been India. He pointed out last week that India's inability to attract foreign investment could actually lead to a balance of payments crisis. From BRIC to basket case, "What in the World?" is going on?
Well, some numbers tell a troubling story. Growth has dipped below 7% for the first time in two years. The Indian rupee is Asia's worst performing currency this year, falling to a historic low against the dollar.
India's deficits are soaring and funding is drying up. India received less than $20 billion in foreign direct investment in the first six months of 2011. China got three times that amount. Even Russia, with the smaller GDP, took in more.
Why is India struggling? Sadly, the real problem isn't economics. India has a very dynamic private sector - probably the most dynamic in the emerging markets. But it has a government that simply doesn't work.
And it's not for lack of knowledge. India has the know-how. The government is, after all, led by a reform-minded world-class economist, Prime Minister Manmohan Singh. The problem is politics. The world's largest democracy seems to be paralyzed.
Singh's government recently announced a plan to open up India's retail sector to foreign investors, a continuation of the reforms that jump started the economy 20 years ago. The proposal would have made it easier for big Western chains like Walmart to set up shop in India.
Now, Indian agriculture is hugely inefficient. Middlemen take huge cuts, and because supply chains are inefficient, up to a third of farm products, vegetables for example, rot before they reach the market. So the Walmart model would transform India's agriculture and its retail sectors. It would empower farmers, lower prices for consumers and create huge gains in productivity.
But it was not to be. India's opposition turned this into a story of the big guy fighting the little guy, Walmart versus the mom and pop. Parliament was gridlocked for days, and politicians mobilized mass demonstrations. Small stores across the country were kept closed in protest.
So, what does the government do? Instead of standing firm, it backtracked and canceled plans to reform the retail sector altogether.
This is a depressingly familiar pattern. For two years now, India's government has done nothing, hanging on to power, presenting no plans to open up the economy, raise living standards, build infrastructure or attract new investment.
In the West, India's leaders sell the story of a dynamic, "Incredible India." But, at home, they pander to populist protectionist sentiment, dole out subsidies and do basically nothing. That paralysis is hurting the economy.
India's blessing and curse is that it has a messy, chaotic, decentralized democracy. Unlike China, it has no unified sense of direction. But the prevailing view has often been that when the going gets tough, New Delhi gets its act together. That's what it did 20 years ago when it was on the brink of default and a balance of payments crisis. Well, once again, it's time for urgent reform.
New Delhi has for years expressed pride in being part of the BRICs. If it doesn't get its act together, 10 years from now people might still be praising the BRICs, except that the "I" in BRIC might stand for Indonesia, not India.