Will India’s Modi Be A Reformer?

India’s new Prime Minister, Mr Narendra Modi, due to his nationalist tendencies, has been compared to Deng Xiaoping, Margaret Thatcher, Ronald Reagan, Shinzo Abe, Tayyip Erdogan and Mahinda Rajapaksa. Commentators have variously described him as assertive, dynamic and authoritarian. Many believe he is a genuine economic reformer. Others worry about his ‘and his BJP’s hard-line and pro-Hindutva credentials, and wonder whether it poses a threat to the idea of a pluralist India that she boasts to be.

For taking Gujarat at the top of the list of India’s fastest growing and business-friendly states, and on his own reputation as a tough administrator and staunch Hindu nationalist, Indian voters rewarded him and his BJP with an unprecedented landslide victory.

Change Agent

Modi supporters believe that he is the right man to steer India out of the quagmire of low growth, high inflation, joblessness and slack governance. Modi may well have ‘inaugurated India’s second republic” as his record in governance makes him an ‘economic change-agent, not an economic waster’.

Narendra Modi inherits a sluggish economy. Growth has slowed to below 5%. Retail inflation, driven by food prices, continues to be high at over 8%. Manufacturing is subdued and exports are flat. Jobs have dried up in a country which needs to create 12 million jobs a year to keep pace with its burgeoning population.

On other fronts, however, things appear to have improved.

The rupee has firmed to 58 per dollar, its highest in nearly a year. Reining in gold imports and a modest pick-up in exports have helped tame the current account deficit ‘likely to narrow to 2.3% this fiscal year, down from a high of 4.9%. Foreign exchange reserves ‘at over $300bn (179bn)’ are reasonably healthy.
But such improvements hide deeper structural deficiencies.

Analysts say India urgently needs to build more roads and ports, boost its electricity supply, slash wasteful subsidies, reform archaic labour laws and clean up debt-saddled banks. Since its convoluted land acquisition law makes it difficult for industry to buy land, the government needs to free up vast tracts of idle land locked up in ailing state-owned enterprises for industry. It needs to cut red tape and regulations that scare away investment.

The BJP’s 42-page manifesto has Modi’s unmistakable stamp. It is packed with promises which echo Modi’s obsession with infrastructure building: bullet trains, smart cities, linking rivers, more engineering and medicine schools, low-cost homes, cleaning up filthy rivers.

Mr Modi is certainly pro-business. But is he pro-free market at heart? Will he be able to, as political scientist Ashutosh Varshney wonders, ‘stabilise economic development as a master narrative of India’s politics, displacing religion and caste’?

On the stump, Modi repeatedly spoke about ‘maximum governance and minimum government’, without providing much detail about what he meant. To be sure, it is easier said than done: diminishing government and making it more accountable will require considerable institutional reform in the gargantuan and stubborn Indian bureaucracy, which has been described as the ‘worst in Asia’.

What Mr Modi can, and will possibly do, his aides suggest is to pick ‘low-hanging fruit’ and rev up investment.

One of the main things on his agenda, they say, will be to kick-start some of the 250 stalled infrastructure projects, mainly in coal, steel, electricity, petroleum and roads;  involving an investment of a mammoth $217bn.

Nevertheless, Modi’s comparison to Margaret Thatcher, for example, is a bit overblown. However, it is always possible that the strength of the mandate, and the presence of pro-market advisers close to Mr Modi, could tip the balance towards a stronger economic reform agenda, rather than a more ideologically ‘neutral’ emphasis on good governance.

Commentator Ashok Malik, says that Modi will be ‘as rightwing as possible for a mainstream electable political leader’. That means Mr Modi will strive to make India’s bloated and lumbering state more ‘transparent and efficient’ and make it more of a facilitator rather than an impediment. What it also means is he cannot massively reduce or radically overhaul India’s big welfare schemes, which, having improved lives in the poorest regions, are also shot with corruption.

Then there are the constraints of India’s federal polity.

Mr Modi will need to depend on a heavy dose of bipartisanship to push through key laws in a parliament which his party has been accused of stalling in the past. The BJP commands the lower house of parliament but it holds only 26% of the seats in the upper house, which could make it more difficult to push legislation through. Much power also lies with India’s states. Prime Minister Modi’s 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.

Nobody quite knows Modi’s mind on reforms. What we do know is that he’s fascinated with Asia’s tiger economies.

Courtesy: BBC

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