Is Narendra Modi an economic reformer? As the 2014 election turns into a
national referendum on the popular but polarising politician, expect
this question to come up again and again, not merely in Delhi, Mumbai
and Bangalore, but equally in London, Brussels and Washington.
For
India, the stakes could not be higher. In a few short years, a
combination of rampant populism, fiscal irresponsibility and capricious
regulation has gutted business confidence and made the country look less
like an Asian tiger and more like the plodding elephant of old. The
boom years of near double-digit growth have begun to fade into distant
memory. The rupee seems to flirt with a historic new low each week. And a
new generation of would-be software engineers and call centre employees
enters the workforce facing the unfamiliar prospect of the past looking
rosier than the future.
But
though the middle class has a right to expect an unequivocal response
to the question of Modi's reformist credentials, the truth, as with most
things in Indian politics, depends on context. In a nutshell, if you
compare Modi with his peers in Indian politics, his credentials-in terms
of both economic administration and messaging-are second to none. But
if you approach comparisons with Ronald Reagan or Margaret Thatcher as a
literalist, you're bound to be disappointed.
Modi may be the
most business-friendly politician of his generation, and the only
post-liberalisation leader who knows how to package an economic message
in terms intelligible to the proverbial man on the street. Nonetheless,
the Gujarat strongman operates in a country that invented the
Licence-Permit Raj, and belongs to a party whose economic philosophy has
long been schizophrenic, caught between instinctive liberalisers and
traditionalists deeply wary of change. In short, Modi may be the closest
thing India has to a Thatcherite, but don't expect him to invoke the
Austrian economist Friedrich Hayek at a bjp parliamentary board meeting
any time soon.
Take Modi's attitude toward labour reforms, widely
regarded by economists as a key bottleneck to the kind of industrial
growth that has pulled tens of millions out of poverty in China and
Southeast Asia. Rather than oppose the welter of unworkable Central laws
bequeathed by Jawaharlal Nehru and Indira Gandhi, which discourage
companies from hiring permanent workers by making it virtually
impossible to fire them during a downturn, Modi simply wants
decision-making power shifted to the states.
Similarly, in
principle Modi supports the privatisation of loss-making public sector
enterprises by the Atal Bihari Vajpayee government between 1998 and
2004. But he also speaks of a so-called "third option" of
"professionalising" rather than selling state-owned firms. While
discussing the subject in New Delhi in April, Modi was careful to stress
that his quest for efficiency should not be construed as a fondness for
firing people.
Whose side is he on?Perhaps most
discouraging from an economic liberal's point of view is Modi's failure
to effectively denounce the ruling UPA's worst ideas. (Unfortunately,
there's plenty to choose from.) On the fiscally ruinous and morally
corrupting food security bill-which has the potential to turn India into
a land of permanent handouts-he has again ducked behind the devolution
argument. Modi calls for the corruption-riddled and labour market
distorting National Rural Employment Guarantee Scheme to be renamed a
"development guarantee scheme". But he hasn't demanded that it be
scrapped.
Nor has Modi backed the UPA's belated efforts at
reform, half-hearted and sputtering though they may be. On foreign
investment in multi-brand retail and fuel price rationalisation, he has
followed his party's obstructionist playbook rather than take a
principled stand in favour of policies that increase consumer choice and
reduce the fiscal deficit. Ditto on a proposed unified goods and
services tax, which, by some accounts, could do more to boost economic
growth than any other single measure.
Step back, however, and
this laundry list approach to assessing Modi misses the proverbial
forest for the trees. Unlike any of his peers, the heart of Modi's claim
to higher office lies in the so-called Gujarat miracle. The state has
averaged double-digit growth rates over much of Modi's 11-year rule.
With only 5 per cent of India's population, Gujarat accounts for about
1/6th of the country's manufacturing and more than a fifth of its
exports. The Economist calls it India's Guangdong.
While it's
impossible to quantify Modi's contribution to his state's economic
performance, over the years he has earned a reputation for pragmatism
and problem-solving. While much of India continues to suffer from
potholed roads and daily brownouts, Gujarat offers investors modern
highways and a reliable power supply. (The state electricity board made a
profit of $105 million in 2011.)
India Inc Vibrant in GujaratIt's
no coincidence that tycoons fall over each other to lavish praise on
Modi for running an administration responsive to their needs. In 2008,
the Chief Minister famously persuaded Ratan Tata to build the Nano in
Sanand. Every two years, Indian and global businesses line up at the
Vibrant Gujarat summit to pledge billions of dollars to the state in
India's most high-profile investor gathering. Foreign companies thatk
have set up shop in Gujarat under Modi, or announced plans to do so,
include Abbott, Bombardier, Ford, Peugeot and Suzuki.
In terms of
messaging, Modi's speeches mark the most high-profile departure from
the usual way in which Indian politicians speak about development. In a
nutshell, the Chief Minister wraps a call for economic competitiveness
in a broader message of hope, ambition and national pride. (By contrast,
Rahul Gandhi's best known economic intervention has been his 2010
scuttling of Vedanta Resources's attempt to mine bauxite for an Odisha
alumina refinery by appointing himself a tribal "soldier" in Delhi.)
It's
hard to think of any other major Indian politician bluntly declaring
that "government has no business doing business", or bemoaning the time,
before Nehruvian socialism cut India off from world-class technology,
when Ahmedabad's textile mills earned it the sobriquet "Manchester of
India". Or publicly declaring India needs "skill, scale and speed" to
compete with China. Or that it should emulate nations such as South
Korea and Israel that pulled themselves up by the bootstraps to achieve
prosperity over the course of a couple of generations.
To sum up,
when it comes to economic policy Modi may be more a pragmatic
politician than an ideological purist. But in a land whose political
discourse remains steeped in socialism, his record in Gujarat and
willingness to publicly embrace a reformist message hold out the
tantalising prospect of reversing a decade of populist drift.
Sadanand Dhume is a resident fellow at the American Enterprise Institute in Washington, DC.
Source: http://indiatoday.intoday.in/story/narendra-modi-an-economic-reformer-indian-economy-2014-elections/1/284626.html/1/284626.html
