When it comes to economic policy Modi may be more a pragmatic politician than an ideological purist.
Sadanand Dhume June 21, 2013 | UPDATED 15:51 IST
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.
Sadanand Dhume
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 Gujarat
It'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
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