Modi a shot in the arm for Indian economy

Author: Sourabh Gupta, Samuels International

By the time the results of India’s gruelling 16th general election were announced, it had become clear that the penchant of the Indian voter for confounding New Delhi’s forecasters would continue for a third straight election.

Indians walk past a sand sculpture of new prime minister Narendra Modi created by sand artist Sudarsan Pattnaik at Puri beach, some 65 kilometers from Bhubaneswar on 27 May 2014. (Photo: AAP)

Haunted by an incorrect call in 2004 which saw the previous centre-right Bharatiya Janata Party (BJP) government tossed from office, pollsters issued conservative forecasts going into the 2009 and 2014 election cycles. On both occasions the margin of victory turned out to be grossly underestimated — a testament to the desire of Indian voters to ensure politically stable governments free from obstruction and roadblocks.

In part, the scale of these victories comes down to the first-past-the-post system which tends to magnify the winner among a crowded slate of candidates. The effect was visible this time too. A regional party in the northern Indian state of Uttar Pradesh, the Bahujan Samaj Party (BSP), garnered as many as 23 million votes. In just about any other democracy this would be enough to form government or at least take part in a government: but the BSP failed to win a single seat!

That said, the Narendra Modi-led National Democratic Alliance (NDA) coalition and the BJP won a famous victory in this year’s election. In this era of coalition governments, no single political party has won a majority of seats in the Indian parliament in 30 years; no single political party has broken through the 30 per cent vote share threshold in 20 years; and even when the BJP formed government in a coalition, it has never beaten Congress’ vote share. This election, the BJP did all three.

The BJP’s 282-seat majority and 31 per cent vote share is its largest ever, suggesting that the party may finally have broken beyond the confines of its core upper-caste, urban-middle-class constituency in the north and west of India. That a party of centre-right persuasion has been able to obtain a majority on its own for the first time since independence in 1947 marks this election as a landmark one. That there is now a single party with a majority in New Delhi represents a move towards a responsible and nationally competitive two-party system (with smaller regional and caste-based parties also in the fray).

But there is a dark side to this election. Not a single elected BJP lower house member is Muslim. Given India’s 175 million Muslims, the fact that there are fewer than two dozen Muslim MPs is a serious blemish. The shadow of the anti-Muslim pogrom of 2002 will forever hover over Modi’s premiership. As for the Congress party, its tiny 44-seat presence in parliament is a well-deserved indictment of the most economically self-destructive Indian government in 40 years — leaving a trail of legislative ruin that will stymie the country’s growth potential long after this election is a distant memory.

So what to make of the result? Understandably, most foreign commentary has juxtaposed Washington’s denial of an entry visa, under the International Religious Freedom Act, to then-chief minister Modi with the four visits Modi has made to Beijing. On his latest China trip, Modi was treated like a state guest, and he reciprocated by carrying red visiting cards printed in Mandarin. More than any Indian politician, past or present, Modi reflects the sort of self-made political entrepreneurialism that a Chinese Politburo Standing Committee member would instantly recognise.

Economic enfranchisement, of the ground-up, government-enabled and pro-business variety pioneered by Modi in Gujarat is likely to be the order of the day — so long as he is capable of moulding the central-government bureaucracy to his no-nonsense administrative style. In this area, he will need to use his honeymoon period proactively.

Equally, economic devolution that promotes innovation at the state level, rather than creating more wide-ranging, poorly implemented and centrally sponsored development schemes, will no doubt also be a hallmark of his government. Modi’s India does not need to legislate a ‘right to work’ — demographic and market forces that are making education and work a rewarding facet of the Indian dream will put India to work. The role of government is to provide a backstop to these enabling forces.

For Modi’s foreign partners, the willingness to pivot to this vision of development and back it with actual cash and technology, rather than empty investment treaties and paper commitments, will be the pathway to success. They will have to learn that patiently working the corridors of power in state capitals (rather than having senior officials make one-off visits and deliver showy speeches without follow-through) will be the key to penetrating the dynamic sub-regional markets that have historically been India’s growth drivers.

Once upon a time, it was America’s ‘green revolution’ that modernised Indian agriculture. Today the revolutionary potential lies with Japan and its imaginative investment in an industrial and freight corridor project that could turbocharge India’s manufacturing sector. And China is eager to put its money where its mouth is in the Indian market too; with the exception of the most sensitive areas of the economy, it will likely be welcomed with open arms. With that kind of help, it is possible that, when Modi leaves office (hopefully after two terms like his predecessor), he will leave behind an economy that is the third largest in the world at market prices. The strategic consequences of India’s — and Asia’s —rise too should not be underrated.

Sourabh Gupta is a senior research associate at Samuels International Associates, Inc., in Washington DC. A version of this article first appeared here, in The Japan News.