World Review | With India growing fast, Modi-administrator struggles with Modi-reformer

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With India growing fast, Modi-administrator struggles with Modi-reformer

With India growing fast, Modi-administrator struggles with Modi-reformer
Mumbai, Feb. 14, 2016: Indian Prime Minister Narendra Modi with a lion statue, the symbol of his Make in India manufacturing promotion campaign (source: pa)

AFTER his first 18 months in office, during which India’s economic prospects have brightened considerably, 2016 gives Prime Minister Narendra Modi a last window of opportunity for radical new policy initiatives. If he decides on a bold course, it would depart from the incremental approach that has characterized Mr. Modi’s term thus far, writes World Review Expert Barun S. Mitra.

Two years ago, just before the prime minister took office, there was talk – only half in jest – that Indonesia could replace India as the “I” in BRICS. This reflected the larger country’s economic slowdown, colored by various corruption scandals, and the perception of policy paralysis that had afflicted the previous coalition government of Prime Minister Manmohan Singh (2004-2014) since 2010. Today, by all accounts, India is the brightest star among the BRICS. It is expected to be one of the fastest-growing major economies in 2016, accelerating past China to expand at a rate above 7 percent.

India’s economy is now at a turning point. Blessed with a relatively stable macroeconomic foundation and a generally positive policy direction, and presented with the opportunities stemming from cheap oil and commodities, the country is ready for a sustained economic takeoff. But whether this prospect materializes over the next few years depends on the political choices made by Mr. Modi and his cabinet.

Despite huge expectations built up during the election campaign, especially hope for radical economic reform, the prime minister has preferred to build on the policies and programs of the previous government. This incrementalism surprised and disappointed many, who seemed to have forgotten that Mr. Modi built his reputation as “the CEO of Gujarat,” showcasing effective administration rather than radical policies.

On issues ranging from nuclear energy to foreign investment, broader access to banking, environmental protection, rationalization of subsidies and introduction of a value added tax, Mr. Modi has chosen to stick with inherited policies – sometimes renaming them to give them greater thrust and visibility. In reprising the executive role that seems so comfortable to him, the prime minister’s stress on better execution has helped reinvigorate the infrastructure sector and revived a number of stalled projects.

There is plenty of good news for Mr. Modi on the economic front. Growth is expected to accelerate in the 2016-17 fiscal year from an already tidy 7.1-7.5 percent rate forecast for 2015-16. India has also re-emerged as a favored destination for foreign investors, a trend may continue thanks to the prime minister’s emphasis on manufacturing and his “Make in India” campaign. The Modi government has also focused on improving the business climate. Infrastructure investments, particularly in roads and railways, have gathered pace. Japan has agreed to help build India’s first bullet train, a $14 billion high-speed rail project connecting the western cities of Ahmedabad and Mumbai, on very favorable terms.

But if Mr. Modi’s manufacturing push is to succeed, he must find a way to convince Indian companies to invest and create jobs. So far, his exhortations have fallen on deaf ears, as businesses have chosen to cling to their huge cash reserves. Even if investment picks up, it is debatable jobs will be created for millions of unskilled workers.

In the first half of 2016, we will probably find out whether Prime Minister Modi has decided to stick with his gradualist approach or go for a more radical economic strategy.

The next national budget, to be presented at the end of February, will provide valuable clues about the policy direction. How Mr. Modi handles the next parliamentary session will yield a clearer sense of where the country is heading under his leadership, and how it will get there.

For a more in-depth look at this subject with scenarios looking to future outcomes, go to our sister site: Geopolitical Information Service. Sign in for 3 Free Reports or Subscribe.

Barun S. Mitra

BARUN S. Mitra is a writer and commentator on current affairs on a range of issues from economic development, environmental quality and political participation. He is the founder and directo ...

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