India's leader needs to sell reform.

Photographer: Lakruwan Wanniarachchi/AFP/Getty Images

What Can Modi Learn From Lee Kuan Yew?

Dhiraj Nayyar is a journalist in New Delhi. Trained as an economist, he has worked at the Financial Express, India Today and Firstpost.com. He is editor of "Surviving the Storm: India and the Global Financial Crisis."
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Prime Minister Narendra Modi's recent political stumbles are a reminder of the unruliness of India's democracy. Last week, Modi’s government failed to get an amended land-acquisition bill -- probably the most important reform he's yet tried to implement -- through Parliament. Modi's only choice now is to extend the measures by executive order. That will only buy him time until Parliament reconvenes in a month, though; it won't convince businesses to invest. More worryingly, India’s opposition, devastated and weak after Modi’s sweeping election win 10 months ago, is rejuvenated and likely to block more radical reforms if for no reason other than to take him down a peg.

QuickTake India's Aspirations

Indian leaders long envied Singapore's late Lee Kuan Yew because without political opposition, he was able to get things done. But Lee himself made the point that India's democracy was no excuse for slow growth and stalled reforms. Speaking in Delhi in 2005, Lee said, “Democracy should not be made an alibi for inertia. … The real issue is whether any country's political system, irrespective of whether it is democratic or authoritarian, can forge a consensus on the policies needed for the economy to grow and create jobs for all, and can ensure that these basic policies are implemented consistently without large leakage."

Even in India, it's possible to arrive at a reasonable consensus on reform. It's happened before, between 1991 and 2004 -- a period in which India had four prime ministers, representing all sides of the political spectrum. Despite political volatility, the country saw steady, consistent economic reform and a decisive transition away from socialism. The changes laid the foundation for the 8-9 percent growth India achieved between 2003 and 2008.

Unfortunately, agreement on the need to deepen market reforms broke down between 2005 and 2014. Complacency -- one result of high growth -- was partly to blame. So was a misreading of electoral verdicts. It was widely believed that a right-wing coalition led by Modi's Bharatiya Janata Party lost in 2004 because of its focus on liberalization, and that a Congress-led coalition won a second term in 2009 because it had focused on welfare policies instead. Between 2010 and 2014, the government adopted some policies that were outright antagonistic to business.

Instead of bemoaning India's system, Modi has to make it work for him again. Thus far he's eased conditions for doing business in India, and his government has ended the careless obstructionism of its predecessor. But that's low-hanging fruit; even the failed land reforms are relatively minor. Eventually, to move farmers off the land -- where half of India's work force wastes away producing just 15 percent of GDP -- India will need to build factories and modern infrastructure. That will require not just acquiring farmland, but revamping labor laws and easing rules on foreign investment. It will mean privatizing the behemoth state sector, which is a drag on the rest of the economy.

The first thing Modi needs to do is reach out to regional parties outside his own coalition, which hold the balance of power in the upper house of Parliament. These parties rule some of India’s biggest states, including Uttar Pradesh, West Bengal, Tamil Nadu and Orissa. Not all of them are as reflexively anti-Modi as the opposition Congress party is; indeed, many have their own issues with Congress as well. Already on some less-contentious reforms such as increasing the foreign investment limit in insurance to 49 percent and using auctions to allocate India’s mines, Modi has successfully courted smaller parties to get bills passed. On mines, he dangled money: The proceeds from auctions will go to states rather than the federal government. More such bargains are needed.

Second, Modi needs to exploit the contradictions within Congress, which controls the largest number of seats in the upper house. The Congress has reformist elements, too, and Modi can appeal directly to Congress chief ministers as well. Many had serious reservations about the existing land acquisition law, which their own party put into place while in power.

Third, Modi must talk to the people of India about reforms directly and more honestly than he has thus far. Last week, he used his weekly radio program to explain his land reforms to farmers, but by then opposition had already mobilized. Modi is no economist, but he needs to start talking economics to the average Indian.

Finally, the Prime Minister can do more to press some of the states run by his own BJP to start implementing the reforms he's talking about. Even on land acquisition, they can take the lead in formulating their own set of rules. Success would have a strong demonstration effect on other parts of the country and in New Delhi.

There's little doubt that promoting reform in India is a much harder task than Lee faced in Singapore, as he would've been the first to admit. But as Lee pointed out in that same Delhi speech, there's no guarantee that authoritarian governments can succeed any better. India's democratic system has great strengths, as illustrated by Tuesday's Supreme Court verdict striking down part of a law allowing authorities to jail people for offensive online posts. Modi just needs to use it better.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Dhiraj Nayyar at dhiraj.nayyar@gmail.com

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net