Modi Has Underwhelmed India
Well, that was uninspiring.
When Narendra Modi swept to power in India a year ago, critics said they feared his strongman tendencies. They needn't have worried. In his approach to economic reform, he's been anything but forceful.
In 2014, voters gave Modi a mandate for radical reform and a big parliamentary majority to carry it out. Granted, his government hasn't been idle -- it's done a lot of smallish things, many of them valuable -- but it hasn't been bold. That is what India needed Modi to be. Now, at the end of his precious first year as prime minister, it might be too late.
The government calls its approach "creative incrementalism," which is more apology than rallying cry. Officials count off their achievements: milder restrictions on foreign direct investment, cuts to fuel subsidies, more planned spending on infrastructure, moves to curb corruption and inefficiency in government. That's all fine. The drift and malaise that marked the last years of the previous, Congress-led administration have gone, and there's more optimism about growth. Even so, it's all a bit disappointing.
Measures like this aren't going to get India growing as quickly as it should. New forecasts say the economy will expand by almost 8 percent next year -- faster than China -- but they're flattered by cheap oil and based on a questionable new methodology. Profits and industrial production are down. Exports have fallen for five months running. Job growth is slow. After outperforming other emerging markets in the first six months of Modi's tenure, Indian stocks have returned to earth.
More and stronger economic reform is needed, but Modi doesn't seem eager. It would be within his power, for instance, to restructure and privatize inefficient state-owned enterprises and banks. It isn't happening.
The window for such actions is closing. The opposition was cowed and disorganized after its trouncing last May; it has since regrouped, and smells blood. Lately, the long-ruling Congress Party has stymied Modi's efforts to amend a restrictive land-acquisition law, and stalled a bill to create a nationwide goods-and-services tax (a measure it once pushed, by the way). Favorable macroeconomic conditions could easily shift, narrowing Modi's options still further. His moment may already have passed.
What can he do to prove otherwise? For a start, deepen and extend the changes he's already made. The rules on foreign direct investment should be relaxed further. Rather than trying to convince investors that they won't be ambushed by the taxman, the government should make such assaults impossible by simplifying the corporate code and lowering rates. Banks aren't lending and private infrastructure companies aren't investing because of an overhang of bad debt: The government should address this directly, by creating a "bad bank" to get those loans off the books.
If radicalism at the center is hard, Modi can do more to encourage radicalism in the states. He's said he wants them to compete to attract investment by amending the land and labor laws that stifle enterprise. Good idea. Yet states governed by Modi's Bharatiya Janata Party already account for almost half of India's GDP. They need a push. A more concerted effort to press forward needn't stop reforming states such as Rajasthan from going even further. Modi, who dominates the BJP, could do more to prod the laggards.
Distracted by details, the prime minister has failed to act as an effective campaigner for further reform, a vital role that only he can play. His successes have mostly been piecemeal and have relied on his own close involvement. Individual measures wait for his attention and everything slows down. The jolt of energy that the rest of the government needs is never applied.
In his first year, Modi has spent too much political capital to no coherent purpose. Before it's too late, that needs to change.
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