India

Why Isn't Modi Doing More?

Even states his party controls aren't pursuing reforms.

Modi's power is unchallenged.

Photographer: Debajyoti Chakraborty/NurPhoto/Getty Images

In just a few years, Narendra Modi and his Bharatiya Janata Party have managed to ensure that they have practically no political rivals of consequence left. Four years ago, the map of India was a patchwork, with the BJP, its national rival the Congress, and multiple regional parties vying for supremacy at the state and federal level. Today, the BJP has an unprecedented legislative majority in New Delhi, and it runs almost every state of consequence.

One of the last opposition bastions in northern India, Bihar, recently fell to the BJP when a coalition of opposition parties collapsed. The state’s chief minister -- once discussed as a possible rival to Modi in the next general election -- said resignedly that nobody was strong enough to take on the prime minister. The BJP now controls 18 out of India’s 29 states, accounting for almost two-thirds of the country’s GDP. Modi’s authority is unchallenged. The question is, why isn’t he doing more with this power?

For decades, the unwieldy coalitions that have dominated Indian politics have made it intensely difficult to carry out significant economic reforms. While Modi has a comfortable majority in New Delhi, many changes require state governments on board as well. So, the argument ran, perhaps it would be better for the states to experiment first. In theory, they could act more nimbly, testing various programs and competing with one another to come up with the most innovative and attractive package of reforms. Modi has called this idea “cooperative federalism.”

So far, though, there’s little sign of states competing to reform. Some, like Rajasthan, have pushed the envelope by rationalizing labor and land regulations, but other measures have been small beer.  

To the contrary, even BJP-controlled states actively seem to be resisting change. Consider the new goods and services tax India just introduced. It’s a big step towards knitting diverse provinces into a single market. But state governments got every little political carve-out they demanded. Rather than competing to implement the GST more smoothly and effectively, they cooperated to preserve their own income-tax offices and many of their existing privileges.

States seem to be competing only to see who can impose more populist measures, such as forgiving the debts of farmers and, in north India, imposing laws to “protect” cows, held holy by many Hindus. Though they belong to the same party, even the BJP states aren’t stepping up efforts to share policy ideas or coordinate their approach to reforms.

Those state leaders are responsible to Modi, the leader of the party. Modi’s advisers point out that he does talk to many states’ top bureaucrats regularly. But these discussions don’t seem to have resulted in any serious efforts at coordination.

Modi’s experience in the business-friendly state of Gujarat, where he was chief minister for over a decade, may have led him to overestimate what Indian states can do on their own. Gujarat has a healthy exchequer, a long coastline and a functional bureaucracy -- a trinity of blessings that no other Indian state possesses. As a consequence, it can trade with the outside world and pretend the rest of India doesn’t really exist. That allowed Modi to craft an independent, outward-looking economic base for Gujarat that leaders of others states, such as landlocked Madhya Pradesh, would struggle to replicate.

For “cooperative federalism” to be more than a phrase, Modi has to realize that most states need constant hand-holding. State governments in India are short of policymakers as well as resources to conceptualize and implement ambitious reforms. The federal government occasionally comes out with “model laws” that the states could supposedly follow. But the states aren’t properly incentivized to implement them, and they receive little follow-up support. More importantly, Modi rarely makes such laws a political priority, which means they are generally ignored.

Now that chief ministers in the entire north and west answer to Modi, here’s one idea he could be working with them on. The north is overpopulated and short of jobs; the west, along the Arabian Sea, is where jobs will be created. India’s previous government planned a corridor stretching from the north to the west along which goods could move easily, and which would be dotted with new, planned towns that could serve as magnets for migration. It was meant to be the “world’s largest infrastructure project.”

India manages migration particularly badly; its cities are overcrowded already, even as most projections indicate that they will be the fastest-growing in Asia in coming years. The sort of migration that is frictionless, which helps people move to where the jobs are, requires cooperation between multiple states and a neutral arbiter in New Delhi to help provide the necessary infrastructure.

There could and probably should be many other such examples. The point is that Modi needs to put some political muscle and federal resources behind such initiatives. He has political capital to spare; this is where he should use it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Mihir Sharma at m.s.sharma@gmail.com

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

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