Narendra Modi At The Crossroads: Will The Indian PM Fulfil His Potential?

Sadanand Dhume is a Resident Fellow at the American Enterprise Institute in Washington DC. He writes about South Asian political economy, foreign policy, business, and society, with a focus on India and Pakistan. He is also a South Asia columnist for the Wall Street Journal and has worked as a foreign correspondent for the Far Eastern Economic Review in India and Indonesia. His political travelogue about the rise of radical Islam in Indonesia, My Friend the Fanatic: Travels with a Radical Islamist, has been published in four countries. On a visit to Sydney supported by AIJAC, Sadanand Dhume addressed The Sydney Institute to discuss the progress of the Modi Government on Monday 17 August 2015

NARENDRA MODI AT THE CROSSROADS: WILL THE INDIAN PM FULFIL HIS POTENTIAL?

 SADANAND DHUME

It’s a pleasure to be back at The Sydney Institute. I also wanted to thank my friends from AIJAC for bringing me back to Sydney. I was last here three years ago. At that time you could say that India was in a very different position. When I spoke here in November 2012, the Indian economy was in a funk – growth rates had fallen to less than 5 per cent, about half their peak a few years earlier. The Manmohan Singh Government was being pummelled by corruption scandals and the world was beginning to ask if the so-called “India Story” – the idea of the world’s largest democracy’s inevitable rise – had been oversold.

At that time, I asked a question. This was whether India’s messy politics were capable of throwing up solutions to the country’s complex problems. I certainly saw the glass at that moment as half empty rather than half full.

But even as I was giving that talk over here in November 2012, dramatic events were underfoot in India. A month after that, in the western state of Gujarat, a provincial politician named Narendra Modi won his third term as chief minister of Gujarat. He used that as a launching pad to become Prime Minister of India in 2014. Over fifteen months, he powered his way to one of the most unlikely, but also one of the most historic, mandates in modern Indian politics, becoming Prime Minister of India last year in May.

I would like to assess Modi’s economic and foreign policies and discuss what that means and where he’s headed. Before that, I want to give you a sense of how important that election last year was.

This was India’s first single party mandate since 1984. We had come to believe that Indian politics was going to be permanently marked by coalitions. Instead, the BJP won a single party majority – the first time any party had achieved that since 1984 and the first time ever the BJP had done that. It’s the first time, also, that the BJP had beaten the Congress Party, which has been India’s traditional ruling party in terms of vote share. For instance, when the BJP came to power earlier in the 1990s it managed to win more seats, but it still hadn’t been able to beat Congress in terms of vote share. As Australians, you’d be familiar with the strange happenings of parliamentary democracy. I don’t have to explain this to you the way I have to in the US.

The election last year also marked the lowest tally ever for the Congress Party. It got fewer than half the seats of its previous low. This has thrown up Narendra Modi whom I would argue is the most dominant Indian politician in a generation. The world is still getting to know him so I’ll spend a little time looking at his policies and see what he stands for.

Modi comes from a humble background. He himself sold tea at a railway station. So this is quite dramatically different from the Nehru-Gandhi family who have been in politics for about 100 years and ruling India almost non-stop since 1947 when Jawaharlal Nehru became the first Prime Minister. This is a very dramatically different family background.

Modi is a non-dynast in a system that is increasingly dominated by powerful political families. He belongs to a so-called backward class in the upper-class dominated BJP. He’s the first Indian leader to ride his success at the state level to national office, which is something quite common in places like the United States, but it doesn’t really happen in India where there’s often a chasm between provincial and national politicians. Modi is the first Indian leader to claim power based largely on the promise of development rather than on overt appeals to religion or sweeping promises of hand-outs. He’s also, quite remarkably for an Indian politician, quite business friendly and during his campaign he emphasised growth over redistribution.

So where does Modi stand today? We have this historical mandate and a quite remarkable character who comes out and breaks the mould in many important ways in Indian politics.

In a nutshell, if I had to summarise how Modi has done since being elected in May last year, I’d say he’s been surprisingly good on foreign policy, and surprisingly weak on economic policy. If you’d asked me to predict what sort of trajectory this government would take, fifteen months ago, I would have probably guessed the opposite.

First let’s look at foreign policy, which has really been his strength. Over the last fifteen months, Modi has achieved one of the most dramatic image makeovers on the global stage. For a long time, he had been viewed largely through the prism of the 2002 Hindu-Muslim riots in Gujarat. Now he commands attention as a charismatic leader of a nation on the upswing. As President Barack Obama wrote in Time magazine, Modi’s life story reflects the dynamism and potential of India’s rise. I’d say that if you want to summarise how he is seen, that’s an apt a summary as any.

World leaders, from Obama to Japan’s Shinzo Abe to Xi Jinping to Tony Abbott, have all rolled out the red carpet for Mr Modi. His thumping election win in 2014 and continued popularity make him the G20 group’s version of popular new kid in school. Who wouldn’t want a selfie with Modi, shared with over 14.4 million followers on Twitter, and another 29 million on Facebook?

In the English speaking Western democracies, the obvious regard for the Indian prime minister among Indian immigrants adds an extra layer of gloss to his appeal. Not many world leaders can draw 20,000 cheering fans to New York’s Madison Square Garden or 15,000 at Sydney’s All Phones arena.

Modi’s reputation as a strong leader has also helped him, particularly after the policy paralysis we saw in the last few years of the Manmohan Singh administration. US officials, for instance, speak favourably about India’s newly energised bureaucracy in contrast with its earlier listlessness.

The government has also made more bold decisions. It has charted a new path in terms of its relations with Israel, where for the first time India abstained from the UN Human Right’s Council vote against Israel. Modi has also announced that he will become the first sitting Indian Prime Minister to visit Israel. That will most likely happen next year. He’s also reached out quite dramatically to the United States. This year Barack Obama became the first ever US President invited to preside over India’s annual Republic Day parade as a chief guest. In a sense, even though the US and India have been growing closer to each other for many years, the invitation to Barack Obama seemed to break a taboo that went back all the way to the Cold War.

Similarly Modi has reach out to his neighbours, particularly Bangladesh. He visited Bangladesh and inked an historic border record which fixed a problem going back all the way to partition in 1947. Those are his biggest foreign policy hits. If I had to point to misses, I’d say that Modi has struggled with India’s Pakistan policy. He started out trying to draw new red lines. What he wanted to do was send a message that he would be willing to trade with Pakistan, but he would expect Pakistan to take a firmer line with regard to promoting terrorism, and in terms of the nature of the Pakistani engagement with separatist leaders in Jammu and Kashmir. While Modi started out with that, in the end it has become somewhat confused. This has left his Pakistan policy looking more and more like that of his predecessors. Whether that’s a good thing or bad thing would depend on what you thought of his predecessors’ policy.

Let’s turn to economic policy, which is in many ways the more interesting and more important thing. As I mentioned earlier, Modi was elected to fix the economy, a figure from the right wing of the Hindu Nationalist Party, and viewed with great trepidation by many Indian urban educated elites is now the most powerful and most popular leader in the country based on the idea that he has transformed himself into Mr Development. Modi was very focused over the last several years as chief minister of Gujarat. That state had one of the most successful records in attracting foreign direct investment. Modi became seen as someone who slashed through red tape. In his own words, he believed in something called “maximum governance, minimum government”.

It’s not as though the Modi Government has had no economic achievements this year. Growth is set to surpass China’s at 7.5 per cent, according to the IMF. Foreign direct investment in this first year rose 27 per cent to $31 billion, foreign institutional investment rose more than 400 per cent to $45 billion, the most since liberalisation began in 1991. Modi has scrapped the Planning Commission, a symbol of Nehruvian socialism. He’s replaced it with a think tank lead by a respected Columbia University economist. Recently, FoxConn, the Taiwanese manufacturer most famous for making iPhones, announced that it would invest $5 billion in the western Indian state of Maharashtra to set up a manufacturing hub. As well, the Modi Government has cleaned up natural resource allocation by moving from a system driven by government discretion to one reliant on auctions. This is much more transparent. It is expected to avoid the corruption scandals that had plagued the previous government.

With regard to the misses, however, they probably outweigh the hits. When I go to meet people in government ministries and talk to ministers, they accuse me of being unfair in saying this. They say it’s because expectations are high and they have had little time. That’s certainly true. On the other hand, Modi should be benchmarked against high expectations because he has a historic mandate. If you benchmark him against those high expectations, on the economic front I would say he has been a bit of a disappointment. Last week, we saw the monsoon session of parliament washed out. Effectively, the two biggest reforms that this government has tried to pursue have both been stymied in parliament.

The first was a land bill where the previous government had made it extremely difficult to acquire land for infrastructure. The joke went that it was easier to buy land on Mars than in India. So Modi came in and the whole idea was that he was going to fix this. But he was hit by strong political opposition and seems to have lost his nerve. He has decided to go with the old Congress Party’s bill, which was passed in 2013, rather than challenge it.

The second has been a very ambitious move, in the works for a long time, back to the previous government. This is to stitch India together into a single common market. It’s called the GST or the Goods and Services Tax. The idea is to replace many small levies with one single tax so that India effectively becomes a single market of 1.2 billion people instead of being divided into many smaller state markets. This move has faced opposition by the ruling Congress Party in parliament. They’ve effectively stalled parliament and the bill has not passed.

So the two big reforms that were expected to be pushed through by Modi have not happened. Beyond that, as I see it and more worrying, Modi does not show signs of being a conviction politician when it comes to economic issues. He seems more concerned with better administration that with reform. If India was a kitchen, this is someone who thinks they can make India work better by unclogging the pipes. This is not someone who says the pipes need to be in different places, or the sink needs far fewer pipe inspectors. Modi’s rhetoric of “maximum governance minimum government” has really not been followed through in any meaningful way, so far as making that a reality.

The other disappointment on the economic reform front has been the government’s reform of taxation. Modi came to power promising an end to what he called tax terrorism, which essentially means that Indian tax bureaucrats have far too much authority and they often exercise that authority in a whimsical way. Yet, on the taxation front, the government continues to pretty much pursue similar policies to its predecessors. In some ways, the Modi government has been worse than the previous government. For example, they put in place something called a new “black money law” to go after illegal funds held by Indians overseas. It is extremely draconian, giving tax inspectors the authority to arrest people, and it seems more likely to drive away business and investors rather than create a more hospitable environment for investors. Those are some of the worries on the economic front.

On the whole, I would say that 15 months into a five-year term, it is far too early to write this government off. Modi is by far the most popular politician in India today. There was a poll released recently that suggested four out of five Indians think he’s doing a good job as prime minister. Those four out of five, needless to say, don’t write op-eds. Modi has lost the editorial pages – not that he ever had most of them – but he’s lost what he did have. He still has a lot of support on the street.

The main opposition leader is Rahul Ghandi who is widely seen as feckless and inept, not a serious challenger, and not really up to the task of taking on a grass roots politician like Modi. The BJP and its allies rule states that account for more than half of India’s GDP. So if Modi really wants to do something, he can. While it’s difficult to make big change on the national stage, he still has a lot of room to achieve much on the state level because he has control of many of the most important states, including Maharashtra and Gujarat in western India.

So there is potential but I would say that, for the first time since Modi’s election, some of the sheen is wearing off. I am not as optimistic as I was in 2014 when I thought that Modi’s victory was unambiguously a good thing, that he was a prime minister who would unquestionably turn the economy around. The danger is that if Modi does not reform, and if the economy begins to lose steam, he is going to have many disappointed people across the country. I covered his campaign in 2014 and he went from town to town, promising people development which for most people means jobs. He cannot create the number of jobs that he needs without vast amounts of inward investment. India has about 12 million new entrants into the job market each year. That’s a million people a month. These are young people who overwhelming supported Modi, and they supported Modi regardless of caste, region, language, or anything else because they felt that he was the person who was going to deliver. He will need to deliver that in order to come back in 2019.

I would argue that in terms of foreign policy, to a large extent the success of Modi on the global stage – part of it has to do with the fact that he’s a charismatic figure and he’s won a big election victory – but a lot of it is also due to the idea that people felt that here is a person who can help India achieve its potential. There’s a lot of goodwill for India, and there was a lot of disappointment with the Manmohan Singh government for really squandering an opportunity. So people are willing to give Modi a chance as the person who’s really going to make India fulfil its potential that we’ve been hearing about for a long time. What I’ve been arguing is that if he does not get his economic act together, some of this gloss that we’ve seen on the stage will start to wear off. It hasn’t happened yet because there’s always a lag, but it will happen.

Finally – and this of particular interest to me because I’m working on a book on Indian conservatism – the danger is that he is going to fail to create a right-of-centre narrative to challenge the left-of-centre narrative that has long dominated Indian politics. If you go back to the last BJP government of Atal Bihari Vajpayee, which ruled from 1998 to 2004, it was a much weaker government. It didn’t have a majority, it ruled in a coalition. But it did several things that created the outline of a centre-right narrative. It privatised companies. It simplified tax forms. It tried to do things that clearly set it apart and it clearly indicated that it had a problem with the economic philosophy that had come before it.

I’m not saying that Modi is a Nehruvian socialist—he’s not. But he has been timid about doing things that will offend people. The exception is his land law, but on that he’s folded. He has been very careful about giving the opposition space. You could argue, and many people in his party do argue, that this is simply smart politics. And Vajpayee’s economic reforms didn’t really help him very much because he was booted out in 2004. But you cannot be someone who is elected as a transformative leader and be afraid to break a few eggs to make an omelette.