Categorized | South Asian Politics

After a Year of Outsize Expectations, Narendra Modi Adjusts His Plan for India

Posted on 27 May 2015 by admin

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Standing before India on the first anniversary of his swearing-in, Prime Minister Narendra Modi on Monday gave a speech that was notable for the subjects it avoided: Large-scale job creation. Manufacturing. Urbanization.

Mr. Modi instead delivered an ode to struggling India. During the speech in Mathura, a town about 90 miles southeast of Delhi, he lavished attention on farmers and said that mom-and-pop traders, not “big industrialists,” should be India’s crucial driver of job growth. Most of all, he praised the poor, who he said “will become my warriors.”

The shift was telling. After soaring through India’s political stratosphere on the economic promise “achche din aa gaye,” or “better days are coming,” Mr. Modi must face the reality that much of his agenda is still only potential.

From abroad, India is now seen as a bright spot, expected to pass China this year to become the world’s fastest-growing large economy. But at home, job growth remains sluggish. Businesses are in wait-and-see mode. And Mr. Modi has political vulnerabilities, as parliamentary opposition leaders block two of his central reform initiatives and brand him “anti-poor” and “anti-farmer.”

Most formidable of all is a problem Mr. Modi has made for himself: outsize expectations that he would sweep away constraints to growth in India, like stringent laws governing labor and land acquisition.

“Their image became larger than they themselves,” Vimarsh Razdan, senior vice president at Orient Craft, one of India’s largest garment exporters, said of Mr. Modi’s government. “They have become superheroes. And everyone knows superheroes don’t exist.”

A year ago, businesspeople were awaiting Mr. Modi’s arrival in New Delhi with eagerness and a bit of apprehension: In Gujarat, the state he led for almost 13 years as chief minister, he was known for his concentration of personal power, his dislike of red tape and his sometimes intimidating manner.

Since then, India’s business culture has indeed changed, chief executives say. They rejoice that they no longer have to notarize all documents submitted to the government and say that it is far easier to find bureaucrats at their desks during the workday. Sudhir Dhingra, the founder of Orient Craft, says that only about one-third as many inspectors are showing up at his factories and that they are “fearful of accepting money.”

Mr. Modi has built a centralized system that requires business deals to be routed through his office. Gone are the informal meetings that business leaders used to hold with ministry officials, often to hash out policies regulating their sectors. As for Mr. Modi, business leaders have found it hard to cultivate him socially.

“This one year has taught the businessmen one thing: Meeting him at weddings, or meeting him at seminars or whatever, doesn’t give them any advantage,” said Rajeev Chandrasekhar, an independent member of the upper house of Parliament and a technology entrepreneur.

 “For me, and I have been around for a while, this is very, very unusual,” he said. “A lot of people are having sleepless nights because of that.”

By most measures, India’s economy has had a good year. India is heavily reliant on imported oil, and plunging prices have cut the cost of government fuel subsidies, allowing the authorities to rein in a chronic budget deficit. Inflation fell to 4.87 percent in April. Foreign direct investment rose by more than 25 percent, to $28.8 billion in the 2014-15 fiscal year.

The government has introduced a flurry of changes: It has deregulated prices for diesel, petroleum and cooking gas, and raised limits on foreign investment in the defense and insurance sectors to 49 percent. It has opened 125 million bank accounts for poor families, with the goal of eventually replacing food and fuel subsidies with cash transfers to prevent corruption. Coalfield leases, found to have been sold at artificially low prices, were reallocated through a transparent process; so were telecom spectrum allocations.

Those urging Mr. Modi to introduce deep structural reforms, however, have been disappointed.

Raghuram Rajan, the governor of the Reserve Bank of India, told an audience in New York last week that many people saw Mr. Modi as “Ronald Reagan on a white horse” coming to slay anti-market forces, and that the image was “probably not appropriate.”

He added that the government “has taken steps to create the environment for investment, which I think is important.”

Mr. Modi’s only truly risky change to date — muscling through an executive order easing the government’s ability to obtain land for development — backfired this spring when he tried to transform it into a permanent law. The proposed law met a wall of protest from a rejuvenated opposition declaring that Mr. Modi was “anti-farmer.”

Charges of cozying up to business must sting for Mr. Modi, said Shekhar Gupta, a journalist, especially after his party’s crushing defeat in February elections in Delhi. He was criticized there for wearing a customized suit with pinstripes made of embroidered script spelling his name.

“It’s taken away from him the basic image of a tea-seller who became a country’s leader in his own right,” Mr. Gupta said.

Economic grandees have their own grievances with Mr. Modi, which they are increasingly willing to express. One damaging assessment came from Arun Shourie, an economist and former minister with Mr. Modi’s party, who said the government lacked a single unifying vision on economic policy, and was “directionless, a great disappointment.”

Deepak Parekh, chairman of HFDC Bank, complained that procedures for obtaining funds had become more onerous, not less so, under the new government. And he described “a little bit of impatience creeping in as to why no changes are happening.”

Jayant Sinha, a former investment fund manager who is now the minister of state for finance, said these complaints were the natural result of fiscal and monetary consolidation that the government had undertaken to control inflation. Their “economic pain” will ease over the next several months, he said, as the investment cycle picks up.

But some limitations of Mr. Modi’s ability to transform India’s economy are coming into focus. Mr. Modi’s large electoral mandate gave him control of only one house of Parliament. In domestic affairs, he must cope with a huge, fragmented bureaucracy.

One example came early this year, when the tax authorities alarmed 68 foreign investment funds by demanding, for the first time, a payment of a 20 percent levy on capital gains made over the last three years. It contradicted Mr. Modi’s vow to end retrospective taxation, and as foreign capital fled the country early this month, the government scrambled to calm investors.

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