The sharp defeat of Narendra Modi’s Bharatiya Janata Party in the state of Bihar has put the prime minister’s reform plan and political legacy at risk. Despite his overwhelming victory in last year’s national election, his government has failed to overhaul the legal barriers and regulatory excesses which have left an economy full of entrepreneurial people mired in poverty.
He still has time to act, but governments usually grow more timid the longer they hold office—and the sooner the next election impends.
India escaped British rule in 1947, but suffered under decades of economic repression at the hands of the dynastic India National Congress Party. A trading people who had succeeded at commerce around the globe, Indians were held back by an officious bureaucracy notable for its inefficiency and corruption. Only people with connections or money prospered under Indian “socialism.”
The first systematic economic reforms were implemented in the 1980s, but a succession of weak governments never allowed their people to fulfill India’s high promise. According to the Economic Freedom of the World report, in 2013, the latest year for which numbers are available, India ranked a dismal 114 out of 157 nations rated.
Eighteen months ago Modi won a dramatic victory allowing the BJP to rule alone. The Congress Party was reduced to impotence in the Lok Sabha, or lower house. Modi seemed poised to transform India’s economy and more. Some called him the Indian Reagan.
He talked big. While visiting Singapore in late November, Modi enthused: “In the last 18 months, reforms are happening in a big way. Simply with the aim of enabling the people to realize their potential and dreams.”
However, his government has not delivered much change. Not one reform bill was passed during the legislative session which ended last August. One reason was that Congress and other parties continue to control the Rajya Sabha, the legislature’s upper chamber, giving them the ability to obstruct legislation. For instance, the opposition, encouraged by state governments, has blocked legislation to replace a patchwork of state sales taxes with a national goods and services tax.
Moreover, Modi always was more pro-business than free market. The Economist magazine noted that “he occasionally praises small government, but the list [of official pledges] contains a striking number of big tasks for the state. Half of the goals involve grand, state-heavy expansion.” Indeed, one of his priority bills would make it easier to seize private land, a measure understandably feared by farmers.
Finally, the government has been timid despite its sizeable legislative majority. Deficits continue, fueled by subsidies—which increased at an astonishing 19 percent annually between 2007 and 2014—and infrastructure spending. Banking remains state-directed. Privatization has disappointed. The law still discourages creation of family firms.
Many reformers worry that Modi missed his chance to transform the economy during the “honeymoon” period immediately after his election triumph. The public has grown disillusioned, the opposition has been emboldened. The usual scandals have arisen, bedeviling his administration as well as BJP-run state governments.
As a result, Modi has lost his electoral magic. In February a new anti-corruption party, the Aam Aadmi Party, dominated the vote in Delhi. Last month a coalition of two regional parties worked with other opposition parties, such as Congress, and triumphed in Bihar state. Modi unashamedly led his party’s campaign, addressing 26 rallies across the state, but to no avail. “In 2014 Modi could do no wrong,” Barun Mitra of the Delhi-based Liberty Institute told me, but “In 2015 he could do nothing right. It seems he suddenly lost his political Midas touch.”
Such defeats are bound to make party members nervous about offending voters. Moreover, the BJP has been counting on taking control of more states to shift the partisan balance in the upper house. Saidal Gupta of the Asian Development Research Institute predicted that after Bihar Modi’s “government’s economic program will take a back seat. He’ll simply not have the gall to carry out these measures, especially the politically sensitive ones.”
Nevertheless, it would be foolish to count Modi out. He continues to dominate the Indian political system and made a deft overture to the opposition during the Lok Sabha’s recent special session on the constitution. He acknowledged the important role of early Congress leaders and urged the parties to work together “like a family.” He then met with Congress head Sonia Gandhi and former prime minister Manmohan Singh in search of a legislative compromise. Said Rakesh Sinha of the India Policy Foundation: “Modi’s engagement with the opposition is [the] only way to prove that every effort is being made to accelerate the pace of economic growth.”
The list of necessary reforms is long. Everyone points to lifting restrictions on foreign investment, modernizing the sclerotic legal system, and creating a comprehensive bankruptcy code. Public sector banks are loaded with bad debt. Sadanand Dhume of the American Enterprise Institute urged electricity restructuring, privatization, subsidy reductions, and tax reform. Archaic labor rules, too, must be streamlined. Derek Scissors, also of AEI, argued that they “essentially guarantee mass underemployment and an India that, unlike its neighbors in East Asia, cannot benefit from global demand for manufactured goods.”
The economy is not the only issue requiring the premier’s attention. In Bihar the BJP pandered to religion and caste. Its opponents warned that a BJP government would be intolerant toward minorities, including imposing a ban on killing cows, considered sacred to Hindus. Some government critics fear that party hard-liners now will push Modi to emphasize the dark side of Hindu nationalism.
Religious intolerance—which mostly means Hindu attacks on Muslims and Christians—has worsened since Modi’s election. Unfortunately, violence against minorities long has bedeviled India, especially under BJP rule. Noted the latest report of the U.S. Commission on International Religious Freedom: “Despite the country’s status as a pluralistic, secular democracy, India has long struggled to protect minority religious communities or provide justice when crimes occur, which perpetuates a climate of impunity.”
The latest incidents have been mob attacks on Muslims thought to have eaten or smuggled cattle. After the September murder of a Muslim laborer, noted Sumit Ganguly of Indiana University, “it took a full eight days [for Modi] to even allude to the incident publicly.” Ganguly worries that this and other moves by Modi, who in 2002 as Gunjarat state’s chief minister was charged with involvement in deadly Hindu riots targeting Muslims, “may well be seeking to usher in a new social order—one that privileges India’s dominant Hindu community over everyone else.”
Popular Bollywood star Aamir Khan brought the issue to India’s mainstream when last month he criticized the sense of “insecurity and fear” felt even by his own family; his wife, said Khan, wondered if they should leave the country. BJP adherents, including Union Minister of State for Home Affairs, Kiren Rijiju, responded by bitterly attacking Khan. Rijiju complained that the actor had brought “down the image of the country and the prime minister.” Of course, the harsh response only reinforced Khan’s point. Earlier in the month another Bollywood actor, Shah Rukh, argued that there is “nothing worse than religious intolerance and that it would take India to the dark ages.” He also suffered significant abuse from BJP leaders as well as activists.
Sectarian violence does more than harm innocent Indians. It also discourages foreign investment. Religious intolerance provides skittish investors with another reason to put their money elsewhere.
Perhaps Modi’s greatest success has occurred internationally, where he has increased India’s presence by reaching out to the U.S., Japan, and even China. Yet his political defeats at home may redirect his attention domestically. Delhi’s Chief Minister Arvind Kejriwal, who benefited from the BJP’s defeat earlier this year, taunted the prime minister who, Kejriwal said, “should now cancel his frequent foreign trips and instead stay back home to work for the people of India.”
More state elections are pending. To win, the BJP should focus on economics, which is what boosted Modi and his party to last year’s overwhelming victory. Union Minister of Home Affairs Rajnath Singh predicted that India’s growth rate would hit double digits in coming years, but similar forecasts have been made in the past, followed by disappointing results. With an expanding population India needs strong economic growth to move people out of poverty. The Minister of State for Finance, Jayant Sinha, said India needs at least eight percent growth annually for decades to provide sufficient jobs.
This kind of progress is possible, witness the “Asian tigers,” such as China and South Korea. But it isn’t easy or common. Yet India’s current growth rate, around seven percent so far this year, suggests that India could take off after sustained, real economic reform.
For instance, the Washington Post recently noted that “Two decades of India’s information-technology success and the large pool of English-speaking engineers have created a fertile ground for e-commerce companies and innovative tech start-ups. The number of angel investors and venture capital funds is mushrooming.” But so much more could, and should, be done.
Despite the recent challenges to his government, Modi retains a rare opportunity to advance his nation. With his strong parliamentary majority, he should eliminate the sclerotic controls which so long have impeded his people’s natural productivity. Rajnath Singh argued that “India will soon become one of the five top economies in the world.” That requires the Modi government to enact decisive and far-reaching reforms.
Moreover, given his Hindu nationalist background, Modi also is well-positioned to reinforce tolerance and secularism in government. Doing so would promote domestic stability in a nation with tens of millions of people of different religious faiths, strengthen economic growth by encouraging foreign investment, and enhance India’s international influence. Diplomat Subrahmanyam Jaishankar said India wanted to be a “leading power, not just a balancing power.” That requires a prosperous, stable, and tolerant nation.
Will the 21st Century be another American Century, the Chinese Century, or something else? If Prime Minister Modi makes tough decisions in leading his country forward, the 21st Century might end up being the Indian Century. But if so, he can’t delay much longer in putting his words into action.
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