How far can Modi take India, and how fast?
May 21 2014
The expectations and the stakes are sky-high for each of these leaders, but none more so than Modi. Last week, Modi won the world’s largest-ever democratic election in a decisive fashion, with his party converting 31 per cent of the national vote into 52 per cent of the seats in Parliament — the first absolute majority in the Lower House of Parliament since 1984.
Meanwhile, the reigning National Congress Party — which has ruled India nearly without a break since its independence from Britain — turned in its worst-ever performance, losing three-quarters of its seats.
Why do Indian voters find Modi so appealing — or, depending on your outlook, Congress’ leadership so repulsive? As chief minister of Gujarat, his state of 60 million people, Modi unlocked economic gains reminiscent of China.
During his 12-year tenure, Gujarat’s per capita income outpaced the national average, rising almost four-fold. Modi put his money where his mottos were — “less government and more governance” and “no red tape, only red carpet” — paring back suffocating state inefficiencies to unlock business potential and competitiveness.
This is precisely what the Congress party has been unable to solve at a national level, with high inflation, lagging economic growth (at least by historical standards), and legislative gridlock that makes America’s Congress look like a well-oiled machine.
Indian voters want Modi to implement the Gujarat model on a national scale. The question is whether Modi can do so as quickly and dramatically as Indians demand. Unlike China and Japan, power in India remains woefully decentralised, and a sweeping win won’t change that. We won’t see a quick recovery in India’s legislative output, which last year was at its least productive levels in history. That’s because the Houses of Parliament remain split, with the Congress party and its allies maintaining a plurality of seats in India’s Upper House, the Rajya Sabha. Congress holds 12 of India’s 28 (soon to be 29) states, which in turn elect the Upper House members; Modi’s BJP has only five.
The next round of elections, where only one-third of the chamber’s seats will be in play, doesn’t happen until 2016. And just as the BJP has derailed the Congress party agenda in an opposition role over the last decade, now we’ll see a role reversal, with the Congress engaging in rabid obstructionism.
Modi will struggle to cut enough red tape to match voters’ lofty expectations. When it comes to politically-sensitive issues like labour, energy and agriculture, structural reforms that require legislative fixes will be hard to implement any time soon.
But even if the opponents stymie his national legislative agenda, Modi will have an immediate impact in three key areas. First, he will focus his efforts on national action he can take without Parliament’s assistance. He can use the power of executive decision to liberalise foreign direct investment and permit the streamlining of infrastructure and industrial projects.
Second, India’s decentralised system cuts both ways: even if it makes the national agenda harder, it presents opportunities for change at the state level, where many of the most dramatic structural changes will occur. Modi’s premiership can enable a Gujarat model of development to spread to some other states, including many in India’s poorer north. Infrastructure development and active efforts to speed foreign direct investment should pick up.
Lastly, Modi will push for his country to play a more significant role internationally. Modi will promote a revitalised India on the world stage, welcoming a second look from multinational corporations and major powers alike. Optimism from foreign investors in anticipation of a stronger, more accommodative Modi government has helped push the rupee to a 10-month high against the dollar and stock markets to all-time records. Modi will welcome closer relations with everyone from the US, Europe and Japan to China and Russia.
In a G-Zero world, with no single dominant voice and a lack of global coordination, India now stands out as a rare oasis of leadership and a prime opportunity for bilateral engagement. Take India’s direct relationship with Washington, where high-profile visa issues, including the arrest of an Indian diplomat in New York, have strained relations. The United States denied Modi a visa in 2005 based on his role in Gujarat riots in 2002.