The South Asia Channel

Did Modi Miss an Opportunity?

The recent unveiling of India’s first national budget under the newly elected Narendra Modi government was much anticipated, but in the end notably anti-climactic. It fell short of the campaign rhetoric that promised to revive the flagging economy with bold decisions.

In the lead-up to the budget, Modi had presented himself as a transformational politician, willing to take the aggressive steps needed to jumpstart India’s economy. Repeatedly, he warned the public that tough measures would be necessary in the short term to achieve long-term growth. Markets went up 20 percent in anticipation of reforms and fiscal consolidation. A 14 percent hike in rail fares soon after he took office seemed to set the tone.

The budget that was presented, however, was anything but bold. It was not the radical departure from the previous governments’ policies the markets were expecting. Although it does contain some surprisingly redeeming features such as the allocation of $20 million to Islamic madrassas to modernize their education, and funds to establish several more medical and technical institutes, it is weak on the economic issues that need reform.

While the government maintained a fiscal deficit target of 4.1 percent of GDP, down from 4.6 percent last year, it relied on overly optimistic projections. Despite market expectations that subsidies and social programs would be cut, they remain untouched for now. It would seem that Modi, for all of his pre-budget bravado, was unwilling to lose political capital at this stage to make the tough choices needed to put the economy back on track.

The government also projects India’s growth rates to rise 7-8 percent in the next three years. But it is unclear what levers will be used to achieve this goal.

His campaign promises to overhaul infrastructure, build smart cities and high speed trains will have to be put on hold, as the money to implement them is just not there. His allocation of $20 million for a high-speed train between Mumbai and Ahmedabad will barely cover the cost of building one kilometer of track.

The heavy reliance on foreign direct investment to finance growth may be a worthy goal, but without providing the necessary incentives and assurances to foreigners that their investments will be safe, it is unlikely to be achieved. Vodaphone is still fighting a case where it was subjected to retroactive taxation, and power companies that rushed to invest in India in the past pulled out after being unable to realize profits.

In the three years prior to the recent election there had been a remarkable slowdown in the economy, with growth hovering below 5 percent. For reasons that are still unclear both private and public investment slowed down sharply, plunging the mood of the country into despair. During the boom years, all the money sloshing around had fed an explosion in corruption. When one scandal after another started to hit the front pages, the government had become paralyzed.

The ruling Congress party, handicapped by sycophancy, had concentrated power in the hands of the Gandhi family. Executive authority was split between the government, nominally run by Prime Minister Manmohan Singh, and the party under Sonia Gandhi, with whom the real power resided. Having built fiefdoms that allowed them to treat their positions like sinecures, politicians were increasingly disconnected from the electorate. Any semblance of effective administration had disappeared and the common man without access to the corridors of power had given up on the government.

The country had entered the election desperate for a leader who could take it back to the heady boom days of 2009 and 2010.

This May, they put their hopes on the Bharatiya Janata Party (BJP) candidate Narendra Modi, handing him a landslide election victory. Early in his campaign, Modi had tapped into the mood of disillusionment among the electorate. He promised growth and a leaner, cleaner government. His aura was more CEO than politician. His speeches drew large crowds, not just from the poor and marginalized, but also from young university students disillusioned with the current leadership.

During the 2000s, as the economy boomed and tens of millions were lifted out of poverty, India developed a substantial middle class. It came to be seen as a potential mass market for consumer products rather than a charity case and the country found itself treated with growing respect in international circles. Its leaders were feted at places like Davos. Goldman Sachs even anointed India as one of the BRICs, the four countries that it forecasted would be the economic superpowers of the 21st century.  The morale of the nation was transformed. Everyone spoke of India being on the path to catch up with China and the only debate was when.

In many respects, Modi perfectly represents the new India. The self-made son of a tea stall owner, he started out as a member of the extreme right wing Hindu Rashtriya Swayamsevak Sangh (RSS) party before joining the BJP and climbing up the party ranks. Although he became the Chief Minister of Gujarat and made his reputation by running a highly successful state, he was not at first the front-runner to lead his party in the national elections. As it became increasingly clear during the course of the election that he was capable of bringing the BJP to power, his party backed him, but the scale of his victory took everyone by surprise. Out of 543 seats, the BJP won 282, giving them a comfortable majority, much to the disappointment of many parties who were who were jockeying to share power with him in a coalition government. He decimated Congress who were left licking their wounds with 44 seats, not even enough to lead the opposition without a coalition.

Modi is acutely aware that the BJP owes its success to him and his appeal to the wider electorate rather than the party. Determined to deliver on the high expectations, he hit the ground running. Within days of becoming Prime Minister, directives came flying out of his office, sending a message to those in government that it would not be business as usual.

Some of the measures he has introduced are distinctively and amusingly Indian. The touching of the feet of ministers as a mark of respect is to be discouraged. Some try to deal with the sycophancy and nepotism that has become so embedded in the system. Those working in government ministries are forbidden from appointing family members to jobs in the same ministry. Members of the cabinet are required to disclose their financial assets and to divest any holdings that might pose a conflict of interest. Spouses and children of cabinet ministers may not work for a foreign mission or for any entity overseen by the minister.

One of his first official acts was to set up a special investigative team to probe illicit financial flows (black money). According to research from Global Financial Integrity, capital flight abroad amounted to close to $350 billion between 2002 and 2011, ranking India fifth in the world after China, Russia, Mexico and Malaysia.

As each day brings new edicts to reign in errant government, Modi has the whole country riveted. Even die-hard Congress supporters I spoke to confessed to cheering him on from the sidelines. People rush to the news every morning to find out what the latest ‘Firman’ is. The momentum, though bound to slow down, currently shows no signs of flagging. His latest rule, requiring government employees to clock in on time, get rid of old defunct equipment, and clean up their filing system and have them digitized has proved particularly popular with the press. There have been lots of snide articles on how Delhi golf clubs all of a sudden have room on the fairways and how lunch reservations at local clubs have become much easier.

For now, Modi has taken the pulse of the people well. The symbolic changes to improve the efficiency of government have been welcomed. His critics, recognizing that people want the new Prime Minister to be given a chance to succeed, have been somewhat muted. If, however, he is unable to deliver on growth and jobs, they will be less intimidated in exposing any shortcomings on human rights and minority relations.

While even his opponents hope he can shake up the moribund Indian administrative system and get the economy going again, concerns about his commitment to democratic principles remain. His human rights record is a cloud that hangs over him. In 2002, during his tenure as Chief Minister of Gujarat, hundreds of Muslims were killed in religious riots. His government was seen as complicit and some members of his government were indicted. Modi neither apologized nor compensated the victims for the atrocities that took place under his watch.

On another contentious issue, the BJP wants to revoke Article 370 of the Indian constitution, which provides Kashmir with its special autonomous status. This has led to a great deal of anxiety among Kashmiri Muslims and if attempted, will exacerbate tensions in the region. Following the recent horrific rapes that have been widely reported in the press, Modi has not had much to say except to offer platitudes about women’s security. When one of his own ministers, Nihal Chand, was accused of rape, the Prime Minister chose not to suspend him while the charges are being investigated. Amit Shah, one of his closest confidants, who is credited with Modi’s campaign success and who has just taken over the leadership of the BJP, has outstanding murder charges against him.

There is growing concern that Modi’s interpretation of lean government is to simply centralize power in his office. Ministerial portfolios have been allocated among a handful of people in his inner circle, a group he either trusts or feels he can control. Arun Jaitley currently holds the portfolios of both the ministry of finance and defense. It is hard to see how they can both be managed well by one person in a country as vast and complicated as India. Ministers have not been allowed to pick their own secretaries.

Modi has staked his reputation on being good for business and growth. It is therefore a mystery that Modi did not take advantage of the goodwill he had with markets to do more on the reform front. It is possible that with a weak monsoon, Modi decided this was not the time to impose any politically contentious measures. Despite his talents and mass appeal, he cannot repeal the laws of politics. He will discover, like Congress before him, that there is never a good time to impose fiscal austerity and unless the results are immediate, he may find his honeymoon over sooner than expected.

Meena Ahamed is a freelance journalist who writes about U.S. foreign policy and South Asia.