Why Modi will need more time
DELHI – How fitting for the world's largest and perhaps most free-wheeling democracy that with only 100 days having passed since Narendra Modi was sworn into office as Prime Minister of India, critics and supporters alike -- in Bangladesh and elsewhere -- are already vocally weighing in on his performance. Hope remains high that Modi will bring change to this traditions-bound nation, but as Russell Green, a former U.S. Treasury attaché to India and Clayton Fellow at Rice University's Baker Institute, puts it, “[Modi] has yet to explain his big economic reform vision in enough detail to revive corporate investment and pull the public onboard.”
It is of course too early to meaningfully judge Modi's long-term impact. Here though are several key benchmarks by which global investors and India's own citizens should measure the country's new leadership.
Job creation:
With 50% of India's population under the age of 30, job creation must be foremost in the minds of the nation's leaders. Nothing, after all, is more dangerous than educated, unemployed youth roving the streets, their frustrations rising and, sooner or later, finding expression in public disharmony. It is estimated that a million job aspirants enter the labor market each month. Economic growth will have to keep pace with this reality, and Modi will be wise to focus on agricultural and education reforms, vocational, technical and professional training, and a continued opening of the economy to help drive job creation and growth. According to India's Labour Bureau's “Third Annual Employment & Unemployment Survey 2012-13,” the nation's unemployment rate among “educated youth” was19.4 per cent in 2011-2012 and increased to 32 per cent during 2012-2013.
For the past five years, and particularly from 2012-2014, the Congress Party has allowed growth to slip and investment plummeted. The new prime minister must remember that growth is not India's birthright; not something that will automatically happen unless nurtured. Investor confidence must be restored and capital inflows improved.
The sentiment toward India has begun to turn positive and small changes in Foreign Direct Investment regulations in the insurance and defense sectors have been approved. At the same time, a mammoth obstacle to all development – the Land Acquisition Act – is under review. The prime minister will need to demonstrate real and continuous changes in policy to attract the capital India so desperately needs. India last quarter registered a growth rate of 5.7% in GDP on an annualized basis, a slight improvement over past quarters. Yet, by some estimates, 62% of this increase came from the financial sector alone. There was a slowdown in all other sectors of the economy.
Concurrent with the emphasis on growth is the need for macro-economic stability. The past government's breathless attempts to win the population's goodwill through subsidies and by creating welfare programs have had a serious impact on the coffers. Subsidies have absorbed such a large proportion of the government's budget that capital expenditures by the government have fallen to 6 percent of GDP. Such populist programs are unsustainable and open the window to increased corruption. It is time for India's leaders to come to terms with economic fundamentals and budget deficits, and restore macroeconomic stability.
Corruption:
India has adopted the institutional structure of a modern democratic state; now it is important to ensure these institutions function in an honest and credible manner. In the recent past, governance has weakened, and institutions have been hollowed out by corruption and rendered dysfunctional. If the public cannot trust the judiciary, or have faith that the police force works in their interest, they will resort to unfair means to achieve its goals.
If business, domestic and foreign, are to invest in the India described so eloquently on India's independence day at the Red Fort, Modi must address head-on a plethora of issues that relate to the high level of corruption and poor governance, which keep the nation low on the ranks of the World Bank's annual Doing Business survey. (India dropped from 131 to 134 in the latest World Bank ranking of 189 economies.) Such ills have eaten into the very core of Indian society, with tales of the unpunished and hubris among the ruling class now legion.
After all, if no one gets punished for wrongs when evidence is clear, documented and apparent, it can only lead to a disregard for the very institutions without which a modern democratic state cannot survive. Such was the hubris among the elite and powerful that they could subvert any law or regulation merely by calling on those who had the power to protect them.
Infrastructure:
From our perspectives based on our time at the Asian Development Bank, insufficient change has come to India's core infrastructure despite hundreds of millions of dollars from numerous development agencies and banks. In the India of today, much like the India of yesterday, even in urban areas access to water and to reliable electricity cannot be counted on. Grandiose promises already have been made by the prime minister, which would require an investment of $2 trillion, but details are sparse, and no one has articulated where the capital would come from.
Toilets on a per capita basis are deplorably low; many rivers are little more than sewers and school children cannot do their homework because there is no power in the evenings. Health and morbidity directly affect productivity; human dignity is the basis for building a cohesive society that thinks for the nation, not just for itself.
Socioeconomic divide
An urgent task awaiting the new government is the need to build cohesion out of diversity. The Muslim population of India is close to 15% and this community is a vibrant part of India. Yet, on every economic and social measure, this segment of the population ranks low. While the reasons for this are complex, the reality of their weaker economic and political power has rendered many disgruntled and with a sense of being marginalized.
The new government must focus on this community's grievances and demonstrate an approach that is inclusive and credible to the Muslim population. One can always believe in one's virtue; what counts is that others believe in you. Governments are often defined by their failures, and given what was seen by many as anti-Muslim rhetoric during the Modi campaign, real progress in addressing this community's specific needs, as part of an “all India” economic drive can help prove naysayers wrong.
In India, democracy defines itself by its ability to “get the government”. The Modi government should continue to bear that in mind as it moves forward to manage, if not meet, the incredible expectations that its election has engendered among not just foreign business leaders but its own people.
Curtis S. Chin, a former U.S. ambassador to the Asian Development Bank, is senior fellow, Asia, at the Milken Institute and a managing director of advisory firm RiverPeak Group, LLC. Meera Kumar, a former staff member of the ADB, is a New York-based freelance writer and communications consultant. Follow Curtis on Twitter at @CurtisSChin and Meera at @MeeraKumar212.
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