Modi sarkar 2.0 needs to be bolder than first

By: |
May 20, 2019 7:17 AM

Even those that are least optimistic about the ruling Bharatiya Janata Party’s chances say it would be within striking distance of a majority if it could add a few more coalition partners.

PM Narendra Modi at an election rally in West Bengal (Twitter image)PM Narendra Modi at an election rally in West Bengal (Twitter image)

Exit polls in India have a patchy record. Polling has been off the mark in two of the last four general elections in India, so nobody should assume that the final results, which will begin to be available later this week, will necessarily follow the pattern of the exit polls that were released as voting ended this Sunday.

Nevertheless, the trajectory of the polls can’t be ignored. Even those that are least optimistic about the ruling Bharatiya Janata Party’s chances say it would be within striking distance of a majority if it could add a few more coalition partners. Others suggest that Prime Minister Narendra Modi could actually improve upon his extraordinary 2014 victory.

There’s every chance, therefore, that Modi will serve at least another five years as India’s prime minister. If he does, his political achievement should not be understated: He will have won a second term in a polity notoriously hard on incumbents, and that too at a time when almost every indicator — other than official GDP data — suggests the economy is under-performing or even slowing.

If Modi has won a second term, it will be tempting to retrospectively burnish his record thus far. After all, the voters liked it fine, right?

That would be a mistake. Voters make decisions based on far more than a government’s economic record. The opposition Indian National Congress party ran an election campaign focused on widespread rural distress and Modi’s failure to create jobs; according to the polls, that message didn’t help its fortunes. Yet that doesn’t imply in the least that joblessness and rural distress are not continuing problems for India’s economy.

The truth is that, regardless of how the results look on May 23, Modi’s five years have been objectively a disappointment. A government handed the first parliamentary majority in 30 years could and should have achieved a lot more than it did.

This is not to say that it didn’t try. It was faced with multiple crises: a frozen banking system, stranded assets, uncompetitive exports, a byzantine bureaucracy and an under-skilled population. It took steps, eventually, to address many of these bottlenecks. But, in each case, it didn’t go far or fast enough.

Consider Modi’s most significant achievement, the introduction of a new, national indirect tax regime replacing the patchwork of federal and state sales taxes that existed earlier. This reform had long been hoped for; economists believed it would add a couple of percentage points to GDP, sustainably increase government revenue and significantly ease the burden on small businesses, while making goods and services cheaper for consumers.

But those predictions assumed a well-constructed new tax system with a minimal number of different rates and few hurdles to compliance. The system that has instead been introduced is far too complex, both in terms of the number of rates and the amount of paperwork. As a result, small businesses are struggling. Many of them have seen their compliance costs rise and their working capital disappear.

It’s a similar story with almost all the changes that Modi’s government introduced. An attempt to deal with debt-burdened power utilities, for example, avoided basic tariff reform and instead just kicked the can down the road; unsurprisingly, the debt problem is just creeping back. A much-needed insolvency and bankruptcy code was introduced, but the government didn’t create the capacity within the judicial system and outside it to implement the new law properly. As a result, the bankruptcy process is not yet working well enough, with major cases still to be resolved.

We can’t be sure why Modi showed such timidity. Regardless, it’s clear that, even if India’s voters have indeed decided to trust him for another five years, he can’t continue to govern in half-measures. He inherited several problems from his predecessors, and he has added to that store in power. Most importantly, India’s lack of competitiveness needs to be addressed — not just by building infrastructure, but by actively ensuring that companies and investors face a secure regulatory environment and can access flexible land and labor markets.

The next prime minister will also need to take drastic steps to overhaul India’s education and skilling system. It’s possible that the very people — young job-seekers across north and west India — who have benefited the least over the past five years nevertheless voted to keep Modi in power. That’s sometimes how democracy works; voters aren’t hyper-rational automatons. But election mandates don’t change the facts. One is that Modi will have to work a lot harder to address systemic problems with India’s economy in a second term than he did in his first.

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