Sunday, September 7, 2014

India’s Prime Minister Modi’s first 100 days: big decisions but no big bang

Those of us who had conjured up images of Indian prime minister Narendra Modi as a reformer in the Reagan-Thatcher mould, who would boldly move mountains within his first 100 days of office, must by now be disappointed. But this disappointment is self-inflicted. Modi’s style is cautious. He is not a believer in ‘big bang’ reforms. His track record in Gujarat provides ample evidence of this.

In any case, 100 days is far too short a time for a new government to get off the blocks in a continental-sized economy like India — with its mindboggling diversity and complexities. This is even more true of Modi’s government for two reasons.

First, this is Modi’s maiden term as a member of parliament in the central government; so he faces a steep learning curve. Second, until 16 May, when the election results were announced, the size of the Bharatiya Janata Party’s victory or the possible composition of government was completely unclear. Modi could not have settled on policy choices or a plan of action without knowing how strong his hand would be. So Modi’s government has started from scratch in putting together its plan of action. A hundred days is too short then to make an evaluation.

Considerable effort has also had to be invested in getting governance back on track. Prior to Modi’s election, the last two years of Indian government were marked by policy and administrative paralysis. Though not visible, the current government’s efforts are well underway and promise to restore the credibility, efficiency, accountability and effectiveness of the central government.

Despite these difficult initial conditions, some hard decisions have been taken.

Modi’s government has been busy, introducing a 14 per cent hike in railway passenger fares, which have not been increased in the last 14 years; continuing the monthly reduction in the diesel subsidy; announcing increases in FDI caps up to 100 per cent in railway infrastructure and 49 per cent in defence production; and introducing a legislative amendment bill to raise the FDI limit in the insurance sector.

The labour ministry has already submitted proposals to revise labour laws to make them more supportive of manufacturing activity. In Modi’s 15 August Independence Day address, he announced the decision to abolish the Planning Commission and invited suggestions for an alternative body that is more in sync with India’s current economic realities. Importantly, Modi used his Independence Day speech to hold a rather unflattering mirror to the Indian elite, challenging them to address the social ills that continue to plague the country after 67 years of independence.

On the foreign policy front, the government has clearly indicated its priority for building stronger ties with its South Asian neighbours. Both the prime minister and the foreign minister underlined this commitment, making their first foreign visits to neighbouring countries and inviting neighbouring heads of government to the inauguration ceremony of India’s new government. But, in the case of Pakistan, Modi’s government has marked new red lines on the Kashmir issue.

Outside South Asia Modi has lent his support to the formation of the BRICS Development Bank — arguably a bad move — and indicated his willingness to build strong relations with the US, ostensibly overlooking past difficulties. He has also indicated his preference for building stronger ties with China and Japan. Modi held a bilateral meeting with Chinese leader Xi Jinping on the sidelines of the BRICS summit at Fortaleza in Brazil and visited Japan at the beginning of September. India’s tough stand in the WTO also shows that, as perhaps in all democracies, foreign policy, either multilateral or bilateral, will be largely determined by domestic concerns.

A perceptible area of weakness in Modi’s first 100 days has been the non-articulation of a coherent and comprehensive development vision or policy framework. This is an important omission, especially in a situation where investors, rather wary of frequent policy changes, are looking for a clear enunciation of and stability in policy direction. The interim budget did contain some policy directions but stopped short of providing a holistic and analytical policy framework. This gap in policy needs to be addressed as soon as possible.

Efficient project execution is one of Modi’s strengths. This is surely an important dimension of getting economic growth back on track. But a clear enunciation of the policy framework is equally important in restoring growth momentum.

The Indian electorate, which has given Modi such a decisive mandate, is known to be patient. Still, voters, who have been suffering the pangs of high inflation and lack of job opportunities for the last several years, could lose their patience sooner than expected. The domestic and foreign investor communities could also lose hope sooner rather than later. In such a situation it is imperative that the next 100 days are used to spell out a policy framework, outlining policy preferences and providing details of measures to restore investors’ confidence.

Rajiv Kumar is a Senior Fellow at the Centre for Policy Research. He is the author of the recently published book Exploding Aspirations Unlocking India’s Future.


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