What a Modi Govt Im­plies

Modi needs to crank up the do­mes­tic en­gine, sim­plify com­plex laws and shrink re­tail oil sub­si­dies

The Economic Times - - The Edit Page - Swami­nathan S An­kle­saria Ai­yar

Exit polls sug­gest an ab­so­lute ma­jor­ity for the BJP-led Na­tional Demo­cratic Al­liance (NDA). If so, In­dia will have a strong Modi-led govern­ment, free from fickle al­lies. What will be the out­come for In­dian pol­i­tics, the econ­omy and mar­kets?

No party or com­bi­na­tion has won an ab­so­lute ma­jor­ity in the Lok Sabha since 1984. So, the pre­dicted NDA vic­tory will bring back sta­bil­ity and de­ci­sive­ness af­ter three decades. It will re­verse the un­stop­pable rise of re­gional par­ties and coali­tions.

Naren­dra Modi had to over­come the ap­a­thy of or­di­nary vot­ers, who know very lit­tle about events in other states. Modi achieved as­ton­ish­ing suc­cess in spread­ing the mes­sage that he had pro­duced good re­sults in Gu­jarat and could do the same for In­dia. More im­por­tant than speeches or TV ads were sto­ries of good gov­er­nance car­ried by mi­grant labour­ers in Gu­jarat back to the Hindi-speak­ing belt. Modi is the first re­gional leader to cre­ate an all-In­dia fol­low­ing. Hope­fully, oth­ers will fol­low.

He — and Arvind Ke­jri­wal to a lesser ex­tent — have re­versed the trend to­wards dy­nas­tic pol­i­tics. Once-so­cial­ist par­ties have de­cayed into fam­ily satrapies of the Gand­his, Mu­layam Singh Ya­dav, Karunanidhi and oth­ers. Modi pro­vides a wel­come break from dy­nas­tic supre­mos.

Pol­i­tics in the Hindi belt has been dom­i­nated by caste and re­li­gion. But one exit poll sug­gests that Modi and Ni­tish Ku­mar will be far ahead of Lalu Ya­dav in Bi­har. If true, this will mean the wel­come col­lapse of north­ern pol­i­tics dom­i­nated by caste and re­li­gion. In the Bimaru belt, many chief min­is­ters em­pha­sis­ing de­vel­op­ment have won elec­tions time and again, though Ut­tar Pradesh and Jhark­hand re­main ex­cep­tions. In UP, a Modi vic­tory will be one of de­vel­op­ment over caste and re­li­gion.

A Gen­tle­man’s Word

Many will dis­agree — ar­gu­ing that Modi rep­re­sents not de­vel­op­ment but com­mu­nal mur­der, ex­em­pli­fied by the 2002 ri­ots. How­ever, his cam­paign has been based on de­vel­op­ment, not Hin­dutva. This has won over vot­ers.

What con­se­quences will a strong Modi govern­ment have for the econ­omy? In­dia has crashed from 9% GDP growth to half that rate for two years, even as in­fla­tion has av­er­aged 9-10%. One-third of the slow­down can be at­trib­uted to global cycli­cal fac­tors, which now look like be­ing re­versed, to In­dia’s ben­e­fit.

How­ever, two-thirds of In­dia’s slow­down flows from do­mes­tic flaws. These can­not be over­come quickly. Many global in­vest­ment houses have pre­dicted In­dian GDP growth of just 5.5% in 2014-15, ris­ing maybe to 6.5% the next year.

Anew li­cence-per­mit raj has come up, based on four pil­lars: en­vi­ron­ment, forests, trib­als and land. A ver­i­ta­ble jun­gle of cen­tral and state rules and laws has come up in these four ar­eas. This was ini­tially over­come mainly through bribes. But pub­lic anti-cor­rup­tion anger has made that un­fea­si­ble, so we have paral­y­sis. Open­ing a coal mine now takes 12 years. Many In­dian in­vestors are in­vest­ing abroad, not at home.

UPA-II tried to break out of this log­jam in the last two years through a Cab­i­net Com­mit­tee on In­vest­ment that cleared .` 6-lakh-crore worth of projects. Alas, these did not trans­late into any boom in cap­i­tal goods or con­tracts. Three-quar­ters of these projects are stuck at the state level, and New Delhi can do noth­ing about that.

Many in­fra­struc­ture pro­mot­ers are bust, and can­not raise fresh debt or eq­uity even if they get clear­ances. Pub­lic sec­tor banks are reel­ing un­der bad debt, and can­not ex­pand with­out re­cap­i­tal­i­sa­tion. This re­quires funds from the Budget, which is dif­fi­cult given high fis­cal deficits.

Bite the Bul­let

A strong Modi govern­ment can­not just hope for higher rev­enues from a cycli­cal re­cov­ery. It needs to ag­gres­sively de­con­trol diesel and kerosene within a year, cut­ting sub­si­dies by up to .` 1,00,000 crore. This will re­lease funds for in­fra­struc­ture and banks. Modi needs to prove his tough­ness by dol­ing out bit­ter medicine.

He needs to en­thuse an­i­mal spir­its in en­trepreneurs. If he changes the na­tional mood, con­sumers will start con­sum­ing and in­vestors will start in­vest­ing. If the mood re­mains sombre, so will eco­nomic growth.

Turn Sell­ers into Buy­ers

The Sen­sex has soared 1,500 points in three days, an­tic­i­pat­ing a de­ci­sive Modi win. Op­ti­mists think Modi will turn the econ­omy around within one year, spark­ing the mother of all bull runs. The re­cent rise in stock mar­kets has been driven en­tirely by for­eign in­vestors: do­mes­tic in­vestors have been net sell­ers. If a de­ci­sive Modi vic­tory con­verts do­mes­tic in­vestors into buy­ers too, the mar­kets could go much higher.

That re­mains a big if. P Chi­dambaram tried hard but failed to rec­tify many of the econ­omy’s struc­tural flaws. Modi needs to learn from this. Over­com­ing struc­tural flaws means hard de­ci­sions at­tract­ing much crit­i­cism and tem­po­rary un­pop­u­lar­ity. He will lack a ma­jor­ity in the Ra­jya Sabha, curb­ing his leg­isla­tive ca­pac­ity. Be­ing a strong leader will not suf­fice: he needs to be a good man­ager too, tack­ling prob­lems he never faced in Gu­jarat. Suc­cess is pos­si­ble, but far from as­sured.

ANIR­BAN BORA

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