Ambition into Reality
Modi’s dilemma is that he is seen as the leader of the right wingers who are more interested in cultural nationalism than in development.
Modi’s economic development agenda is ambitious but there are serious caveats.
Prime Minister Narendra Modi’s agenda of development mainly emphasizes infrastructural improvements like up-gradation of road and rail networks, improvement of ports as well as reforms in taxation, insurance, labor, public bureaucracy and health. The ‘Make in India’ program – launched just before PM Modi’s maiden visit to the U.S. – is
By Jamil Nasir the reiteration of his promise to turn around the economy of India. It promises a new FDI approach by offering investors a string of measures aimed at reducing the regulatory burden.
According to an official statement about the program, “the government is committed to chart out a new path wherein business entities are extended red carpet welcome in a spirit of active cooperation. Invest India will act as the first reference point for guiding foreign investors on all aspects of regulatory and policy issues and to assist in obtaining regulatory clearances.” The program basically envisages boosting manufacturing, jobs for youth and capitalizing on low-wage costs. It covers sectors
like automobiles, chemicals, IT, pharmaceuticals, textiles, ports, aviation, leather, tourism, railways, hospitality, etc.
The revival of manufacturing, which is at the heart of the program, is not going to be as easy job as manufacturing has consistently lost its share in the GDP of the country. The service sector has remained the primary driver of economic growth in India for the last few decades. The industry’s share is said to be stuck at 25 percent. The share of small enterprises in manufacturing employment in India is estimated at 84 percent compared to 25 percent in China. In the words of Gita Gopinath, Professor of Economics at the Harvard University, “The fact that India has moved from an agricultural economy to a service-driven economy with almost no growth in industry is not a virtue; it is an outcome of policies that have hampered manufacturing and mining.” The ‘Make in India’ initiative is basically an argument for the new economic growth model based on export-oriented manufacturing which simply means encouraging domestic entrepreneurs to manufacture goods for export and attracting international companies to relocate their production in India.
A number of ordinances are on the agenda for translating the development plan into reality. They include reforms of commercial laws for speedier arbitration in commercial disputes, raising the foreign direct investment cap in the insurance sector from 26 percent to 49 percent for the promotion of foreign direct investment, opening the mining sector to the private sector and easing land acquisition by exempting key public and private sectors like defense, rural infrastructure and heavy industry from costly and complicated social and regulatory processes. Thus the Modi government has embarked on an ambitious development agenda by pressing ahead with reforms and making futuristic investments in infrastructure, high-speed rail and smart cities.
Modi also announced abolishing of the Planning Commission, which has remained at the heart of centralized resource allocation and has produced Soviet-style five year plans. Arvind Panagariya, Professor of Economics at Columbia and a proponent of free trade and deregulation, has been appointed the vice-chairman of the National Institute for Transforming India – Aayog – a new agency established by PM Modi to work as a high-level think tank on policy advice to the government.
Undoubtedly, Modi’s development agenda is ambitious and may unlock the growth potential if it goes smoothly. But there are serious caveats. First of all, India’s tax and regulatory environment is highly complex. How swiftly Modi manages to make it simpler and easier remains to be seen. Another challenge will be the financing required for the growth model. The success of the East Asian growth model owed itself to high investment rates. Whether such investment will be forthcoming in the near future is not clear. Confronting the development challenge will require cooperation from state governments. How they will support the centre is uncertain at best.
But the most daunting challenge for India will be communal harmony. After all, this is the basic pre-requisite for development. The growing communal interventions of the Sangh Parivar and Modi’s silence are not good signs. His track record as the chief minister of Gujarat is also dubious with regard to the fundamental rights of the minorities. “Since Modi came to power, the entire Hindutva has returned to the centre stage of Indian politics. At the heart of that agenda are communal violence, inflammatory statements about the relationship between Hindus and other religious groups (especially Muslims), mobilization over Ramjanambhoomi/ Babri Masjid, repeal of Article 370, religious conversion and, most importantly, disrupting and reworking the education system,” says a blogger writing for the Times of India.
The proponents of Hindutva think that communalism will unite the majority community, i.e. the Hindus and once the other communities think that the Hindus are united they will join the mainstream as converts or junior partners. Such assumptions are largely misplaced. By alienating the minorities, it will become difficult to guarantee communal harmony which is considered the sine qua non for sustainable development. Can schemes like Ghar Wapsi (home coming) bring solace to the minorities of India? Can the promotion of such schemes give confidence to foreign investors? Currently, a tug of war between cultural nationalism and development seems to be taking place in India and Modi’s dilemma is that he is seen as the leader of the right-wingers who are more interested in cultural nationalism than development.
“Modi rose to power as the head of a family of rightwing organizations that largely do not share his economic priorities and are obsessed with the so-called cultural nationalism, which is essentially repackaged as Hindu chauvinism. The tension between Modi’s avowed economic reformism and the cultural nativism that animates his government’s electoral base is a major impediment to progress – Modi has found himself in an unenviable position vis-à-vis his own supporters: he cannot live with them, and he cannot live without them. Unless he can find a way to resolve his political dilemma, hope for a ‘Modi miracle’ in India’s economy will ebb as rapidly as it rose,” writes Shashi Tahroor.
The challenge at hand is not the ambitious plan itself, but to translate it into reality and make it sellable to the Indians as well as foreign investors. The writer is a graduate of Columbia University with a degree in economic policy management and a Chevening Fellowship on Economic Governance.