Mr Modi – Make The Second Term About The Economy

Will Modi take some political risk and spend some newly-acquired political capital on his economic agenda, asks Krishna Memani.

Supporters wave a BJP flag and hold up cardboard cutouts of Indian Prime Minister Narendra Modi while celebrating outside the party’s headquarters in New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)  
Supporters wave a BJP flag and hold up cardboard cutouts of Indian Prime Minister Narendra Modi while celebrating outside the party’s headquarters in New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)  

Thank God, it is over. While in the past, Indian parliamentary election campaigns were exciting and full of expectations of new policy initiatives, alas, that has not been the case this time around.

This election campaign has been longer, louder, meaner, more media driven, and unfortunately vacuous from an economic policy perspective. 

With China’s economic growth still slowing meaningfully, India’s economy is still on the cusp of the manifest destiny of its 1.3 billion inhabitants. Growth may not be as high as all of us wish, but it is still the fastest growing economy in this growth-challenged world.

In that context, the virtual lack of solid economic debate on policy options in this election season has been another missed opportunity. India’s leaders need to find the best economic path forward and the lack of articulation of how they will deliver all the things that they have promised its populace will come back to haunt the winner of these elections. Unfortunately, no such luck.

At least in the last campaign, Narendra Modi had distilled his economic message in two words – Achhe Din. In this campaign, he and the Bharatiya Janata Party (BJP) decided against such meaningless but hopeful slogans.

Looking back on the last few years, the importance of the economic issues was self-evident.

That Rahul Gandhi and the Congress party had even remained relevant for these elections was solely because of numerous economic policy fumbles of the Modi government.

Be it demonetisation or the lack of policy proposals to deal with the dire state of the rural economy or getting into a public spat with the Reserve Bank of India, the Modi government has nobody to blame but themselves.

With their substantial majority in the last government, there was a lot they could have accomplished. Instead they frittered the opportunity away.

To be sure, the BJP and the Modi government should be commended for having taken meaningful steps in the right direction. For example, the goods and services tax (GST), as a streamlined revenue-raising measure, is an excellent policy, in my view. Similarly, their aggressive approach to dealing with the banking sector through recapitalisation and a non-performing assets (NPA) resolution policy was a move in the right direction.

However, for India to achieve the sort of growth that China delivered in the early part of this century, a lot more needs to be done.

BJP, now that it has come back to power and has renewed confidence in its core social and political message, has the unique opportunity to undo its mistake of the last few years and deliver on the economic front.

From a macroeconomic standpoint, the biggest challenges for the Indian economy remain the same:

a) Job creation and income growth

b) Resource mobilisation and investment, including infrastructure, to improve productivity

c) Better governance of its economy -- all to deliver inclusive growth.

The policy prescriptions are relatively straightforward but the trick is in having the political will and execution skill to implement those policies.

The task of getting India out of its current mid-single-digit trajectory will continue to be made quite difficult by a global growth environment that remains quite mixed. On one hand, slowing global growth is unlikely to help India’s exports. On the other hand, global disinflationary trend and moderate oil prices certainly provide some breathing room for the Indian economy.

The global environment notwithstanding, if the new Modi government is going to succeed on the economic front in its second term, it will need a good policy mix that will have to be led and implemented by an innovative and energetic leader for economic policy who is granted significant political authority, rather than an old party hack.

Yes, You Can!

Narendra Modi has a choice to make early in his second term. Is he willing to take some political risk and spend some of his newly acquired political capital on his economic agenda? At times, it will even require him to go against the wishes of a significant part of his party and the broader Sangh Parivar. For, without that political commitment, the likelihood of passing new significant reforms on contentious areas of labour, land, and capital would be impossible.

And, without those set of reforms, growth of the Indian economy is unlikely to breakout.

But if he is successful, the rewards are going to be huge for the Indian people as well as his political party.

While the Indian savings pool is currently quite substantial, as a global investor, I can assure him the amount of capital that is available globally to support such an accelerated growth initiative is absolutely huge. We have been eagerly waiting for him to get on with the task of growing the Indian economy at a double-digit pace. If he makes up his mind, the task at hand will be arduous for sure, but doable.

India and the world are waiting.

Krishna Memani is Chief Investment Officer at OppenheimerFunds.

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