Achi news desk-
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in six weeks‘ time Narendra Modi is expected to win a third term as India’s prime minister, cementing his status as its most important leader since Nehru. The electoral success of this tea seller’s son reflects his political skill, the strength of his Hindu-nationalist ideology and his erosion of democratic institutions. But it also reflects a sense among ordinary voters and elites that he is bringing prosperity and power to India.
Mr Modi’s India is an experiment in how to become richer in the midst of de-globalisation and under strong leadership. Whether it can grow rapidly and avoid disruption over the next 10-20 years will shape the fate of 1.4bn people and the world’s economy. As our special report explains, Mr Modi’s formula is working – up to a point. But there are questions about whether India’s success can last and whether it depends on him staying in power.
India, the fastest growing large country in the world, is expanding at an annual rate of 6-7%. New data shows confidence in the private sector at its highest since 2010. Already the fifth-largest economy, it may be third by 2027, after America and China. India’s influence appears in new ways. American companies have 1.5m staff in India, more than in any other foreign country. Its stock market is the fourth most valuable in the world, while the aviation market is third. India’s purchases of Russian oil move global prices. Increasing wealth means more geopolitical pressure. After the Houthis disrupted the Suez canal, India deployed ten warships in the Middle East. The presidents Joe Biden and Donald Trump have courted her without arguing that she will continue to be an independent actor.
If you are looking for “the next China” – a manufacturing-led miracle – India is not it. The country is developing at a time of stagnant commodity trading and factory automation. So it needs to innovate a new model for growth. One pillar of this is familiar: a massive program of infrastructure combining a massive single market. India has 149 airports, double the number a decade ago, and is adding 10,000km of roads and 15see of solar energy capacity per year. Some of this infrastructure is intangible, including digital payments, modern capital markets and banks, and a unified digital tax system. All this enables companies to take advantage of national economies of scale.
A second, newer pillar is the export of services, which has reached 10% of gdp. Global trade in services is still growing and Indian it is companies have marketed “global capability centers”—centers that sell multinationals r&d and services such as law and accounting. Yet despite its slick tech campuses, India is still a semi-rural society. That explains the last pillar of the economic model, a new type of welfare system where hundreds of millions of poor Indians receive digital transfer payments. New data suggests that the proportion of the population living on less than $2.15 a day in 2017 prices, a global measure of poverty, has fallen below 5% from 12% in 2011.
How much credit does Mr Modi deserve? His most successful policies draw on the liberal agenda that emerged in India in the 1990s and 2000s, but there is nothing wrong with that. He deserves credit for forcing through delayed reforms, personally overseeing key decisions and beating out laggards and opponents in the bureaucracy. Some say it has fostered crony capitalism. Still, although some big companies get favors, concentration in business is falling, corruption is reduced and business has a rich diversity. A cross between a bother and popularly, Mr Modi enjoys PowerPoint presentations as much as rallies. If he wins another five years, India will continue to grow strongly. So is the middle class: 60m people earn over $10,000 a year; by 2027, there will be 100m, according to Goldman Sachs, a bank that now has 20% of its staff in India.
But India faces a daunting problem. Out of a working age population of 1bn, only around 100m have formal jobs. Most of the rest are stuck in casual work or unemployment. Mr Modi’s humble beginnings help him talk to these people. To absorb some of India’s spare labor it uses a state-run incentive scheme to promote manufacturing. But even if the plan reaches its targets, it will only create 7m jobs. President Xi Jinping’s plan for a Chinese export surge will only make the task more difficult.
The Indian economy must generate mass employment to sustain its growth. One route would be even bigger it is sector, acting as a hub for a digitized world, and a cluster of export industries, including digital finance, food and defense (where stronger ties with America would help). Spending by workers in these industries would in turn create more jobs in other sectors, from construction to hotels. An efficient single domestic market would raise overall productivity and well-targeted welfare could help those left behind. For this, India would have to transform education and agriculture, and enable much more migration from the populous north to the large southern and western cities.
Judged by those epic standards, Mr. Modi doesn’t have enough to say. His Bharatiya Janata Party (bjp) some talent and ideas but it mainly focuses on ideology and defeating Muslims. A growing fanaticism has curtailed political opposition and freedom of speech. The fact that companies are afraid of Mr Modi may explain why investment has not picked up yet. The process of preparing the public for massive social change in the 2030s has barely begun. Remaking education, cities and agriculture will require the cooperation of state governments that are not led by the bjp and social groups facing unrest, but Mr Modi’s rebarbative politics have left many of them alienated.
Lee Kuan Yew’s India or its Erdogan?
The question for India and its heavyweight economy is not whether Mr Modi will win, but whether he will evolve. At 73, his powers of control may have faded. In order to create a new reform agenda on par with the one that emerged from the 1990s, and to foster a prosperous knowledge economy that rewards people for thinking for themselves, he will have to temper his autocratic impulses. In order to attract more local and foreign investment and to find a successor with growth, his party will need to curb its chauvinistic politics. If not, Mr. Modi’s mission of national renewal will not live up to its promise. ■
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