Eye on India

A Plan for Mr. Modi

Ten areas of opportunity post-landslide. 

By 5.21.14

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Not since the assassination of Prime Minister Indira Gandhi in 1984 has any political party in India won an outright majority. Most of the time since independence in 1947, Indian politics have meant awkward coalitions — fractious dissent along caste, religious, linguistic, and regional lines — fissiparous tendencies that have prevented implementation of policy.

The landslide victory of the Bharatiya Janata Party (BJP) and its standard bearer Narendra Modi, which was announced Friday, is a repudiation of the Nehru-Gandhi dynasty and Congress Party that have governed the country so much of the time since independence. An electorate angered by scandals in IT, mining, telecommunications, coal, and the defense sector, combined with disappointing economic growth and the sense of a lethargic Congress Party, have given a clear mandate to the saffron party, as it is called, frequently identified with private enterprise and Hindu nationalism. The BJP now holds 282 of the 543 seats in the Lok Sabha, the lower house of parliament.

Narendra Modi has a good reputation for governance and implementation. As chief minister of the state of Gujarat since 2001, he has presided over a state known for supporting business interests and attracting capital. He is attacked, however, for his record on inclusivity, and charges that he did not do enough to prevent the killing of over 1,000 people, mostly Muslims, during the communal riots of 2002. While a Special Investigative Team appointed by the Supreme Court did not find evidence of wrongdoing or deliberate neglect by Modi, the image of Modi being anti-Muslim continues. Accordingly, there is concern about Hindu nationalism and its potential influence on a secular republic; this theme is covered in these pages by Jonathan Aitken, “India’s Jekyll and Hyde.”

Modi is a man the world can do business with, but he needs to affirm certain priorities in both form and substance. First, his cabinet should endeavor to reflect some of the diversity of India through appointments of women, Muslims, and low caste and tribal representatives. Further, Modi’s anti-corruption stance is a signal that he does not support the old rules of the game.

Second, Modi will need to visit Islamabad, the capital of Pakistan, to demonstrate a commitment to improving relations and increasing commercial ties. An Indian initiative to ease tension along the 435 mile heavily fortified Line of Control in the Kashmir region would be a positive signal and might eventually lead to reallocation of some military expenditures.

Third, the country’s power sector must be developed — almost 400 million people are estimated by the World Bank to be without electricity, and electricity outages in the industrial and residential sectors are legendary. A 2013 report of the Federation of Indian Chambers of Commerce and Industry estimates negative GDP impact of almost $70 billion caused by power shortages. In addition, a recent estimate of the Hindustan Times is that India loses about one third of its electricity per year: it is not billed. (Some districts are said to be as high as 50%).

While not a game changer for a coal fired economy, the U.S. India nuclear deal enacted in 2008 is stalled because of the Nuclear Liability Act passed in 2010 that imposes damages against operators of nuclear installations — without requiring proof of responsibility for an accident by the aggrieved party. Some moderation of this legislation will likely be needed for American companies to engage in construction of nuclear reactors.

Fourth, India needs to develop its industrial base, which constitutes only 17 % of GDP and is needed to provide an estimated 10 million jobs that India must create each year, to complement a policy that mandates education for children between ages six and fourteen, and to create opportunity for rural populations that are migrating to urban areas. An education initiative aimed at creation of vocational training institutions is essential to meet the demands of Indian companies for well-equipped workers.

Fifth, the country should focus on revitalizing India agriculture, presently maxed out with aquifer depletion, fragmented holdings that inhibit scale and risk taking, and a general lack of emphasis on an inefficient sector that employs over half the work force but is only 17% of GDP. An Internet driven best practices approach, as well as the politically charged subject of plant genetics would hold potential for a quantum step not seen since the Green Revolution of the 1960s.

Sixth, the massive inefficiencies of the Indian supply chain must be addressed. Fragmented small trucking companies, lack of intermodal transport platforms, inefficient manual intervention, and insufficient cold storage capacity have created an opportunity for much cost reduction that could benefit India’s export competitiveness.

Seventh, further deregulation in industries such as banking, insurance, retailing and agriculture needs to occur, if the earlier economic decontrol often regarded to have started in 1991 is to reassert itself and if foreign direct investment is to increase.

Eighth, India needs to promote the rule of law and certainty of outcomes to moderate what is seen as a level of political risk that inhibits investment. Swift prosecutions and more efficient use of time in court would enhance due process, by a judiciary that is highly respected.

Ninth, the country needs to focus on urban planning that engages stakeholders and seeks a highest and best use of land to include social considerations, not just commercial ones for spatial development. For years, urban planning has been inhibited by prevalence of the “old” culture of top down government bureaucrats thinking they know what is best.

Tenth, the partnership with the United States, while a reasonable success in spite of stalled nuclear collaboration, should be further developed. The two countries are strategically aligned: India and the U.S. both share a fear of Islamist radicalism and concern with China’s increasing assertiveness and naval development. We also share certain values: democracy, the English language, belief in free markets, equality before the law, and similar laws of contracts. 

In spite of this fundamental alignment, the U.S. and India will disagree on many issues: the definition of emissions, the containment of Iran, trade protectionism, aviation and pharmaceutical safety, patents and intellectual property, censorship, and corporate tax policy are examples. While there will be much frustration at times, we must remember basic commonalities, and the progress that has been made by the two countries. After all, who would have ever thought that the day would come, after a nearly fifty year chill out between Washington and New Delhi, that several Lockheed C-130 Hercules would take part in the fly past, as part of a Republic Day celebration.

A ten point program is a lot for one country, let alone one prime minister. And diagnostics are easy. But Narendra Modi has a record for something in short supply in India: implementation. If Modi is lucky and good, he may have five years until the next general election. Progress in governance, inclusivity, peace with Pakistan, and the nation’s power grid might just be enough for a fine legacy.

 

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About the Author
Frank Schell is a business consultant and former international banking executive. He serves on the Dean’s International Council of the Harris School of Public Policy Studies, University of Chicago where he is a lecturer.