Three years ago this May, the Bharatiya Janata Party (BJP) cleaned up in India’s general election, resulting in a majority not seen since the assassination of Indira Gandhi in 1984. More recently and consolidating his power, and as covered in The American Spectator, Modi also achieved a stunning 77% of the assembly seats in a March state election — in Uttar Pradesh, with a population over 200 million.
Prime Minister Modi has established himself as a brand. He projects himself as a sponsor of rural and infrastructure investment, electrification, clean energy, “Make in India” manufacturing, good governance, and modernization of the armed forces. So besides this imaging, how has he performed?
The short answer is pretty well indeed. Agriculture, a strategic asset and backbone of the country that employs 47% of the work force but represents only 16.5% of GDP, is receiving more emphasis in the Government of India budget. Rural roads are an important means to access markets and to increase farm income.
The power sector of the country is also developing rapidly, with an estimated 240 million not yet on the grid, versus almost 400 million three years ago according to a World Bank estimate. While these figures are promising in a country and federal system where implementation of policy is a massive challenge, they do not address access to electricity that is sporadic or allocated from the household to industrial sectors.
Modi has affirmed a very aggressive goal of 175 GW from renewable energy sources by 2022, and as reported in September, the country had reached 22% of this level that is equivalent to the entire electricity output of Germany. Further, what is said to be the largest solar installation in the world has been built in the state of Tamil Nadu with a capacity of 648 MW.
The late March bankruptcy filing by Westinghouse, acquired by Toshiba in 2006, appears to be a major shock to the nuclear power industry, and the Chapter 11 filing may also have implications for projects in India, among other countries. The U.S.-India nuclear deal (also known as the U.S.-India Civil Nuclear Agreement) signed in 2008 provided for the construction of civilian reactors and the supply of uranium fuel.
The deal was stymied for about eight years and was trumped by the Nuclear Liability Act of 2010, which was based on memories of the Bhopal methyl isocyanate disaster at the Union Carbide pesticide plant in 1984. The issue was whether liability could be attributed not only to an in-country operator but also to a foreign contractor. Last June, the Government of India resolved the matter and Westinghouse was named as the supplier. While official statements are supportive of the continuing role of Westinghouse in India, there is also skepticism about the Trump Administration’s view of the deal and about the capacity of the Export-Import Bank of the United States.
The jury is out on progress with “Make in India” which was launched in December 2014, and the Government of India is presently assessing the impact. Whether this initiative can help produce the needed 12-15 million new non-agricultural jobs per year remains to be seen.
Foreign direct investment increased 18% to $46 billion in 2016, possibly reflecting more confidence on the part of the corporate sector. To put this figure in perspective, China recorded $104 billion of FDI in the same period. Given that China’s economy is almost two and half times the size of India’s in purchasing power parity, India is of late making relative progress — historically FDI in India has been a small fraction of that of China.
With regard to governance, Modi seems to have put the fear of God into the country about corruption and the consequences of potential scandals, which dogged the previous government of Manmohan Singh of the Congress Party. Supporters of the Modi government believe that the demonetization of 86% of the country’s cash, a drastic action against unreported wealth, had no significant effect on the economy or on Modi’s popularity — and the IMF has retained its estimated GDP growth rate of 7.2% for 2017-2018, up from 6.6% in January. While 7.2% appears excellent by almost any standard, the country really needs an extra 2.0% of GDP to support the non-agricultural labor market entrants per year.
Another major achievement of Modi has been tax reform and simplification. The goods-and-services tax to be applied nationally will supersede numerous and fragmented local tax protocols. The Indian corporate sector seems to be a major beneficiary of this historic development that has been under debate for a decade.
As the largest arms importer in the world, Modi plans to spend $150 billion to modernize the armed forces over a ten-year period. This is good news for the U.S. aerospace and defense industry, which has emerged as a leading supplier. The bulk of Indian military equipment is still of Soviet or Russian design, and Russia has represented 75% of India’s weapons imports in recent years.
Prospects for continued collaboration between the U.S. and the Indian armed forces, particularly the Indian Navy in its sphere of influence continue to be excellent. Further, the Logistics Support Agreement, Communication and Information Security Memorandum of Agreement, and Basic Exchange and Cooperation Agreement project an enhanced American naval presence, and the sharing of encryption platforms and proprietary data.With regard to India’s historical archenemy Pakistan, there is the continuing standoff with sporadic acts of violence, particularly along the Line of Control in the disputed region of Kashmir. This impasse favors India, which has no intention of giving up this majestic mountainous territory. It is also not clear how much of the Kashmir population wishes to affiliate with Pakistan, or with India, or have independence — and a plebiscite is most unlikely. In general, better relations with Pakistan would allow both countries to redeploy resources into development and social programs. Although concerned with Pakistan’s nuclear arsenal and recent rhetoric, India with its many domestic agendas does not obsess on Pakistan the way Pakistan obsesses on India — to maintain the status and control by the Pakistan Army and ISI, the intelligence service.
The current general mood of the country is one of self-assurance and optimism about private enterprise. A noisy, fractious democracy, Modi seems to be encouraging marching in unison, wrapping himself in saffron, the symbolic Hindu color of renunciation. These are good optics for traditional, rural Hindus that are his base, but only 80% of India’s population of nearly 1.3 billion is of that religion, and some urban Hindus tend to reject symbols that are not secular. Unlike the coalition culture of the Congress Party, Modi has not made much apparent progress with the integration of Muslims who number 180 million, and with tribal populations and low-income women — a protracted domestic challenge going back decades.
Further, a Hindu nationalist movement known as Hindutva has become more emboldened in recent years, and it is seen as a threat to India’s secular foundation. How deep Hindutva extends seems to be a “known unknown.” Further, there is controversy about restricted Internet access and intensifying fear over censorship of the press, which enjoys relative freedom in India.
Cynics may say that India is so ethnically diverse as to be virtually ungovernable — however Modi has made demonstrable progress against strategic objectives since becoming prime minister. In the absence of a so-called Black Swan, Modi seems assured of his full five-year term and beyond, with the opportunity to address inclusivity, relations with Pakistan, and further deregulation of financial services and other industries.
Comparisons have been made between President Trump and Prime Minister Modi. While Modi is not as controversial and combative as Trump, both leaders have traits in common. Each is an iconoclast and populist committed to economic nationalism. Each brings an entrepreneurial mind-set and a directness of purpose that does not accept the status quo. And each is trying to streamline government — Trump by draining the swamp that is ensconced political privilege, and Modi by eliminating the Soviet-era Planning Commission and emphasizing the private sector.
It is possible that Trump can learn some lessons from Modi. First, diverse democracies are much harder to manage than private business enterprises or individual Indian states such as Gujarat. And second, the road to reform is a tortuous one, and those being disenfranchised will strenuously resist even the most constructive ideas.