There is little doubt that Indian Prime Minister Narendra Modi will be re-elected to serve a third five-year term after the polls open next week and close 44 days later.
Modi’s support is bolstered by one of the fastest economic growth rates in the world and low inflation. The Hindutva ideology of Hindu nationalism of his Bharatiya Janata Party (BJP) has tapped into a receptive vein. It gives supporters pride in their identity in the face of past colonial injustices and the perceived threats from Islam and the West.
India’s time has certainly come, and the world is paying homage in order to obtain trade and other deals. With a population of more than 1.4 billion, which is greater than that of China, the world sees a massive and rapidly growing market in India. And the West is keen to build up India as a counterweight in Asia to China.
Modi has displayed political genius in his ability to build domestic support and esteem for India across the world.
Critics
But critics charge that rule by the BJP has undone the secular state, which reached out to Muslims and members of other faiths. This helped build a degree of social unity under the Indian National Congress party (INC or Congress), the biggest opposition party, which has governed India for much of the post-independence period.
Modi’s critics also charge that he is using state bodies to harass and prosecute the opposition. Opposition leaders have been detained and charged for alleged scams over alcohol sales, money laundering and corruption. Congress has said that its bank accounts were frozen due to a tax dispute, leaving it unable to pay for its campaign. The critics also allege that 95 percent of politicians who have been charged with corruption are from the opposition. All this is denied by the BJP which says that this is part of a broad anti-corruption campaign.
But as long as India enjoys a rapid economic growth rate, the BJP is highly likely to be secure in government.
Last year the Indian economy grew by 6.7 percent, compared to China’s 5.2 percent. And this year the IMF expects it to grow by 6.5 percent, and China by 5.2 percent. India’s exceptional growth performance, which has brought millions out of poverty, came long before Modi came to office.
India had an average real growth rate of 6.6% from 1991, the year major economic reforms were passed, until 2019, the year before the Covid lockdown began. Prior to the reforms, India’s growth rate from the 1950s to the 1980s was around 4%.
Licence Raj
The 1991 reforms were the response to a balance of payments crisis and recession. A recently elected Indian National Congress government led by PV Narasimha Rao ended the “License Raj” by scrapping many licensing requirements. It also opened the country to foreign investment and dismantled public monopolies.
While India’s economy is only about a fifth the size of China’s, it could overtake that of its neighbour on a purchasing power parity basis in a few years. Measured on this basis, GDP is the sum value of all goods and services produced in the country, valued in US dollars.
Bloomberg Economics expects that India can overtake China by 2028 if there is massive infrastructure investment, improved skills, lower unemployment, and if cities are improved, and manufacturing grows.
Old and inadequate infrastructure has for long been one of the binding constraints on faster growth. Spending by the government on new infrastructure, mainly new highways, railways, and ports, has risen more than fivefold over the past ten years.
The digital revolution will be increasingly useful to India. Aadhar, India’s ID system, is making servicing its population and doing business a lot easier. Apart from the verification of identity, it also allows the rapid setting up of bank accounts, and cash transfers to ID holders that have rapidly growing online access through inexpensive Indian-made cell phones.
Artificial intelligence will help enormously in servicing the massive population with improved healthcare, education, and agricultural services, as well as faster decisions on the extension of credit.
Investment
India has already benefited from investments by a number of US defence contractors. Apple has plans to reduce its reliance on China for manufacturing, and will manufacture one in four iPhones in India within the next two to three years. And Tesla is looking at manufacturing in India. With Western wariness about its reliance on Chinese manufacturing, India is hoping for a surge in new investment.
There is a lot going for India’s continued growth story, but there are problems.
India would benefit from a massive demographic dividend if it can reduce youth unemployment, which has remained stubbornly high. India’s average age is 28, far below Europe’s 44. Ideally the young should be taking up employment in the country’s booming information technology and pharmaceutical industries, but this is not happening to the extent required.
In the final quarter of last year, the unemployment rate among India’s 20-to-24-year-olds was about 44.5 percent. There is also the ongoing threat that automation and artificial intelligence will destroy many jobs across all emerging markets.
Other problems
The country also faces other problems in broadening the benefits from growth. About one-in-four Indians can neither read nor write. The Indian education system, with its stress on learning by rote rather than the development of thinking skills, is not creating problem-solving skills to the extent required. And those who graduate from its top universities and have developed the thinking skills that are required often go to Silicon Valley rather than remain at home where salaries are far lower.
Then there are the endemic problems of bureaucracy, corruption, and the large dual economy that is used to avoid taxes. While big foreign companies, who receive an official welcome, can navigate their way through the bureaucracy and maze of regulations, many smaller companies find it impossible to do so.
Ruchir Sharma, who has covered Indian elections as a journalist and is now a New York fund manager, writes in the Financial Times that the country’s acceptance of strongman rule by Modi is a kind of deal. Under this, “swing voters accept a democratic recession under Modi, so long as he delivers economic progress.”
This exchange of fast growth for strongman rule was used by the Tiger economies of east Asia. Countries like South Korea and Taiwan combined strong economic growth and low inflation under autocracies. Once these countries achieved middle-income status, they liberalised.
As time goes on, Modi is likely to increasingly require faster and broader-based job-creating growth to remain in power. In his third term, his political magic may not work with appeals to nationalism alone. The middle class is already large and rapidly growing, and it is unlikely that its members will be uncritical.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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