24/08/2017 – Country Focus / India / Narendra Modi
Measuring Modi’s Progress
Three years into his term and riding high as ever in the polls, Prime Minister Narendra Modi is defying the traditional mid-tenure popularity slump that India’s incumbent leaders have historically experienced. Helena Haimes examines whether his government has lived up to its much publicised pledge to transform India’s fortunes through “minimum government, maximum governance”.
In late June, 20 of America’s corporate elite gathered to meet India’s PM on his visit to Washington DC. The roundtable, which took place the day before Modi’s first meeting with President Trump, featured an impressive roster of luminaries, including Amazon CEO Jeff Bezos, JP Morgan chief Jamie Dimon, Apple’s Tim Cook, Google CEO Sundar Pichai and Shantu Narayan from Adobe. The event was broadly trumpeted as an extraordinary success, with executives interviewed immediately after the meeting universally full of praise for Modi. “He is very smart, very receptive, very actuary,” Dimon told CNBC at the time, “….I don't think there were any sticking points.”
Mr Modi, it was reported, listened especially carefully to the executives’ concerns over his country’s tough regulatory framework and sky-high levels of bureaucracy – factors they said were dissuading them from investing further into the world’s seventh largest economy. In an article penned for the Wall Street Journal to coincide with his US visit, Modi also promised a forthcoming “multifold” rise in bilateral trade between the two countries. Such trade already stands at a not insignificant US$115 billion annually.
For those familiar with the Indian Prime Minister’s reputation for drumming up foreign investment, the enthusiastic reception from such an illustrious bunch will come as little surprise. A longstanding member of the Hindu nationalist and conservative BJP, Modi was elected in a landslide victory to exceptional fanfare in 2014. With a campaign focused on a reformist platform of heavy economic reform, corruption quashing and fast-tracked infrastructure projects, he pledged to jump-start fresh growth in India’s economy, which had remained stubbornly sluggish since before the 2008 crash. While the American roundtable proves his neoliberal agenda is (unsurprisingly) a hit with foreign investors and CEOs, how is he faring at home? How much of an impact have his approximately 7,000 reforms – from cutting red tape and launching high profile manufacturing initiatives, to increasing spending on sanitation efforts and pushing an ambitious renewables policy – really had so far on the domestic economy?
Make In India
As government initiatives go, it doesn’t get much punchier and more high-profile than Mr Modi’s ‘Make In India’ campaign. Launched in September 2014, the initiative aims to “transform India into a global design and manufacturing hub”, according to its website. Promoting the country to key foreign investors through the development of new infrastructure, improving access to electricity and easing red tape are core pillars of the initiative, which includes 25 sectors in its remit, from automobile components and aviation to textiles and renewable energy.
In so doing, the government aims to boost manufacturing from its present proportion of around 16.5 per cent of Indian GDP to reach 25 per cent by 2022, generating about 100 million jobs for the country in the process. India’s service industry currently accounts for nearly two-thirds of the country’s economic growth, although less than a third of its workforce – a dominance Modi is understandably keen to shift to traditionally much more stable and growth-generating manufacturing industries. And three years since its launch, Make In India has certainly had some success. The government credits the programme with helping India move four places up the World Bank’s Ease of Doing Business Rankings, for example, from 134 in 2015 to 130 in 2017. Inflow of foreign direct investment has also shown a marked increase, jumping by 29 per cent in Make In India’s first year.
Some commentators, however, have criticised the initiative as a sleek, catch-all slogan – simply a well-branded umbrella exercise that enables the government to take credit for incidental design and manufacturing successes. And whether the programme will meet its ambitious targets certainly remains to be seen. After manufacturing figures initially jumped to an unprecedented US$9.6bn soon after Make In India’s launch, the Reserve Bank of India reported a fall in 2015-16 to US$8.44bn. Foreign investors continue to be drawn to the country’s burgeoning service industries – particularly e-commerce providers such as Amazon and Flipcart and ride-sharing companies Uber and Ola – rather than pumping money into manufacturing.
Mr Modi’s Smart Cities Mission is another high-profile programme that has been met with both praise and criticism. Launched in June 2015, the plan was designed to bring rapidly expanding Indian urban areas up to global standards including stable power and water supplies, updated public transportation, solid internet connectivity and smooth e-governance, as well as vastly improved infrastructure. 100 cities were selected to receive substantial investment (Rs 500 crore – around US$78m) from the Indian central government and additional match funding from individual states. Progress has been reasonably steady though undeniably slow on the ground – as of January 2017, 24 projects (3.3 percent) have been completed under the Smart Cities banner, and another 49 have commenced the implementation process.
Headway has been fastest in states controlled by the BJP – Madhya Pradesh, Rajasthan, Gujarat and Maharashtra. The government blames a necessarily cumbersome tendering progress for the initiative’s relatively slow rate of implementation. Contracts are not being awarded to the lowest bidders as would usually be the case, they claim, as not every bidder has the requisite expertise to carry out such complex projects and must therefor be vetted accordingly.
Delhi-Mumbai Industrial Corridor
Yet another hugely ambitious government project that sparkles with economic promise is the 1,500km Delhi-Mumbai Industrial Corridor, which was initiated before Modi’s election and is vaunted as one of the world’s largest ever infrastructure projects. Financed jointly by the Japanese and Indian governments, the US$100bn corridor promises to slash freight transportation times between the two cities from 14 days to around 14 hours, while also encompassing the development of two airports, five power projects, two mass transit systems, an additional eight smart cities and two logistical hubs.
While construction work is definitively underway in the states of Uttar Pradesh, Madhya Pradesh, Gujarat, Harayana and Maharashtra, progress has been disappointing in landlocked Rajasthan. Land acquisition issues in the western state are reportedly to blame, with some commentators voicing concern that the government is not doing enough to push the project forward.
In stark contrast to his US counterpart’s climate-change-denier stance, Narendra Modi is a longstanding and vocal promoter of sustainability – an area that has experienced notable growth under his leadership. As the Prime Minister told a stunned crowd of world leaders at the 2015 Paris Climate Conference, his government aims to install an additional 160GW of solar to India’s national grid by 2022 (for context, the US currently has a little over 100GW). Solar and wind prices have tumbled in recent years, with PV solar now just $0.04 per kW/hr in India, making it cheaper than coal – and leading India’s Energy Minister, Piyush Goyal, to project that no new coal power will be required after 2022. Access to power, an ongoing problem that deters potential foreign investors as well as impacting an estimated 300 million Indians, is also being tackled head on – Modi’s government aims to connect every Indian home by 2022, yet predicts it could meet that target as early as 2019.
Beyond renewables, enhancing the country’s energy efficiency has been a key focus for Mr Modi. On course to be completed before the end of the year, a scheme to replace 770 million household and street lights with LED bulbs is expected to reduce India’s carbon emissions by 80 million tonnes per annum, preventing the need for more power plants and saving US$7 million every year. Astonishingly, this feat is being achieved with no government funding: India is leading the way in a groundbreaking form of enterprise called an Energy Service Company (ESCO), whose profits are drawn solely from the money they are able to save their customers. The Indian government’s energy department has established its own enormously successful ESCO – Energy Efficiencies Services Ltd – which has been nothing but profitable since it was founded. Testament to such success is the company’s recent announcement of its three-year plan to invest US$130m in the UK’s energy efficiency market – a US$8bn segment. It is a demonstrable example of Modi’s ‘minimum government, maximum governance’ pledge in action.
GST is key
Modi’s new goods and services tax (GST) was rolled out at the beginning of July. The legislation, which replaces an unwieldy tangle of over a dozen state and territory taxes, sees India’s 29 states united under a single market for the first time. It has been widely heralded as the most important of Modi’s sea of economic reforms, even more so than his bold and controversial demonetisation announcement in November 2016. Indeed, it is no exaggeration to say that the PM’s reputation rests on the GST’s success – get it right and India’s small tax base should expand significantly, thus increasing government revenues. A unified tax structure should move India further up the Ease of Doing Business rankings too, as well as encouraging more foreign investment. However, getting it wrong could prove to be the legislative pin that bursts Modi’s popularity bubble.
The GST got off to a (not entirely unexpected) bumpy start, with many shops and businesses shut on its day of launch, and businessowners – from spice sellers to car dealers – expressing reticence and confusion about the new tax system. Finance Minister Arun Jaitley told a gathering of accountants in Delhi to expect “...some pain when there is a change and one where technology is involved.” It is hoped that the combination of lower prices on most Consumer Price Index products, gains due to improved efficiency and higher government revenues will lead to long-term success that will far outweigh any teething problems.
A way to go
While Modi has undeniably made serious inroads on his economic and environmental promises, much needed land and labour reforms remain his two major sticking points. Lacking a majority in India’s upper house of parliament – the Rajya Sabha – means the BJP has been unable to push through politically contentious land acquisition measures that analysts say would invariably lead to increased foreign and domestic industrial investment. Instead, his government is turning its attention to job creation – unemployment remains stubbornly high despite India’s glowing economy and could prove to be a huge thorn in the PM’s side should he fail to adequately address it before the general election less than two years from now. The BJP is also looking to introduce other, smaller economic reforms, including popular anti-corruption and tax evasion legislation before the country’s next leadership contest. While much of his convincing rhetoric and talent for spin has been translated into solid action and clear economic progress, Mr Modi will need to keep up the pace if he wants to secure his seat at the head of India’s table.