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The Challenge For Modi

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Now that the results of the Lok Sabha elections have come in, it is clear that Narendra Modi is going to form the kind of government he likes – with absolute majority, and without having to depend on any crutch from any ally. The biggest surprise of these elections was that BJP alone has won absolute majority – something all the exit polls (bar one) got wrong. While all exit polls had projected an absolute majority for the NDA, only one poll had predicted BJP coming to power with over 272 seats on its own. But BJP has won 280 plus seats in the Lok Sabha – which makes even allies redundant when it comes to getting a bill passed in the Lok Sabha.
 
What will a Modi sarkar mean for the Indian economy? The answer is not as clear as one would like it to be. Despite the fact that Modi and the BJP has made development a big plank in the election campaign, there is fairly little clarity about the BJP’s economic policies. The BJP economic agenda, at least what is in the public domain, is vague and is more about generalities than about anything specific.
 
In fact, the old NDA when A B Vajpayee was prime minister had a far more transparent economic agenda than the current BJP has. The Vajpayee government was always very clear that it stood for good infrastructure development, less government intervention in most areas of business (consider its disinvestment programme to get out of managing most PSUs), and that it welcomed foreign investment.
 
The Modi government, if the track record of Gujarat is any indicator, is going to be even more bullish about infrastructure than the old Vajpayee government. But when it comes to government running industry, it is unclear what Modi’s real view is. In Gujarat, Modi has encouraged PSUs. So will he stop the PSU disinvestment programmes? Will Coal India remain a monopoly and will SAIL again become the biggest steelmaker in India? Or will Modi at the centre follow the Vajpayee model of privatising most of the PSUs? We will need to wait and see.
 
More importantly, in the run-up to the elections, the BJP has made noises about its opposition to FDI in retail. Does that mean that Modi is generally for FDI, but opposed to FDI in retail because it will affect small traders? Again, the answer is not clear because the Gujarat model of Modi has depended on wooing domestic businessmen, and not any foreign investment. Indeed, Modi has gone all out of his way to bring big domestic investments into Gujarat, but one cannot think of a big bang foreign investment in the state, unlike, say in Orissa. Sure there are big foreign investors in Gujarat, but the biggest investments have all come from big domestic business and not global investors.
 
There will be some problems that Modi will face at the centre that he did not have to deal with in Gujarat. The first one is that his biggest trump card in Gujarat – that he could give big chunks of land for big industrial projects – will not be available to him. Land acquisition is a state subject. Here Modi will have to work with state governments if he wants to develop the country as a whole. In fact, even for big bang infrastructure projects, he will have to depend on state governments to help out. And that will not always be easy. As the NHAI found out, expanding highways in West Bengal was difficult because the state government did not want to help out in acquiring land for roads.
 
The other big problem that the Modi government will have to deal with is the NPA (non-performing assets) problem of banks. There are just too many defaulters in the banking system, and that is a major problem to deal with when you want banks to lend freely to boost industrial growth.
 
Modi (and the BJP) has made a lot of noises about boosting manufacturing and jobs. While Modi has not talked of any specifics, certainly the Modi government can be expected to give sops for big manufacturing plants. (And discourage labour strikes, if Gujarat is any indicator). So manufacturing might certainly get a decent boost.
 
In Gujarat, the Modi government has not encouraged subsidies and freebies to the poor. So at the centre, the biggest challenge for the Modi government will be dealing with the UPA legacies – the Right to Food and the MNREGA schemes. Reducing their impact on the government’s finances will be a Herculean task.
 
One of the ministries that is likely to get the short shrift is environment. In the growth vs environment debate, there is no doubt where Modi stands. So it is unlikely that the union environment ministry will be a roadblock for any project.
 
Just like Modi will have to deal with the mess left behind by the UPA, his government is also likely to get some benefits. A lot of businessmen had stopped investing in big projects in the final years of UPA II because of policy confusion and flip-flops. They are likely to put money on the ground once again, because of their confidence in Modi. Equally importantly, the global economy is looking stronger – and that will aid the Modi government.
 
The big question is: will the new government find its laws and decisions constantly challenged by the Supreme Court, as the UPA 2 did? A lot will also depend on that.
 
 
@prosenjitdatta