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economy? How much can Modi change policy?
Mahinda with Modi-June 7, 2014
In several essay in the last three weeks about the outcome of the Indian elections I argued five
points. In the voluminous outpouring in the global, Indian and even local media about
expectations for Modis term of office, there have been no sharp differences in respect of three
of the five. In respect of the fourth many have adopted a different emphasis from that which I
intend to press in this piece. !he fifth item pertaining to "anka is no longer open ended# Modi
has committed himself to continuity and to $%&. I will comment on this, but my main topic
today is Modi-'()s economic options.
& summary of the points, without repeating the reasoning in previous essays, is*-
a+ Indian democracy is secure despite the election of a right-wing party with extremist partners
,-.. and .hiv .ena+ and a prime minister with an authoritarian reputation.
b+ !here will be no horrific anti-Muslim witch-hunt despite the triumph of /indutva nutcases,
give or take isolated incidents sparked by .hiv .ena.
c+ 0oreign policy to attract 1estern investment capital and a core security orientation to sustain
and strengthen the strategic link with the 2nited .tates will remain basic.
d+ ,a+ to ,c+ are 3no change predictions, but ,d+ is where I see a difference from the outgoing
4ongress government. Modi-'() will aggressively push forward Indian style neoliberalism,
promote a business and investor friendly stance, and curtail populism cutting subsidies and
welfare. !his will engender mass opposition# not slowly but as soon as austerity is imposed.
e+ 0inally I suggested that Indian policy towards .ri "anka will remain unchanged.
In respect of ,a+ to ,c+ there seems to be no disagreement. & few commentators have expressed
5I hope you are right about the Muslims5 reservations and a few have said relations with
)akistan and 4hina may be strained. 6xpectations of a growth and institutional reform oriented
strategy are universal, but no one has contested my suggestion that austerity for the masses,
and7or concessions to 1all-Mart etc which hurt small shopkeepers, will engender a backlash.
1hile I agree that there will be pro-business changes, I now go further# I now opine that a
ma8or transformation of the Indian economy is not at hand. /ence I partially retract ,d+ as
stated above and amend my case in the section subtitled 5Modis economic options5 below.
0inally the Modi-Mahinda meeting in Delhi has settled prediction ,e+ in the affirmative.
1hy Modi will not embrace Mahinda
!he many reasons for the new government not changing Delhis "anka policy add up to a
single bottom line. 1hats in it for Modi and the '()9 1hy antagonise !amil :adu, not
(ayalalitha alone but everybody including allies9 !he bureaucrats in the .outh 'lock have a
settled policy, why should Modi dump it and drift without anchor9 )ost-;eneva <=$>, would
Indias the new government want to cut loose from the 1est and go a separate way ? where to9
If Modi co@ied to 4olombos pariah reputation, would the '() not play into the hands of
4ongress waiting for anything to hang on to9 'etrayer, traitor to the memory of $,A== 8awans,
turncoat against !amils, imagine the chorusB
!he '() never opposed Delhis policy ,dolts like .ubramanium .wamy aside+ previously, and
the Caypayee ;overnment of $DDE to <==>, to the best of my recollection, stuck to the same
line. It is true that Indias "anka policy was crafted by 4ongress, not the '(), but the '() has
been content to go along with it. &re there reasons now, from Modis narrow or Indias wider
benefit point of view to undertake a radical policy shift9 I cant see any.
&t the same time, local !amils hallucinating that /indu Modi will empathies with saffron
.ivites across the )alk .trait are dreaming atop Mount Kailash. )ersonal styles differ, Modi is a
street fighter, Manmohan .ingh was a gentleman# but policy will remain intact.
Modis economic options
I disagree with the deluge of 1estern commentators and salivating bourgeois think-tanks. 1e
have been flooded by both for two months. !hey slobber that Modi will cut to a brave new
universe. )reviously I did opine the likelihood of Indian neoliberalism, but re-examination
persuades me that Modi-'() will retain the mixed-economy. !here will be some change but no
$E=-degree policy reversal is possible. Margaret !hatcher style counter-revolution is out of the
Fuestion in modern India.
Indian economic policy from <==A to <=$$, compared say to 4hina, has not been a failure. 0ig
$ shows that Indian growth tracked 4hina, recovered from global capitalisms ;reat -ecession
in a healthy upswing in <==D, and remained buoyant up to G<-<=$$. )erformance was upbeat
compared to the 6uro@one, &merica and 2K throughout the last $A years and remains so today
despite an election losing downturn in <=$<-<=$%. !he mixed-economy based model has not
failed# consciously or otherwise 4hinese experience is affecting all developing nations.
)olitically, Indian democracy, pluralism and secularism are strong# they cannot be reversed by
/indutva obscurantism. 1ithout an ideological overturn repression and far right socio-
economic strategies are not doable.
0ig $. India is on the right track
!he growth polygon in fig < shows that the ;D) growth-rate shrank all over the world in <=$<
compared to <=$= ,the <=$< polygon is entirely inside the <=$= polygon+ but India did better
than the other '-I4 economies except 4hina. :one of the 1estern economies even crossed the
%H circle in <=$<. ,!his informative graphic is from the web, but I cant locate the 2-" now+.
1hat I am emphasising is that the mixed-economy model has not failed despite setbacks in the
last two years.
/owever, certain serious but contingent circumstances undermined the 4ongress government.
1hat were the reasons for the setback9 I would assert that it was not the model per se but
contingent factors such as snowballing high-level, high-visibility corruption, inflation, a fall in
the exchange rate and the impact of Manmohan .inghs image as a eunuch and ineffective
leader. !he fall in currency value and inability to control the fiscal deficit contributed to
inflation. Iut-of-control corruption of the politically powerful hit the headlines. :on-
governance issues such as weak long-term investment planning, retroactive taxation, absence of
dollar investment bonds and coalition partners pulling in different directions, derailed the
government. (ettisoning of the mixed-economy in favour of a full-blooded turn to neoliberalism
is not a course that Modi-'() should, can, or I believe intends to take. 1hat we will see is a
more robust and muscular style of leadership, some whip cracking against big time corruption,
but I expect only a carefully managed turn away from populism and subsidies, towards
business friendly policies and neoliberalism.
0ig <. !he '-I4 economies have maintained their advantage
Modi versus the masses
!here is however one structural feature from which there is no getting away. 0igures %a and %b
are based on IM0 numbers ,<=$%+ and forecasts ,<=$E+.
0ig % J b. 'ased on IM0 statistics#
taken from the ''4 website
India is not the worst among debtors and like the others in the graphic the future, looking ahead
five years, is grim for all. It is in fig %b, the IM0s forecast of fiscal outlook prepared before the
<=$> elections, that sinks India. It is the only country in the sample, with the exception of
-ussia, where the fiscal deficit will not be drastically pruned. !he IM0 boffins, for once, seem
to have factored in political reality and understood that no Indian government dare face the
masses on the streets. Modi is hamstrung# he will not commit political suicide. &t the same
time, these '() leaders are business friendly and right-wing, it goes against their marrow to
raise taxes or milk the upper classes for revenue to bridge the deficit. !his cup will not pass#
Modi will have to drain it to its bitter dregs# this will be Modis ;ethsemene and cruxififtion.
!he curious story of corruption
It is said that corruption in India is worse than "anka# that is both true and false. !he number of
"ok .abha members arraigned on corruption or murder charges is a horrendous reflection on
Indian democracy. 'ut you know whatB !he Indian 8udicial system is not a laughing stock at
the beck and call of the regime, nor is law enforcement a lick-spittle stooge# thats why so
many are arraigned. !he proportion that would be prosecuted or convicted in mother "anka if
conditions were similar beggars the imagination. &nd we would have to add to the list, rapists
and drug peddlars. Misdemeanour among members of parliament and state7province legislators
is widespread in "anka# a lot more would be behind bars if our 8udiciary had half the self-
esteem of its Indian counterpart, or law enforcement could do its 8ob without prostrating itself
at the sandals of 2)0& politicos.
!here is however another dimension to corruption in India that is dynamite# bukshe-ra8 is all-
pervasive. &ll-pervasive low-level corruption is driving people to mutiny and rage. .tand in
line to book a long-distance railway ticket, you want a certificate or document, you want an
interview# well, oil a palm at evey step. 4orruption in India is endemic, pervasive and has
soaked down, down, down. !he intellectually challenged Indian press lacks the courage to
place this in perspective. /eadlines, newspaper sales and !C revenue are in splashing billion
rupee political scandals, not social analysis. 1hats the difference between India and 2)0&
politicos9 :ot 8ust a few @eros at the end of a bribeB )aradoxically, much publicised high-level
corruption is but the demiurge of the real demon dirving the Indian public to fury. &ll pervasive
low level corruption is what actually infuriates the public# blaring headlines exposing filthy-
rich scoundrels merely a doppelganger.
!his hydra-headed monster of all-pervasive low-level corruption is not running as fast or as
loose in "anka. In India, neither Modi nor the &am &dmi Movement will tame it any time
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