[By most measures, India’s
economy has had a good year. India is heavily reliant on imported oil,
and plunging prices have cut the cost of government fuel subsidies, allowing
the authorities to rein in a chronic budget deficit. Inflation fell to 4.87
percent in April. Foreign direct investment rose by more than 25 percent, to
$28.8 billion in the 2014-15 fiscal year.]
By Ellen Barry
 |
|
Mr. Modi in Mathura,
southeast of Delhi, before his speech Monday
marking the anniversary of his
inauguration.
Credit Money
Sharma/Agence France-Presse — Getty Images
|
NEW DELHI — Standing before India on
the first anniversary of his swearing-in, Prime Minister Narendra
Modi on Monday gave a speech that was notable for the subjects
it avoided: Large-scale job creation. Manufacturing. Urbanization.
Mr. Modi instead
delivered an ode to struggling India. During the speech in Mathura, a town
about 90 miles southeast of Delhi, he lavished attention on farmers and said
that mom-and-pop traders, not “big industrialists,” should be India’s crucial
driver of job growth. Most of all, he praised the poor, who he said “will
become my warriors.”
The shift was telling.
After soaring through India’s political stratosphere on the economic promise
“achche din aa gaye,” or “better days are coming,” Mr. Modi must face the
reality that much of his agenda is still only potential.
From abroad, India is now
seen as a bright spot, expected to pass China this year to become the world’s
fastest-growing large economy. But at home, job growth remains sluggish.
Businesses are in wait-and-see mode. And Mr. Modi has political
vulnerabilities, as parliamentary opposition leaders block two of his central
reform initiatives and brand him “anti-poor” and “anti-farmer.”
Most formidable of all is
a problem Mr. Modi has made for himself: outsize expectations that he would
sweep away constraints to growth in India, like stringent laws governing labor
and land acquisition.
“Their image became
larger than they themselves,” Vimarsh Razdan, senior vice president at Orient
Craft, one of India’s largest garment exporters, said of Mr. Modi’s
government. “They have become superheroes. And everyone knows superheroes don’t
exist.”
A year ago,
businesspeople were awaiting Mr. Modi’s arrival in New Delhi with eagerness and
a bit of apprehension: In Gujarat, the state he led for almost 13 years as
chief minister, he was known for his concentration of personal power, his
dislike of red tape and his sometimes intimidating manner.
Since then, India’s
business culture has indeed changed, chief executives say. They rejoice that
they no longer have to notarize all documents submitted to the government and
say that it is far easier to find bureaucrats at their desks during the
workday. Sudhir Dhingra, the founder of Orient Craft, says that only about
one-third as many inspectors are showing up at his factories and that they are
“fearful of accepting money.”
Mr. Modi has built a
centralized system that requires business deals to be routed through his
office. Gone are the informal meetings that business leaders used to hold with
ministry officials, often to hash out policies regulating their sectors. As for
Mr. Modi, business leaders have found it hard to cultivate him socially.
“This one year has taught
the businessmen one thing: Meeting him at weddings, or meeting him at seminars
or whatever, doesn’t give them any advantage,” said Rajeev Chandrasekhar, an
independent member of the upper house of Parliament and a technology
entrepreneur.
“For me, and I have been
around for a while, this is very, very unusual,” he said. “A lot of people are
having sleepless nights because of that.”
By most measures, India’s
economy has had a good year. India is heavily reliant on imported oil,
and plunging prices have cut the cost of government fuel subsidies, allowing
the authorities to rein in a chronic budget deficit. Inflation fell to 4.87
percent in April. Foreign direct investment rose by more than 25 percent, to
$28.8 billion in the 2014-15 fiscal year.
The government has
introduced a flurry of changes: It has deregulated prices for diesel, petroleum
and cooking gas, and raised limits on foreign investment in the defense and
insurance sectors to 49 percent. It has opened 125 million bank accounts for
poor families, with the goal of eventually replacing food and fuel subsidies
with cash transfers to prevent corruption. Coalfield leases, found to have been
sold at artificially low prices, were reallocated through a transparent process;
so were telecom spectrum allocations.
Those urging Mr. Modi to
introduce deep structural reforms, however, have been disappointed.
Raghuram Rajan, the
governor of the Reserve Bank of India, told an audience in New York last week
that many people saw Mr. Modi as “Ronald Reagan on a white horse” coming to
slay anti-market forces, and that the image was “probably not appropriate.”
He added that the
government “has taken steps to create the environment for investment, which I
think is important.”
Mr. Modi’s only truly
risky change to date — muscling through an executive order easing the
government’s ability to obtain land for development — backfired this spring
when he tried to transform it into a permanent law. The proposed law met a wall
of protest from a rejuvenated opposition declaring that Mr. Modi was
“anti-farmer.”
Charges of cozying up to
business must sting for Mr. Modi, said Shekhar Gupta, a journalist, especially
after his party’s crushing defeat in February elections in Delhi. He was
criticized there for wearing a customized suit with pinstripes made of
embroidered script spelling his name.
“It’s taken away from him
the basic image of a tea-seller who became a country’s leader in his own
right,” Mr. Gupta said.
Economic grandees have
their own grievances with Mr. Modi, which they are increasingly willing to
express. One damaging assessment came from Arun Shourie, an economist and
former minister with Mr. Modi’s party, who said the government lacked a single
unifying vision on economic policy, and was “directionless, a great
disappointment.”
Deepak Parekh, chairman
of HFDC Bank, complained that procedures for obtaining funds had become more
onerous, not less so, under the new government. And he described “a little bit of impatience
creeping in as to why no changes are happening.”
Jayant Sinha, a former
investment fund manager who is now the minister of state for finance, said
these complaints were the natural result of fiscal and monetary consolidation
that the government had undertaken to control inflation. Their “economic pain”
will ease over the next several months, he said, as the investment cycle picks
up.
“Everyone is saying,
after a year, ‘Where are the good days? Why hasn’t growth picked up?’ ” Mr.
Sinha said. “It is natural for them to feel challenged in an environment like
that. Analysts and economists, forward looking, feel that India is on a very
sound footing and feel we can now drive hard for growth.”
The Reserve Bank of
India, he added, “can cut rates now.”
But some limitations of
Mr. Modi’s ability to transform India’s economy are coming into focus. Mr.
Modi’s large electoral mandate gave him control of only one house of
Parliament. In domestic affairs, he must cope with a huge, fragmented
bureaucracy.
One example came early
this year, when the tax authorities alarmed 68 foreign investment funds by
demanding, for the first time, a payment of a 20 percent levy on capital gains
made over the last three years. It contradicted Mr. Modi’s vow to end
retrospective taxation, and as foreign capital fled the country early this
month, the government scrambled to calm investors.
Arvind Subramanian, chief
economic adviser to the government, said the episode showed how difficult it
was to centralize authority in domestic policy. He compared Mr. Modi to
President Obama — “taking decisions on his own” in the realm of foreign policy,
but constrained in the domestic sphere.
“In that case it was a
recalcitrant Congress, in this case it’s the bureaucracy,” he said. “Power is
so dispersed that you cannot expect speedy decision-making across the board.
It’s a grinding process. Notice I am not saying it won’t happen. I am saying it
will happen, but it will happen slowly.”
Opinion polls suggest
that Mr. Modi remains quite popular, with approval ratings upward of 60
percent, even where there is little evidence of economic improvement.
On a dusty roadside in
Greater Noida, outside Delhi, on Monday, Gaurav Dikshit, 24, a construction
engineer, looked at the hulking shapes of a dozen half-finished high-rise
apartment buildings, projects in limbo because of land litigation. Around him,
billboards exclaimed: “Gold Coast Golf Course and Lake-Facing Luxury
Apartments!” and “Aryan International School.” But Mr. Dikshit, who earns
around $400 a month, has put his plans to move into the neighborhood on hold.
“I expected that prices
would come down,” he said. “I expected that real estate would boom. That has
not happened. I thought there would be more jobs on the market. I thought I
would be able to change my job. That has not happened.”
But he said he still had
a feeling that things were going to turn around in Greater Noida. “If you plant
fruit trees,” he said, “it still takes some time to get fruit.”
Hari Kumar contributed
reporting.
