Modi One Year On: A Good, Bad or Indifferent Performance?

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1 12 25 May 2015 Modi One Year On: A Good, Bad or Indifferent Performance? Lindsay Hughes Research Analyst Indian Ocean Research Programme Key Points Modi was elected with an anti-corruption and economic growth mandate. This was a direct outcome of the disgust felt at the corruption and coalition politics of the previous government. Figures indicate that the Modi Administration has fared fairly well in its first year in office. It has, however, failed to meet some targets in creating employment opportunities and alleviating the problems of the rural sector. A major hurdle it faces is the weight of expectation of a section of the electorate. The Modi Administration will need to implement policies that address these and some other issues in the next three years if its success or otherwise is to be more accurately assessed. Summary The Modi Government will mark its first anniversary in office on 26 May. Prime Minister Narendra Modi was swept into power on a wave of public disgust at the corruption of the preceding UPA Government, which was nominally headed by Prime Minister Manmohan Singh. Modi faces a monumental task. He needs to put policies in place that will address India s many political, social, economic and military shortcomings and simultaneously communicate to the general electorate what he is doing, why he is carrying out reforms and what he hopes to accomplish by implementing these reforms.

2 Analysis Ex-Prime Minister Manmohan Singh, despite being seen to be impervious to corruption himself, was blamed for allowing the President of the Indian National Congress Party (the Congress Party), Sonia Gandhi, to rule the country by default. So far had corruption spread that her son-in-law, Robert Vadra, was alleged to have been responsible for illegal land deals. Cronyism, too, had reached a new high. When, for instance, the car in which Vadra, again, was travelling was overtaken in traffic by another, the driver of the second car was arrested on a trumped-up charge. Worse yet, Vinod Rai, who held the office of Comptroller and Auditor General of India between January 2008 and May 2013, produced a report in 2012 alleging that the country had lost US$30 billion by giving coal mining rights ad hoc to the private sector rather than auctioning them. Rai s allegation, which was seen by the public and media as proof that the administrative machinery was corrupt and by those involved as ridiculously excessive, stood vindicated when in recent months over twenty coal mines named in his report were re-auctioned and raised US$33 billion. But worse yet was the allegation in Rai s report that a member of Singh s UPA coalition, A. Raja, who headed the Ministry of Telecommunications, refused to auction the 2G spectrum to licensees and to make the distribution process equitable and transparent. In the event, he raised approximately US$2.8 billion from the sale of licences. Rai s report re-valued the spectrum sold, according to several benchmarks including the rates obtained by the sale of the 3G spectrum, at US$40 billion. Apart from these incidents, India suffers from systemic failures to curb graft and corruption. The elections that brought Modi to office cost, according to one estimate, close to US$5 billion. More importantly, corruption has been responsible for the continued and growing disparity in wealth distribution in India. It has created a small but powerful class of oligarchs, leaving India with a higher proportion of national wealth in the hands of this favoured few than any other major emerging economy except Russia. Polls indicate that nine out of ten Indians thought the country was corrupt and becoming even more so. It was under these circumstances that Modi swept to power in 2014 with a mandate to curb corruption and revitalise the economy. So huge was the swing towards his BJP Party - it eventually won 336 of 543 parliamentary seats - that the BJP Party could have formed government by itself had Modi chosen to do so. So how has Modi performed one year into his four-year term? Going by the figures alone, Modi appears to have done well. In March this year, the IMF forecast that India will become the fastest growing emerging market in Its GDP growth of 7.2 per cent Page 2 of 6

3 would overtake China s at 6.8 per cent. In April, Moody s raised India s credit rating from stable to positive and left open the possibility of a further upgrade in A PwC survey of CEOs found Indian business leaders to be the most optimistic in the world. The Modi Administration has proposed a goods and services tax in what the Finance Minister, Arun Jaitley, calls the biggest tax reform the country has ever seen. If this can pass through parliament it could create revenue that the government requires but fails to access because only an estimated three per cent of all workers pay income tax. An overarching tax such as the proposed GST could also standardise the plethora of central and state taxes into a unified tax that has the potential to increase revenues, productivity and manufacturing while simultaneously reducing corruption and the difficulty of doing business in India. The Modi Administration is, similarly, seeking ways to acquire land, especially in rural India to facilitate the creation of factories and other projects. This, however, requires deep thought and flawless execution if the number of suicides by farmers due to financial difficulties is to be reduced. A major hurdle that the Modi Administration faces is its own popularity. The government was elected based upon very high expectation. This was, in turn, based on Modi s performance as the Chief Minister of Gujarat which, under his government, averaged around ten per cent growth per annum. Managing a highly diverse country of 1.2 billion people is, however, a very different ball game. The high expectations of some voters have led to a feeling of disillusionment with his government and are reflected in the opinion polls below: In general terms, the Modi Administration s overall performance has met an approval rate (to varying degrees) of around two-thirds of the population with a further quarter seeing no real increase in performance but no deterioration, either. In terms of the creation of Page 3 of 6

4 employment opportunities, policy development, infrastructure development and governance, the Modi Administration was rated according to the graph below: Here, again, around two-thirds of the population see an improvement over the former government, except in the creation of employment opportunities where that percentage tapers off to less than half. In other words, if Modi is to create more employment opportunities he will need to push his proposed Goods and Services Tax through parliament in as close to its current form as possible. This will entail persuading the Upper House of Parliament, the Rajya Sabha, to pass the proposal. This will be difficult as his government is in the minority in that House. His Administration, however, received fairly good scores in another survey: Page 4 of 6

5 The major failing, once again, is in domestic perception, which can be attributed to high (and, likely, unrealistic) expectations. On the other hand, the rated foreign perception of Modi as a can do Prime Minister is very high, receiving nine out of a possible ten points. This could be due to the number of trips he has made out of the country since coming to power. Poor domestic perceptions can also be attributed to falling social sector spending and the on-going problems that the administration faces in rural areas, as evinced by the figures below: Page 5 of 6

6 In conclusion, the Modi Administration has done a fairly good job in its first year in office. While opinion is divided in some cases (employment and the rural sector come to mind immediately), it has performed well in many others. It is to be hoped that, more than anything else, the past year was spent in designing policies that can be implemented in full from the next year. If Modi and the BJP are to fulfil their desire to remove the Nehru-Gandhi dynasty as a competitor for political power in India, it becomes critical that efficient policies pertaining to employment, manufacturing and the rural sector are not only implemented soon but are seen to be done in a manner that serves as many people as possible in these areas. This will have the added benefit of enhancing public perceptions of his government. While the first year in government is important for Modi, it is really the next three that will be critical. ***** Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. 80 Birdwood Parade, Dalkeith WA 6009, Australia. Tel: Fax: Web: Page 6 of 6

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