12 Nov 2015
Yes, Modi has made a difference
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But there remains much to do and it will only get tougher
This week India’s Prime Minister Narendra Modi touches down in the UK for his first official visit.
During his election campaign Modi seemed to capture the heart of Indian voters, trading on the vision of a new India free of the bureaucracy that had crippled the country for so long. But 18 months since the BJP secured the first majority government in India for 30 years, can Modi be considered a ‘success’?
To mark the occasion, Odgers Berndtson India put together a report and gathered British and Indian businesses leaders in London to debate the question. The Indian High Commissioner, Ranjan Mathai, made the case for Modi’s achievements in a forceful and convincing address.
Our panelists included:
- Sir Dickie Stagg, Chairman, Rothschild India
- Manvinder Singh (Vindi) Banga, Operating Partner, Clayton Dubilier & Rice
- Phillip Bouverat, Director Global External Affairs, JCB
A victim of his own success
Has Modi made a difference? The consensus seems to be ‘yes’. But despite the High Commissioner’s optimism, there remained an air of caution amongst our panelists who raised questions about Modi’s ability to deliver his vision of India.
All of our panelists agreed that Modi has given India a new lease of life in the eyes of the business community, and foreign leaders. However, they all raised concerns over the sheer complexity of reforming India’s unfathomably complex economy.
These concerns should not take away from Modi’s success so far. After all, he claimed the first majority in 30 years and has given India what Sir Dickie called a sense of “hope and purpose” that has been missing for many years. However, as Vindi Banga put it, Modi’s problem is now “how much change [he can deliver] and how fast”.
Seen in this light, Modi and the BJP are victims of their own success. Phillip Bouverat noted that, because Modi’s government is the first majority in decades and because they managed to inspire and unite the Indian population to a greater extent than anyone in recent history, they are at the mercy of the high expectations of the public that elected them.
Ranjan Mathai, Indian High Commissioner
The evening started with the Indian High Commissioner, taking us through the many achievements of the Modi government, and with India’s growth hovering around 7% and a recent jump of 12 places in the World Bank’s Ease of Doing Business rankings, the High Commissioner was not short of achievements to celebrate.
The Commissioner puts this economic strength down to a number of policies, including the raising of FDI limits in the Insurance and Defence sectors, Modi’s personal efforts to eliminate blockages in state projects (an endeavor that he argues has eliminated wastage equivalent to 1% of GDP), and the government’s push to give states responsibility over their own resources and funding.
The High Commissioner was the first to acknowledge the relief brought by low oil prices, but commended Modi for using this opportunity to remove subsidies and invest these savings into infrastructure.
Mr. Mathai challenged the arguments of Modi’s critics who suggest that underneath India’s economic growth there remain serious social problems. Sir Dickie Stagg and Vindi Banga later suggested that Modi was spending a little too much time travelling internationally to deal with these domestic issues. Mr. Mathai pointed to the 150 million new bank accounts created in the past year, Modi’s challenges to India’s male hierarchy, and his calls for men to “save [your] daughter, educate her”.
Sir Dickie Stagg, Chairman, Rothschild India
There’s “lots to be positive about, but there is a lot left to be resolved.”
Sir Dickie Stagg was keen to divide the question of Modi’s success into the psychological and the real. Whilst maintaining that Modi had been a psychological success, changing the zeitgeist and giving India a sense of hope and identity that has been lacking, he faces numerous battles in the ‘real’ world.
Whilst Sir Dickie noted the shift in decision making away from Delhi, he suggested much of Modi’s success in the economy comes from ‘low hanging fruit’, such as investing in upgrading the railways rather than roads, using low oil prices to remove fuel subsidies, and raising FDI limits in Insurance & Defence rather than the retail sector.
He also warned that the upcoming election in Bihar would prove an important test for Modi’s BJP, suggesting a loss would be a psychological setback.
Three days after these comments, Modi and the BJP were convincingly beaten in the Bihar elections.
Vindi Banga, Operating Partner, Clayton Dubilier & Rice
Yes, Modi has made a difference. However, the next question is “how much [will he change] and how fast?”
Vindi was keen to praise Modi’s successes, such as the successful and transparent sale of state assets to raise money for infrastructure, as well as securing interest from foreign investors after years of neglect. He even gave Modi praise for ‘courageously’ deregulating diesel prices whilst the oil price is low.
But for Mr. Banga, India has been “patient for too long!” He suggests that Modi and the Indian government should push harder to eliminate the uncertainty surrounding tax, resolve the Land Acquisition Bill, promote social justice, and build a co-operative network of states that control their funding and trade skills and expertise with each other.
Vindi went on to say that, whilst Make In India would do some good, the shift towards large scale automation and factory robotics risked large scale job losses in manufacturing. Instead, Digital India held the greater promise for India. With a billion entrepreneurs, the arrival of 4G and coding being taught in schools, digital “will be the big revolution.”
Phillip Bouverat, Director Global External Affairs, J C B
The UK cannot provide the funding for India’s big infrastructure projects, but they can provide the expertise to deliver them.
As the other BRIC countries have begun the slide into recession, Phillip Bouverat highlighted India’s impressive economic position. But, he offered a note of caution. Modi has already picked the low hanging fruit: including some devolution of powers, minor displays of transparency, and some improvement in India’s frustrating bureaucracy- India still stands at #130 in the World Bank Ease of Doing Business rankings.
Modi is now left with the difficult task of engineering sustained growth through investment in infrastructure across India.
Aside from navigating the increasing cost of purchasing land, thanks in part to the Land Acquisition Bill, Modi must ensure projects to do not become bogged down in the bureaucracy that has plagued Indian projects for decades.
Modi has already secured finance for some of these projects, with Japan offering $35bn. He must now break from Indian tradition and employ a delivery partner with the expertise to deliver these complex programs independently from government, whilst retaining accountability for their success.
With projects such as the London’s Olympic Park under their belt, this is where the UK can re-establish its connection with India.
However, before any of these projects, in particular road building, can get underway, Modi and his government must push a number of controversial bills through a an uncooperative legislature.
A tough road ahead
In summary, the consensus was clear: Modi has made a difference. India’s self-image has been transformed, international interest in India has increased, and many useful reforms have already begun. But tough challenges lie ahead.
It is not yet clear that Modi can deliver all that he has promised, and all that the world and his own people have come to expect.