India

India 2.0 — Part One: Will India finally stop disappointing everyone?

October 30, 2014

Part One: Will India finally stop disappointing everyone?
Part Two: We really must talk about Narendra
Part Three: A world power in waiting

Summary

In the spring of 2014, the largest democratic vote in history took place. Between April 7 and May 12, it is estimated that some 537 million people went to the polls in India. Interestingly, they didn’t elect yet another member of the political elite who have run the country for generations, but someone completely out of the mould. The new Prime Minister, Narendra Modi, is from a low caste, a radical Hindu nationalist, and an incendiary speaker at least partly responsible for pogroms against Muslims. But he has a reputation for personal integrity and as an effective manager when he was the Chief Minister (Premier) of the state (province) of Gujarat in western India. A question is whether this consummate politician is the statesman India needs. (See Part Two).

India has been a great power-in-waiting since it became an independent state in 1949. It has the second largest population in the world (1.2 billion) after China, with the 10th largest economy. It has a skilled Diaspora that is so large (some 25 million) the government has a Ministry of Overseas Indian Affairs to keep track of its activities and remittances. India is also a rising military power, armed with nuclear weapons but until recently with conventional military capabilities largely limited to winning wars against Pakistan. Its power and influence are now spreading beyond South Asia and its interests are beginning to clash with those of China. (See Part Three)

But hundreds of millions of Indians are dreadfully poor, society is stratified into castes, corruption is widespread and deep-seated, the state-owned enterprises run huge deficits, the state-owned banks are a cash-cow to finance deficits, the economy is highly subsidized, almost every element of India’s infrastructure needs urgent attention, and its education system is broken. If the country is to play the forceful and positive role in Asian and world affairs expected of a democracy of India’s size, Modi will have to put aside his profoundly divisive “Hindutva” ideology and cultural politics, and focus on the economic reforms India so desperately needs.

The Turn

The “natural governing party” of India has been the Indian National Congress party, one of the longest serving political parties in the world. The Congress has ruled India for all but 13 years of its 65-year existence and has produced seven of the country’s prime ministers. The first Prime Minister, Jawaharlal Nehru, was the primary architect of India’s independence struggle and India’s socialist economy. Others have included Nehru’s daughter Indira Gandhi and Indira’s son Rajiv Gandhi. Rajiv’s widow, Sonia Gandhi, has been president of the party since 1998 and her son Rahul Gandhi vice president since 2012. While both held their seats in the 2014 election, Congress was reduced to 44 seats in the 543-seat national parliament – prompting rumours that Rahul’s more charismatic sister Priyanka Vadra might be in line to succeed him. The Prime Minister from 2004 to 2014 was Manmohan Singh, a former banker and finance minister, who had announced before the 2014 elections that he would not stand again.

The contrast with Narendra Modi’s Bharatiya Janata Party could hardly be greater. The BJP (India People’s Party) is a product of the mergers and acquisitions of failed parties of the past, and its success has come as head of a coalition, the National Democratic Alliance (NDA). Its signal achievement until this year was to win the 1999 elections and complete a five-year term under Prime Minister Atal Bihari Vajpayee, only to suffer heavy defeat in 2004 and take further losses in 2009.

The BJP won in 2014 because of Indians’ dismay with the vast corruption in the Congress Party and its United Progressive Alliance (UPA) coalition in the Lok Sabha (the lower house of Parliament). Stalled economic growth and a desultory campaign led by an apparently disinterested Rahul Gandhi helped. The BJP’s huge harvest of seats, 279 out of 543 (52%), makes it the first party in 30 years to be able to govern without the support of other parties if it wishes. But despite a substantial increase in its share of the popular vote, from 18% in 2009 to 31% in 2014, the BJP did not come close to winning a majority of the electorate. The shift to regional and caste-based parties continued, and in the new parliament the Lok Sabha will feature the largest number of parties in its history (36).

Narendra Modi meets Dr. Manmohan Singh India

Narendra Modi and former Prime Minister Manmohan Singh (By Narendra Modi [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons)

India is a democracy, but in large measure voting does not proceed on a strict basis of one-person one-vote. “Vote-bank” campaigning is the norm when it comes to the lower and disadvantaged castes, including the Dalits (Untouchables), who constitute the majority of Indian electors. Political parties cut deals or bribe sub-caste (gotra) leaders in return for the votes of the members of the sub-caste. In the event, the BJP needed only 600,000 votes to win a seat while Congress needed 2.4 million.

Flush with massive business donations that had previously gone to the Congress party, the BJP’s war chest was well-stuffed for the election and the party spent wisely and effectively. It was hardly an election campaign which could be characterized as clean. The Election Commission of India recorded huge seizures of illegal donations, a small fraction one assumes of the totals deployed.

The Dark Side Of Victory

Modi and the BJP were not reluctant to play the Hindu nationalist card during the election. Modi held a widely reported rally in the city of Muzaffanagar in Uttar Pradesh in northern India. Doing so carried enormous political symbolism. It was in Mazaffanagar in 2013 that Hindus had waged a pogrom against Muslims in which 49 were killed and perhaps 60,000 displaced. Media reporting reinforced the Hindu nationalist sentiment of the rally, and Modi’s messaging did nothing to discourage it.. Nor had his messaging in Assam in eastern India in 2012 where violence between Hindu Bodo tribesmen and Muslim communities had resulted in 75 Muslims being killed and some 400,000 displaced, many of whom are still in refugee camps. Modi had called for the Muslims to be “repatriated” to Bangladesh. The Election Commission censured several senior members of Modi’s campaign team for fomenting inter-communal hatred.

Map of India

India is a multicultural, multilingual and multi-religious country, and its stability rests on inter-communal harmony. Hindus constitute the largest single group, but by some reckonings amount to only about 40% of the population. Their deep-rooted anti-Muslim animosity stretches back to well before the Partition in 1949 when more than a million perished in inter-communal fighting. The consequences of British “divide and rule” policies and the legacy of the Mughal Empire persist to this day: Muslims are systematically denied employment in both public and private enterprises (there is only a single Muslim among the locally-engaged employees of the Canadian High Commission), Muslims can find rentals only in Muslim neighbourhoods, Muslims have difficulty arranging bank loans.

Muslims are not without fault themselves. Domestic Muslim terrorist groups periodically bomb markets and protests have often turned violent. The leaders of Muslim political parties in northern parts of India are notoriously corrupt and self-serving. Most Indian Muslim terrorist attacks can be linked back to a notorious Hindu pogrom against Muslims in 2002 (See Part Two), but the bombing of the New Delhi High Court in 2011 had Muslim Kashmiri roots, a harbinger of worsening security circumstances there.

Modi has a choice. He can focus on the Hindu cultural agenda and further enhance the primacy of Hindus in Indian society, or he can emphasize action to reform India’s economic and structural deficiencies. He cannot do both. His personal history, the political orientation of the BJP, and the radical nature of the thrice-banned Rashtriya Swayamsevak Sangh (RSS) or National Patriotic Organization, to which the BJP is organizationally subject, provide grounds for real concern.

On the other hand, two recent conversations the author has had with senior opinion formers provide some grounds for optimism. A former editor of The Times of India believes Modi’s desire for a revered place in Indian history will sustain his reformist instincts. The editor of a widely respected Mumbai-based financial publication believes that Modi regrets the role he has played in anti-Muslim pogroms, but that a public apology would dismay his BJP rank and file, cut into his vote, and draw the ire of the RSS. Muslims are deeply worried about the future.

Modi Has Begun Well

The BJP’s victory in the lower house was not so complete as to encourage Modi to try to govern alone. With the BJP controlling only five of 29 states, Modi saw the good sense of persisting with the NDA coalition in which many regional parties are represented. One effect was a rather larger Cabinet of 45 ministers than the streamlined group Modi had planned, though key decisions on security and economic issues will be centered in the Prime Minister’s Office.

Modi will have to live with an upper house (Rajya Sabha) in which the BJP is in the minority where the Congress and its allies are already being obstructive. India’s Constitution will require Modi to make deals with state leaders who hold veto powers over elements of his reform agenda. He will also have to work with an enormous federal bureaucracy numbering in the millions, ponderous in its decision-making, risk averse, corrupt, and lined with Congress party sympathizers. The senior levels of the bureaucracy are academically superior to those of most countries, but deeply unhappy over their pay compared to the private sector.

Modi put a centralized and efficient management system in place when he was the Chief Minister of Gujarat, but he relied on state intelligence services to keep tabs on senior functionaries and ensured that assignments and promotions were in the gift of the chief minister’s office. Observers in New Delhi the author has spoken with note that he is likely already employing similar methods in running the national government.

Modi

Modi addresses the ‘Jana Chetna Rally’ at Wardha in Maharashtra

The Reform Agenda

The reform agenda is a long one, with pitfalls and complications attached. Among the most urgent matters are the following:

  • The Congress government’s last budget was starry-eyed, over-estimating both GDP growth and tax revenues. Current deficits are unsustainable, and some combination of pruning at the centre and the transfer of fiscal powers to the states is going to have to be considered.
  • Subsidies in particular must be cut. Doing away with the subsidy on gasoline and diesel, however, would discomfit not only truckers and taxi drivers but the BJP’s core voters in the middle class. The Chief Minister of West Bengal has announced she is opposed to any reductions in subsidies for the harm they would do to Dalits and OBCs (“Other Backward Castes”). These groups, however, don’t ride the trains or take taxis; they walk. But her stance is enormously popular among the impoverished majority of voters. The government will also find it difficult to make adjustments to a hugely popular and reasonably effective, but corrupt and expensive, program to improve the lot of the rural poor which guarantees 100 days of employment every year to every household whose adult members volunteer to do unskilled manual labour.
  • Privatisation would also help improve the fiscal balance and reduce the requirement for frequent financial top-ups. The government is into mining; the manufacture of fertilizers, electronics, and engineering components; transportation; banking, and much else. Many state-owned companies are money-losers, such as Air India which has a debt of more than $780 million.
  • The state banking system is facing a crisis which is going to be expensive to forestall and will drain cash from other urgent requirements. Historically, the state banks have been a cash cow for governments, making loans to companies favoured by Congress ministers and buying government bonds to cover burgeoning fiscal deficits. The loan portfolios of the state banks reflect political exigencies not fiscal prudence. The result today is that state banks are carrying a huge volume of non-performing loans, perhaps as much 15 percent of the total. To buttress their balance sheets, the banks will require large infusions of cash. In contrast, India’s smaller private sector banks are well-run.
  • Almost every element of India’s infrastructure needs urgent attention and heavy investment, and in many instances the government is going to require the buy-in of the states – who will, of course, expect a reward for their compliance. Bedevilling reform in power generation and distribution, for example, is that the former is frequently privately held while the latter is under state or municipal control. Massive theft of power, exceedingly poor equipment, and subsidized prices have financially hamstrung distributors who are in arrears with producers.

India

  • Education has traditionally been one of India’s policy priorities, but the system today is broken. Failure to properly educate its youth means that India will not be able to take advantage of its current demographic bubble as China did. India’s official literacy rate is around 60%, though the real rate is probably considerably lower. In contrast, China’s literacy rate is about 95%. Meanwhile, tens of thousands of expensively educated engineers are mostly unemployable. The headline IT sector has had to set up private universities to re-educate new hires. Many observers believe the public sector school system is now beyond repair, and private schools are beginning to fill the gap. A voucher system is under consideration to help the poor attend private schools. This ought to help incentivize public sector schools, about a third of whose teachers are not in their classrooms on any given day.
  • Reform of the labour laws will be key to improving the prospects for foreign investment in India. Almost every aspect of labour law needs significant updating: dispute settlement, apprenticeship programs, pensions and tenure. Currently, it is virtually impossible to fire a worker from an enterprise with more than 100 employees.
  • Trade liberalization would do much to reduce prices and perk up production, but seems a distant prospect in light of domestic political calculations trumping economic good sense. It is not just a question of reducing barriers to inter-state commerce or introducing a national goods and services tax to help improve the flow of goods. India was also the main barrier to the successful completion of the WTO’s Doha Round of international trade negotiations. In July, the Modi government blocked a WTO-sponsored trade-facilitation agreement stuck last December at the WTO Summit in Bali to streamline world trade, preventing an estimated US$1 trillion expansion of the world economy. For India, the issue has been food security in effect to be able to continue massive agricultural subsidies to Indian rice farmers – and for Modi to continue to do so in the state of Karnataka where the BJP hopes to return to power and in the Punjab now run by an NDA coalition member. Whether rice should be grown in places where irrigation requires pumping water at electricity rates far below cost and depleting the water table is another matter.
  • At the root of it all is corruption: widespread, systemic and deep-seated both inside and outside of government. India ranks 94th on Transparency International’s ranking, behind all other countries in the region bar Sri Lanka and Bhutan; even China does significantly better. Action on corruption ranks very high on Indian voters’ preference list, but the party that placed corruption at the centre of its platform and was the second choice for a great many won only four seats. Most of the party’s candidates lost their deposits.

Conclusion

If Modi is to attain a place of pride in India’s history books, he is going to have to focus on his reform agenda almost to the exclusion of everything else. The agenda will stretch his political and administrative strengths to their fullest, but success would translate into the modern India which Indian nationalists have long wished for and the engaged India which Western democracies have long hoped for. An economically prosperous India whose foreign policy extended past narrow national interest to the pursuit of the security and prosperity of all South Asia and beyond really would be a great power.

When Modi visits Ottawa, the Prime Minister’s talking points ought to be quite brief: Forget about Hindutva and cultural politics. Focus on the reforms that will put India on the track to economic growth. Start thinking and acting like a great democracy.

Continue to Part Two: We really must talk about Narendra

Sven Jurschewsky

Retired Canadian Foreign Service officer who has specialized in political-military affairs, international security and intelligence, and nuclear arms control. Held senior positions at Canadian missions in Berlin, Bonn, Vienna, and Zagreb. Negotiator for Canada on the Charter for European Security and the 1995 extension of the Nuclear Non-Proliferation Treaty. Head of political section at the Canadian Embassy in Beijing during which he was responsible for the establishment of Canada’s diplomatic relations with the DPRK. Political counsellor, Canadian High Commission, New Delhi.

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