India’s election and the economy: A useful campaign

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IS THE ghost of Margaret Thatcher lurking in Indian politics? Rahul Gandhi, a leader of Congress party, which is best known for promoting welfare, has taken to saying that “poverty cannot be fought without growth” and praising markets for creating wealth. Last week Arvind Kejriwal, head of AAP, a left-leaning party of urban, anti-corruption types, told business leaders he now likes capitalism, just not cronyism. He says an end to the “inspector raj and licence raj” would cut graft and free business to create jobs.

That was perhaps mostly posturing. More outspoken is the front-runner to be prime minister, Narendra Modi of the Bharatiya Janata Party (BJP). In Delhi on February 27th he and Arun Jaitley, a potential finance minister, hosted liberal-leaning economists, business leaders, bankers and investors for a daylong seminar on raising growth. That marked the start of the BJP spelling out its economic policies. Mr Modi (some of whose supporters are pictured above) has long talked up his pro-business record as Gujarat’s chief minister.

Such rhetoric suggests a welcome shift in Indian politics—notable given a general election due by May. For years Congress dominated nationally by ignoring how growth is sustained, but promising handouts, especially to villagers, through make-work schemes, subsidies on food, fuel and fertiliser and cash transfers. That approach now brings shrinking electoral returns, ironically, as rural voters get less poor. After a decade in power, Congress has a rotten reputation at economic management: debts, high inflation and joblessness, combined with dire performances by manufacturers, leave many gloomy.

Voters crave a change. Polls (even if you set aside chronically corrupt Indian ones) point to a BJP victory, perhaps a big one. Few now seem bothered by Mr Modi’s controversial past, presiding over communal riots in Gujarat, in 2002, when over 1,000 people died. A national survey released on February 26th by the Pew Research Center, an American body, suggests voters favour a government run by the BJP over Congress by a startling 63% to 19%. For the first time, the BJP could win more votes (and more seats) than Congress, a powerful national mandate.

Indians are fed up: 70% say they are dissatisfied, says Pew. Alarmingly for Congress, rural voters are as surly as town dwellers, despite successive gushing monsoons and bumper government prices for their rice and wheat. Respondents everywhere (by a ratio of at least two to one) say the BJP would do better than Congress at cutting inflation and corruption, helping the poor and creating jobs.

“I’ve rarely before seen this profound yearning for change”, says Ravi Shankar Prasad, the BJP’s deputy leader in the upper house of parliament, arguing that poor leadership is behind India’s current economic “disaster”, as growth has weakened from 8.5% a decade ago to less than 5%. At rallies Mr Modi sneers that a feeble “economist prime minister”, Manmohan Singh, is to blame. By implication: a strong, decisive leader—himself—would turn everything for the better.

Congress’s Harvard-educated finance minister, Palaniappan Chidambaram, who presented his interim budget last week, says derisively that what Mr Modi knows about economics “can be written on the back of a postage stamp”. Such sniping sets a tone for what may be a bitter campaign. But the criticism may not matter. Mr Modi lacks formal economic education, but points instead to Gujarat’s rapid economic growth in his dozen years of rule (see chart), implying he could pull off something similar for all of India.

Could he? So far, he is short on detail. BJP leaders, and a growing army of gushing commentators and economists, say there would be an immediate boost in confidence if Mr Modi wins. Better administration alone, they say, would see investors enthused and animal spirits racing. A powerful prime minister’s office would have the authority to get bureaucrats to take decisions quickly. That could end a big reason for today’s painful delays: civil servants who dread later corruption investigations, blocking investors’ projects. In theory, such fears will disappear under new political masters.

Far more useful would be details of how Mr Modi would slash regulation, taking opaque, discretionary powers from civil servants and politicians. For example: to boost job creation, a BJP government could return to earlier plans to ease industrial-dispute rules. These require any firm with 100 or more workers to get government permission to close. No wonder investors prefer to build factories anywhere but India. So far Mr Modi has been vague on the topic, though he talks of devolving labour laws to individual states which in theory could see them eased.

Liberal-minded BJP supporters now predict other reforms. In office, the party is likely to take up pro-business policies it has resisted while in opposition. Among the first is a plan to replace existing state levies on goods and services with a standard, national tax, to create a single Indian market for the first time. That alone could give a big boost to the economy. The BJP’s hostility to foreigners investing in Indian shops is likelier to persist but it should grow readier to see outsiders involved in insurance and other financial services.

Sameer Kochhar, author of “Modinomics”, one of many new books claiming insight into Mr Modi’s economic plans, foresees a big increase in spending on infrastructure, just as Gujarat has seen better roads, power and ports. The desire is certainly there. The BJP leader himself talks grandly, but with few convincing details, of building 100 “smart” cities, a national network of Japanese-style bullet trains, and irrigation works to link up large rivers. It is unclear, however, how he would pay for this.

Mr Modi also says his government would be better at doing less. During the BJP’s last spell in office, from 1999 to 2004, it set up a privatisation ministry and oversaw the boom in private investment in telecoms. Observers talk next of selling off the ailing state carrier, Air India, or reducing government holdings in various banks.

So far, sadly, the BJP offers far too few details to judge how comprehensive a reform programme it would follow. Still, it is encouraging that politicians of various parties talk of creating conditions for restoring high economic growth, not just spending the proceeds of it. “India has recognised that we have to be a market-based economy”, argues Gurcharan Das, a writer and former local head of Procter and Gamble, calling Mr Modi “the best chance we have of getting back to high growth”. In India, it was long said, the left has no viable economics, but the right has no viable route to power. Mr Modi may be changing that, too.

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