By Bill Spindle
NEW DELHI -- Since a landslide victory last year, Indian Prime
Minister Narendra Modi has pushed through a series of controversial
social initiatives that have drawn cheers from supporters but been
criticized as part of a divisive Hindu nationalist agenda.
Now, the country's suddenly flagging economy, which not long ago
was the engine driving India's emergence on the global stage, could
become an even bigger challenge.
The government has estimated the growth rate for the current
fiscal year ending March 31 at 5%, India's lowest since 2009 and
down from a peak of 8.2% in 2017. The unexpected slowdown in what
until The unexpected slowdown in what until recently was the
world's fastest-growing large economy threatens not only to
undermine India's nascent emergence as a global power but to
amplify divisions at home as it becomes even harder to create the
nearly million jobs a month needed to keep pace with the youth
pouring into the job market.
The country's changing fortunes have dented Mr. Modi's
reputation as an economic reformer since his arrival on the
national political scene in 2014. While Mr. Modi grew up within the
Hindu nationalist movement that spawned the Bharatiya Janata Party,
what set him apart as a politician was a reputation for sound
economic management and a global perspective during his years as
head of one of India's most dynamic states.
Economic changes, effective governance, development initiatives
and globalization remained at the top of his administration's
national agenda throughout that first term, enhanced by the
prominent roles played by several reform-minded, U.S.-trained
economists that Mr. Modi brought on board.
Progress was incremental and sometimes flawed, such as Mr.
Modi's overnight elimination of nine-tenths of the value of
currency notes in circulation, but an overhaul of the national tax
system was generally applauded at home and abroad along with the
introduction of a corporate bankruptcy code. Steps were taken to
begin tackling a morass of soured loans weighing on the state-led
The economy picked up pace, surpassing even China's growth rate,
as optimism grew that Mr. Modi was ushering India toward a more
globalized future and a modern economy spurred on by one of the
world's largest and youngest populations.
If the Hindu nationalist leanings of Mr. Modi's Bharatiya Janata
Party were also apparent -- particularly when halfway through his
term Mr. Modi appointed an ideological firebrand priest to head
India's largest state -- they mostly took a back seat, especially
in international perceptions of India.
As Mr. Modi's first term progressed, however, the
internationally minded economists from Harvard University, Columbia
University and the University of Chicago left the administration,
replaced with lower-profile advisers from Indian institutions. The
appetite for difficult economic changes waned, whether it was
privatization of the troubled government-owned airline or tougher
regulations on lenders.
The economy began a slow slide, particularly in the construction
and agriculture industries that India's masses of striving but
still poor families depend on heavily for income.
Change of focus
Yet just as signs were emerging that India's economic struggles
might undercut the BJP's political fortunes in last year's
nationwide election, the focus changed dramatically from economics
after a military confrontation with archenemy Pakistan early last
year. Mr. Modi pivoted to nationalist identity politics on the
surge of angry sentiment against Pakistan that accompanied the
capture, and then release, of an Indian fighter pilot after an
The BJP presented the election as a choice between a forceful
Hindu national leader and opponents it decried as weak in opposing
India's Muslim-majority nemesis and supported by India's own 200
million Muslim minority community. Voters set aside economic
concerns and delivered the BJP a large majority in Parliament and
Mr. Modi a second term.
Since then Mr. Modi has paused only briefly to address the
economy -- most notably with a big corporate tax cut after the
election -- as the BJP has raced to accomplish controversial
initiatives long espoused by the party's most ideological Hindu
They banned a special form of divorce that had been allowed
under Islamic family law, placed the country's only Muslim-majority
state under direct central government control, and cheered when the
supreme court agreed to allow a Hindu temple on a site where a mob
of activists had torn down a mosque they believed sat atop the
birthplace of an important Hindu god.
Each move sparked criticism and questioning from abroad and
increased anxiety among some domestically, particularly Muslims and
a wider group of Indians concerned the country's democracy is
turning in a religiously intolerant and majoritarian direction.
Most recently, the introduction of a law that extends a new path
to citizenship to nearly every religiously persecuted group in
South Asia except Muslims has reinforced those fears, prompting
nationwide demonstrations even as Mr. Modi and the BJP extol the
new law as a humanitarian act that won't affect Indian Muslims.
Yet even as social discontent rises, the economy's stubborn
sluggishness looms as a largely unaddressed menace that could
exacerbate those problems, say many economists.
That's especially true in areas where the social tensions have
been highest, such as the massive state of Uttar Pradesh, which has
a history of violent clashes between Muslims and Indian authorities
that have resurfaced with the citizenship law.
"The focus of this government is more on the Hindu (nationalist)
agenda, " says A.K. Singh, economist and former director of the
Giri Institute of Development Studies, a think tank based in
Lucknow. "Although they talk of development, agriculture continues
to be in quite a bad shape, and industry, particularly in Uttar
Pradesh, is very, very sluggish."
Government officials say they've introduced bold economic
reforms and are making progress cleaning up bad loans in the
But Arvind Subramanian, a Harvard economist who served as Mr.
Modi's chief economic adviser during much of his first term, has
questioned whether the headline economywide measurements may be
flawed, meaning even the 4.5% growth rate the government reported
for the latest quarter through September 2019 could be overstated
by several percentage points.
He notes that imports, exports, consumption and domestic
investment are all in outright decline and overall electricity
consumption is flat, an almost unprecedented confluence of bad news
since the economy was first liberalized during a crisis in
He argues that the still-festering load of bad loans at the
banks is standing in the way of a near-term economic turnaround by
crimping lending. The painful task of reforming the financial
sector will likely need to be followed by politically difficult
changes to bring more flexibility to land use and labor laws.
So far, the Modi government has shown little new inclination for
any of that. "The problem with the Modi government is that there is
very little understanding among the top leadership of the economic
issues, and expert advice is not followed if it does not go to the
liking of Modi," says Satish Misra, a senior fellow with the
Observer Research Foundation, a New Delhi-based think tank.
Mr. Spindle is South Asia bureau chief for The Wall Street
Journal. Email him at firstname.lastname@example.org. Krishna Pokharel
contributed to this article.
(END) Dow Jones Newswires
January 19, 2020 14:47 ET (19:47 GMT)
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