Soft power, hard choices

Substantive policy changes and not speeches alone would determine the success of Narendra Modi’s desire to bolster investment and encourage tourism and manufacturing.

Prime Minister Narendra Modi has to move on several fronts simultaneously to fulfil expectations he has generated in various constituencies. Through his foreign trips, especially the high-profile U.S. visit, and his interaction with foreign dignitaries, Mr Modi has declared economic issues to be the focus of his foreign policy. But substantive policy changes, not speeches alone, would determine the success of his stated desire to bolster investment and encourage tourism and manufacturing.

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Mr Modi’s recent trip to the U.S. was the first time that an Indian Prime Minister pitched India’s case not only at the United Nations or the White House, but also at broader constituencies including the general American public at a concert in New York’s Central Park and the Indian diaspora through a rally in Madison Square Garden. Mr Modi spoke to CEOs of multinational corporations at breakfast, held several one-on-one meetings with corporate heads, and made a pitch for his ‘Make in India’ idea through an op-ed in The Washington Post. After pitching his case to three constituencies — the Indian-American diaspora, the American business community and his voters back home — Mr Modi must now deliver. The laundry list of his promises, both explicit and implicit, is not short and might require bureaucratic as well as legislative action. To the Indian American diaspora he promised lifelong visas and a reduction in red tape. For the American corporate sector he has promised procedural reform and enhanced investment incentives. To the Indian voter he made appeals about reviving India’s past glory; he spoke of taking advantage of the demographic dividend, the need to improve sanitation, to provide clean water and to boost local incomes by attracting more tourist dollars.

Pursuing potential partners
Mr Modi appealed to the Indian diaspora to not just invest in India but also encourage travel to the mother country. He promised to eliminate unnecessary rules and regulations, make the government more transparent and accountable and thus improve India’s ease of business rankings. His government now plans on repealing 287 outdated laws, most of which date back to the British colonial era, in the upcoming winter session of Parliament. If Mr Modi pulls that off, he would be able to translate the enthusiasm of a high-profile trip into policy momentum.

Continuing in the mould of the previous National Democratic Alliance regime, Mr Modi’s government has also promised to improve infrastructure, focus on both cities and villages and on sanitation, health and education. But specific plans have to gradually unfold for specific schemes, and each plan must then be financed. Mr Modi appears intent on securing international partnership for his grand ventures. The concept of using external relations to fund development is not new, but he may have injected fresh vigour into an old idea.

During the Prime Minister’s trip to Japan, the Shinzo Abe government renewed Japan’s commitment to help develop India’s infrastructure. Japan has already committed $1.5 billion for Delhi’s mass rapid transit system and will also assist development of the Delhi Mumbai Industrial Corridor. China has committed to investing $20 billion in India in the next few years, most of which will be in the area of manufacturing and infrastructure. Given Mr Modi’s ambition, which now appears to have become India’s aspiration, these are still only a fraction of what the country needs. The government will now have to pursue other potential partners and investors to generate financing for infrastructure projects that are still on the shelf or the drawing board.

Growth in manufacturing
India’s economic growth since the liberalisation of the 1990s has been driven by the services industry. However, India’s large and youthful population needs jobs and expansion in manufacturing. This is essential for the country to maintain high rates of growth. India’s license-quota raj system, excessive bureaucracy, decrepit and often non-existent infrastructure, as well as power and water shortages, have hampered the manufacturing sector so far.

In addition, India’s land acquisition laws and labour rules have ensured that manufacturing has been capital-intensive, not labour-intensive, and is often aimed at land acquisition as an asset. All this must change, and change fast, if Mr Modi expects to turn India into a global manufacturing hub — the aim of his ‘Make in India’ programme. The government needs to move forward on reforming labour laws. It must change the Land Acquisition Act passed by the previous government, in addition to finding ways to ensure regular supply of power and water and improving infrastructure.

India’s leaders have always sought to incorporate India’s ancient civilisational heritage and traditions into the country’s foreign policy to carve out its unique place in the world. Mr. Modi too has followed this policy but has sought to adapt it by honing his core domestic constituency, the youth. In his speeches in the U.S., the Prime Minister repeatedly spoke about the role that India’s youth — which is talented, innovative and yet proud of its heritage — can play in helping the country achieve the goals that it has set for itself and the expectations the world has of it. The Modi government has yet to set out an effective plan for taking advantage of India’s demographic dividend.

The Prime Minister has raised hopes and attracted international attention by outlining a vision for a market-friendly India. Non-Resident Indians appear to be enthused by the prospect of putting their money into the country of their origin. Global corporations are expanding their India research teams to look at opportunities.

The media, too, has withheld scepticism within reasonable limits. But at the end of the day, the pace at which he implements reforms will determine Mr Modi’s success. Legal and regulatory changes must now come with the same, if not greater, efficiency as the song and dance that accompanied Mr Modi’s triumphant New York spectacle.

This piece was first published in The Hindu on October 20th, 2014.