Figuring out PM Narendra Modi’s vision for India is occupying the attention of analysts of the economy. This effort is far from easy as it entails decoding his alliterative, one-liner driven speeches and policy actions during his first 100 days in power. Deutsche Bank appears to be first off the block in arguing that a ‘clear and internally coherent economic model’ is being articulated by Modi: There is a shift underway from the current services–driven growth process to an East Asian manufacturing export-led growth model as exemplified in countries like South Korea.
On the other hand, there is an equally compelling view that there is no grand theorising that can be associated with India’s premier. Goh Chok Tong, former PM of Singapore, has described Modi as more a man of action, less of an intellectual like Atal Behari Vajpayee. His actions thus far suggest that he is only implementing the unfinished reform agenda of the previous UPA government. In other words, there is no radical departure in the economic model underway, but more of a decisive, single-minded focus on getting things done — that is Modi’s forte – to revive the flagging India growth story.
That India’s PM has been profoundly appreciative of what the East Asian economies have achieved is no secret when he was earlier chief minister of Gujarat. Robert Kaplan, author of the book, ‘Monsoon: The Indian Ocean and the Future of American Power’, asked Modi whether he was trying to create a Singapore or Dubai in Gujarat. Modi reply was no, as Singapore and Dubai are only city–states. There can be many Singapores and Dubais, he argued. But the real punch line was when he forcefully stated that “Gujarat as a whole will be like South Korea. Global commerce is in our blood.”
Whether Modi succeeded in transforming Gujarat into a manufacturing export-led model like South Korea is far from obvious. India and South Korea had a similar income per head of population in the early 1960s, but their paths diverged dramatically thereafter.
The perception that an East Asian model is currently in the works is based largely on his extempore Independence Day address, in which he talked of encouraging export-oriented manufacturing. The government, in its maiden budget, also indicated a desire to attract big-ticket investments in infrastructure like railways, power and highways. Modi has expressed a vision of building a diamond quadrilateral of bullet trains connecting major metropolises in the country on the Tokaido Shinkansen model. He has talked about dedicated freight and industrial corridors and developing 100 smart cities.
Does all of this add up to an East Asian model? Not quite. The East Asian miracle did not happen democratically, but under strong-arm dictators. The state played a huge role in providing credit and subsidies to South Korean big business. There are preconditions at the level of human development that do not obtain in India. Before take-off, South Korea saw huge investments in education that improved literacy and schooling. Land reforms were in place to ensure unlimited labour to work in the export units. India doesn’t have the threshold levels of human development to attempt this trajectory at present.
What is undeniable, however, is that Modi wants to boost the manufacturing sector in a big way and make India a global hub. The previous UPA Government also sought to improve the competitiveness of manufacturing, but was a miserable failure. The share of manufacturing in the nation’s output of goods and services has stagnated at 15-16 per cent. The ground for serious concern is that this sector is not absorbing the millions who are leaving the farms and heading to the towns and cities for work. This is why Modi openly welcomes foreign investors to come and set up manufacturing in this country.
Taking a leaf out of his Gujarat experience, it is not only large industry that is being encouraged, but also micro, small and medium (MSMEs) industries. More than half of the MoUs in the various global investor summits in that state were signed by MSMEs, who are vital in generating employment for thousands of unskilled, semi-skilled and skilled workers. Reforms like improving credit flows, skills, access to raw materials and markets and rationalising regulations provide impetus to MSMEs and manufacturing as a whole. The Modi government’s budget saw an initiative to channelise more credit to this sector.
Far from articulating a new model, he is only fixing what has broken down with the growth story and is very much within the current policy framework. The confidence of investors, foreign or domestic, had virtually collapsed when he took over the reins of office. They need policies to revive investments. They want stability and transparency. They need a government that governs. They need reform. Investors perceive the Modi Government as more pro-active in reducing the costs of doing business. It is trying to unclog the billions of dollars of investments that are languishing due to clearances.
Does the 100-day record suggest that Modi has made some difference in implementing this unfinished agenda? Not on the ground, it would appear. The India head of the world’s second largest telecom major stated that it is difficult to do business here; that this is also the perception of other foreign investors; that from an international perspective, the telecom business here is a mess. These are strong words indeed, underscoring the growing gap between the expectations of the Modi Government and reality. It is only when there is implementation will the economy turn around. For all the talk of an East Asian model, a sobering thought is that even if India grows at a rapid eight per cent, it will take 20 years to reach China’s per capita income!
(N Chandra Mohan is an economics and business commentator based in New Delhi)
N Chandra Mohan