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Having fashioned an election campaign built around governance and the economy, what may one expect on economic policy if Narendra Modi becomes the prime minister of India?
The magnitude of what Modi will be able to do will be directly proportional to how close the Bharatiya Janata Party (BJP) and its allies get to the magic number of 272, if they do not surpass it.
While exit polls suggest a big win for the BJP, they have been known to be off the mark in the past. Let us, then, consider all possible scenarios.
If it is a weak government, Modi will most likely spend the first few years in office consolidating politically before venturing forth on more controversial matters.
At the very least, though, one can expect administrative reforms that would attempt to speed up the notoriously creaky Delhi bureaucracy, emulating, to the extent possible, the Gujarat model of expeditious project approval. This, coupled with a few headline-grabbing infrastructure projects, should signal to corporate houses and investors—both domestic and foreign—that India is open for business again.
Further, as a leader who will move to the centre from a state, rather than being a Delhi political insider, he will most likely reach out to potential allies amongst chief ministers, rather than attempt the fruitless task of getting ambitious legislation through a fractious Parliament.
Modi has already suggested that a politically difficult subject, such as labour law reform, could be handled in such a manner, and there is every reason to believe that this might be a template for handling more contentious items on the economic policy agenda.
In other federal states, such as the US or Canada, regions often serve as laboratories for economic policies that may be seen as too radical or unpopular to win ready acceptance at the centre. Success in one region may then invite leaders in other regions to emulate; by the same token, failed policies will not be attempted elsewhere; and the best ideas generated in the states may then “trickle up” to the centre in due course.
Ironically, then, quite unlike the would-be authoritarian who is expected—at least by his critics within the liberal establishment—to ride roughshod over India’s democratic institutions, Modi may well execute a greater decentralization of economic (and other forms of) policymaking in India.
Let us assume, instead, that the exit polls are correct, that Modi and the BJP receive a strong mandate—an absolute majority, or close.
Should free marketeers be popping champagne? Can we expect Modi to turn into an ardent economic liberalizer?
This is where rhetoric needs to meet reality.
For while Modi has indeed repeatedly invoked the phrase “maximum governance, minimum government”—which would make a Ronald Reagan or a Margaret Thatcher proud—he has been careful to avoid going into too much detail on how exactly he would put the mantra to practice. To the contrary, he has even repeated the usual Congress-style platitudes of giving the poor first dibs on the state’s coffers and so forth.
Some of this is just sensible electioneering—after all, there is very little to be gained, and much to be lost, by being too specific in advance of an election win on controversial matters of policy.
But there is more to Modi’s reluctance to embrace a liberal economic policy agenda than merely being a shrewd politician. Modi’s instincts are certainly pro-business, but are they pro-free market? Apart from the four word mantra, there is little to go by. Indeed, unlike the US or the UK, India has lacked, and continues to lack, an intellectual ethos in which a forthright articulation of pro-market policies may find succour.
This is where the Reagan and Thatcher analogies so frequently invoked go awry. For while they most certainly pushed against a leftist consensus in their respective countries at the time that they burst onto the scene, each could hark back to an older intellectual and political tradition which put the market first and the state second.
And it is not as if they had to go back to Adam Smith for inspiration. The ties were very direct: Thatcher could seek counsel from Friedrich von Hayek and Reagan from Robert Mundell—and they did, giving them the necessary intellectual foundation to then articulate a case for, say, privatizing state-owned enterprises or making a “supply side” case for tax cuts.
Modi can certainly seek the advice of Jagdish Bhagwati and Arvind Panagariya, and hopefully he will. But the intellectual mainstream in India remains, alas, so far to the left of centre, that pushing forward major economic reforms is going to remain a tough sell for the time being.
The good news is that a pro-business, results-oriented Modi cannot possibly be worse for the economy than the outgoing government; and, freed from the paralysis induced by a dual power structure, may well be a good deal better.
In the longer run, in the wake of a Modi victory, the best hope for a more radical reform agenda will be the birth of a new intellectual ecosystem in which centre-right economic thinking will be mainstream and Marxist economics will be on the fringe—the reverse of today.
Vivek Dehejia is a professor of economics at Carleton University in Ottawa, Canada.
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