Narendra Modi’s Year of Living Dangerously

by Sanand Dhume, ‘The Wall Street Journal,’ December 29, 2016

When Narendra Modi stormed to power two-and-a-half years ago with India single-party majority in a generation, much of the world expected a vigorous economic reformer

When Narendra Modi stormed to power two-and-a-half years ago with India single-party majority in a generation, much of the world expected a vigorous economic reformer who would fight with all the unknown issue of foreign policy.

Midway through the prime minister’s period, his record indicates the reverse of those expectations. Mr Modi deserves credit for his surprisingly deft management of complex tactical problems. By adhering to a quixotic path detached from both history as well as the broad national consensus among experts on reforms but he has damaged his international standing.

Barring an unexpected course correction, his dearth of concrete economic accomplishment will almost surely undercut the prime minister’s target of making India a more assertive player on the world stage. It will also likely booth Mr. Modi’s challenging bid to transform his image from provincial strongman to global statesman on the course to modernizing Asia’s third largest economy.

Two major decisions this year capture the peculiar mixture of agility and clumsiness that define Mr Modi’s record. In September, Indian strikes on alleged terrorist sanctuaries in Pakistan-controlled Kashmir marked a daring departure from a failed policy of fighting jihadism. Six weeks later, a choice to abruptly scrap 86% of India’s currency bills by worth—in a nation where more than 90% of trades come in cash— brought deep economical pain for the dubious increase.

This is consistent with GDP growth this year of less than 6%, decidedly anemic to get a country with India’s low level of per capita income. The total effect of the economic shock remains uncertain, but reams of anecdotal evidence suggest large-scale job losses, small firms tipped into disaster, and jittery businessmen.

What makes his economic policy mostly a failure, and Mr Modi’s foreign policy mainly successful?

For one, the prime minister’s perspective of the world appears securely anchored in a precise reading of history along with the best traditions of his ruling Bharatiya Janata Party. On his watch, ties with Japan, the U.S. and Israel—like-minded democracies with much to offer India in technology, military hardware and worldwide influence—have blossomed.

Mr Modi has picked competent officials to give his tactical instincts policy content. Defense Minister Manohar Parrikar has shaken his ministry out of nearly a decade of lethargy. National Security Advisor Ajit Doval brings intent and acute penetration to India’s long war against terrorism. Foreign Secretary Subrahmanyam Jaishankar, who served previously as ambassador in Washington and Beijing, has fashioned a foreign policy that expertly mixes continuity with change.

To be sure, not everybody concurs that India should be tougher on Pakistan-backed terrorism and closer to the U.S. and its allies. For several old school foreign policy pundits in Delhi, those are heresies. The Modi government hasn’t exactly gone out on a limb. The prime minister’s choice to attack Pakistan-based terrorist groups, for example, was in line with what many hawkish tactical thinkers had long proposed.

On economic policy, by contrast, Mr. Modi seems to be at war with Mr Vajpayee’s legacy. Instead of recognising his BJP predecessor’s fundamental insight—that India had stayed poor as the authorities choked economical task—Mr. Modi has doubled down on bureaucracy in an impractical effort to deliver economical development by fiat.

Leading privatisation remains delayed. Nobody even talks about getting cleared of state-owned white elephants such as the telecom company that is chronically inefficient or Air India BSNL. Nor does the prime minister appear exceedingly worried about quashing the most productive parts of the market. The revival of the infamous “raid raj” of India’s socialist heyday could keep investment depressed and employment flat while enriching sticky-fingered tax inspectors on a perennial hunt for black money that is “.”

Demonetization, as last month’s dangerous note ban is famous in popular parlance, also threatens the political consensus behind the authorities’ crowning economical achievement to date—getting India’s squabbling regional satraps to consent to a national goods and services tax to replace a spaghetti bowl of smaller levies. A scheduled rollout in April 2017 appears increasingly unlikely, plus some states are calling for additional postponements.

Though Mr Modi’s government counts some of India’s finest economists—including such consistent advocates of reasonable pro-growth ideas as Arvind Panagariya and Bibek Debroy—their fingerprints are hardly observable on policy. When making decisions, the prime minister seems to trust stolid bureaucrats more than Western-educated economists.

Before last month, the most prominent public backers of demonetization contained an an accountant suspicious of foreign investment, a hirsute yoga guru, and an NGO fanatically against all high-value currency bills.

But based on what we’ve seen up to now, don’t hold your breath.

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