The World’s Largest Democracy Has Voted – A Second Chance for Modi’s Economic Agenda?

Anil S. Paramesh
May 25, 2019

With a electorate of 1.2 billion, the world’s largest democratic elections have just concluded in India. Narendra Damodardas Modi, the incumbent Prime Minister and his National Democratic Alliance (NDA) won an overwhelming mandate, taking 342 of 526 parliamentary seats. This margin of victory has not been seen for over four decades in Indian elections.

 

 

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From Selling Roadside Tea to Confronting China
Narendra Modi’s rise could be a made-for-movie story. A single man with humble beginnings, his first job had been a roadside tea vendor. A sharp mind and hard work ethic brought him into local politics, progressing to become a successful Chief Minister for the state of Gujarat, before he appeared on the world stage as the Prime Minister of India in 2014.

There has been a rise of right-wing nationalism across the world, whether this be in the U.S., Australia, U.K., and now with Modi in India. Modi’s agenda is to make India great again, with his mantra for companies to “Make in India”, in direct competition with China. He has instilled a sense of nationalistic fervor across the country, and in addition to building up the military, he famously had military showdowns with his hostile neighbors China (Doklam Pass standoff, 2017) and Pakistan (Balakot terrorist camp bombing, 2019). Both of these events made him hugely popular.

A Mixed Economic Legacy
Mr. Modi embarked on an ambitious economic agenda as soon as he took office in 2014. He invested in infrastructure to build better electricity, road and railway networks. He visited multiple countries soon after the election and allowed for privatization of industries and liberalization of economic policies to attract foreign investment. His government reduced bureaucracy, helping move India to 77th in the World Bank’s 2019 Ease of Doing Business ranking, up from 134th place when he first took office in 2014. Similar to Social Security, he issued nationwide identity cards, tied to citizens’ banking, social welfare, and other government programs. He simplified the tax code and created a nationwide Goods and Service Tax (GST). India’s Foreign Exchange Reserves reached the highest they have ever been. In 2017, he was named the Third most powerful leader in the world in a Gallup Poll.

 

But all of his projects did not go as he planned. In an effort to root out corruption and “black” money, he announced overnight the demonetization of certain currency notes, to be exchanged at banks. While it was partially successful in curbing an underground cash economy, it was a logistical nightmare and turned out to become very unpopular. During his five-year term, unemployment increased to its highest level in 45 years. The overall unemployment rate was 6.1%, and in rural areas it was as high as 17.7%. His political party has been accused of inciting religious riots in the name of right-wing Hinduism.

A Second Chance
Despite some of these setbacks and a prolonged election process, Modi’s message of nationalism appeared to resonate with the electorate. He won with a wide margin, encompassing all ages, genders and religions. He now gets a second chance to finish what he started. With his increased mandate, it is possible he may make bolder moves.
In his victory speech, he announced that by 2030, he would make India the third largest economy in the world (up from its current sixth place), and bring India to the $5 trillion club, which only a few First World countries hold a stake in. He is seen as business-friendly, and the Indian Sensex stock market hit a new high the day Modi’s election victory was announced.

But his victory comes at a time when the world is the midst of economic turmoil. World markets are declining due to current trade wars between China and the United States. China remains India’s largest trading partner, and a collapse of the Chinese markets would harm the Indian economy. As opposed to China, India’s economy is a consumer-based economy, rather than a manufacturing one. And there is evidence that consumer spending is slowing. These may play against Modi’s plans.

With his nationalistic stance, Modi has built up the Indian Armed Forces and vows to defend and respond to any military incursions. India has disputed land borders with both Pakistan and China, and there are frequent minor skirmishes along these. Increased military posturing may result in an escalation to war between three nuclear-armed nations, a scenario that the Indian Government and economy cannot afford.

Modi has been given a second chance to expand one of the largest economies in the world. He is intelligent, hard-working, and we can hope, well-intentioned. He has been given a clear mandate, with the large majority of the country behind him. The world is watching, as Mr. Modi gets a chance to wield this power and responsibility again.

Sources:

1. Analysis: Economy, Hindu-first impact are Modi’s challenges. https://apnews.com/6254c3a4e5fb4b27b7334da80c45e6ec

2.https://www.bbc.com/news/business-48400272

3. https://www.bloomberg.com/opinion/articles/2019-05-27/modi-s-election-win-sends-a-populist-warning-to-the-world

4. https://thediplomat.com/2018/05/4-years-of-the-modi-government-taking-stock-of-economic-performance/

5. https://www.nytimes.com/2019/05/21/podcasts/the-daily/india-election-modi.html

6. http://indpaedia.com/ind/index.php/Ease_of_Doing_Business:_India

7. https://in.reuters.com/article/india-sensex-nifty-stocks-idINKCN1SQ09X

8. Twitter feed  – @PMOIndia