India's Prime Minister Should Go Home and Get to Work
Prime Minister Narendra Modi's tasteless New York rally was embarrassing and demonstrated his warped priorities.
It's odd for a political leader to take a victory lap in a foreign country. But that's exactly what Indian Prime Minister Narendra Modi, the Hindu nationalist who was elected in a landslide four months ago, is doing while visiting the U.S. He kicked things off with a big rally on Sunday with 20,000 Indian Americans feting him at Madison Square Garden while thousands more (who couldn't get tickets for the sold-out event) watching on giant screens in Times Square. The event featured Bollywood-style song and dance and an artist drawing a larger-than-life portrait of him as he speechified for an hour (all of which and more John Oliver hilariously lampooned).
Modi is officially here for the U.N. General Assembly meeting. But that's not what this is all about. The main purpose of his American extravaganza is surely to thumb his nose at the U.S. political establishment that placed a travel ban on him in 2005, after he presided over a pogrom of Muslims in the state of Gujarat when he was the chief minister. The Obama administration has been working to normalize relations with Modi—as it must and should—now that he is the duly elected leader of the world's most populous democracy. As such, the White House singled him out for a dinner with the president (although Modi declared that he won't eat anything because he's observing a nine-day religious fast, a flamboyant display of his fabled austerity).
But such quiet gestures were not enough for Modi who has the autocrat's instinct to be the star attraction. His gaudy displays—literally unprecedented for visiting leaders—are not merely unbecoming. They are also deeply disturbing, because they highlight Modi's need for self-aggrandizement. That does not bode well for the massive economic decentralization—the hands-off approach—that he himself touted as essential for offering a decent standard of living to all Indians.
Maybe he'll learn to keep a lid on this tendency as he grows in office. Right now, however, it seems to pervade his economic decisions, making even many of his cheerleaders nervous about his ability to lead India's socialist, centrally planned economy to a free market one. He has pushed piddly half measures—such as scrapping the 64-year-old Planning Commission, offering grades, headmaster-like, to the council of ministers, ordering government staff to maintain full hours, and asking cola makers to add five percent fruit juice to their drinks to help farmers — but ducked anything resembling transformative reforms.
Indeed, there are plenty of areas where sound policy seems to have taken a backseat to Modi's need for control and ego-inflating. Here are four.
1. Trade. For a leader who came to office with a mandate to focus on domestic issues, Modi has spent an inordinate amount of time tending to foreign affairs. Besides America, he has already traveled to neighboring Nepal and Bhutan, led a delegation of handpicked Indian business tycoons to Japan, and hosted the Chinese President Xi Jenping. Modi insists this is necessary commercial diplomacy to open India to investment and trade.
Those are laudable goals. But they'd be far better served if he hadn't scuttled a major trade agreement with the World Trade Organization. The deal required all member nations to simultaneously harmonize their tariff structures and other trade barriers so that no country's food imports would face a competitive disadvantage in another's market.
But Modi refused to go along. Why? Because it would have required him to suspend India's food security program under which the Indian government buys produce from farmers at exorbitant prices and then sells it to poor people at subsidized rates. This hasn't helped farmers who, uncoupled from price signals, haven't adjusted their crop mix to shifting demand; or the poor, whose share corrupt bureaucrats routinely skim; or consumers, who face higher prices; or the national budget.
What was particularly dismaying is that the WTO deal should have been an easy political call for a champion of free trade like Modi given that the previous administration had already done the tough work of inking it. The only plausible explanation why Modi walked away is to keep farmers dependent on his handouts, precisely the kind of populism that he blamed for India's economic backwardness.
2. Food. Just before Modi departed for America, he inaugurated the first of many new "food parks" that the Ministry of Food Processing (yes, such a thing still exists in India!) at great expense. The idea is to avoid losses from food spoilage that farmers incur while carting their produce to urban centers on India's horrible roadways. The food parks, scattered all over rural India, will house giant storage facilities and private food processing factories that will buy produce from farmers directly.
Such efforts are testimony that Modi is not ready to live up to his admonition that the "government has no business being in business." Modi would help farmers far more by allowing foreign retailers such as Walmart into the Indian market. This plan, that Modi previously rejected, would have cost Indian taxpayers nothing, and their capital and expertise would have modernized India's supply chains.
3. Banking. Modi rose to fame—and office—by beating up on schemes that offered poor people handouts rather than opportunities. But his recent injunction to government banks to help make bank accounts universally available—with $85 of overdraft protection—is reminiscent of the heyday of socialism in the late 1960s. Then, Prime Minister Indira Gandhi nationalized India's banking sector to bring more Indians within the fold of the financial system.
Modi's puny dispensation won't uplift the poor. What they need is access to cheap credit to invest in businesses, education, and homes, which only a competitive banking industry can offer. This would require wholesale deregulation so that licenses for domestic private banks are not restricted and foreign banks are not scared away by oppressive regulations. Yet Modi has moved not an inch in that direction.
4. Manufacturing. While in America, Modi is pushing his much-hyped "Make in India" initiative to move India's industrial base from service to manufacturing and create jobs for the 10 million youth who join the workforce annually. He is trying to impress companies with cute slogans like India will greet them with "red carpet not red tape" and they'd get "single window assistance" in acquiring land and licenses for new factories. But this window will be operated under the aegis of the prime minister's office, whose economic agenda will determine winners and losers. Modi has already identified 25 sectors that he wants to prioritize. This might speed up some chosen projects, but won't end India's patronage economy that leaves small businesses and self-employed poor in the lurch.
Many commentators, including The Economist, have expressed bewilderment at the curious mix of bold and timid in Modi's economic plans. But all the boldness is in the direction of consolidating his power and the timidity in giving it up.
His fans should save their adulation till he shows real signs that he isn't planning to run the Indian economy like his personal fiefdom—but then such a man wouldn't court their adulation, would he?
A version of this column originally ran in The Week. Go here for Dalmia's full Week archive.
