Elections are underway in India and results are due May 16.
Many expect opposition leader Narendra Modi to become India’s next prime minister and there’s hope he could help revive economic growth in India which has been languishing.
Modi has been credited with driving Gujarat’s economic growth since he took the helm as chief minister of the north west Indian state in 2001.
Modinomics: The Gujarat story
In a report published in September last year, Vijay K. Gaba at InvesTrekk wrote that “India is struggling with the limitations of the Nehruvian model of economic development that we have followed since independence.”
He described the current model as one that general calls for a large role of the private sector, but with “active state intervention during extremities of business cycle and argues against higher savings in both private and public sector.” Modinomics on the other hand supports a free market with minimal state intervention.
David Pilling at the Financial Times also recently wrote of Modi’s getting-things-done leadership style. “Part of Mr Modi’s attraction is that, by sheer force of will, he may be able to override some of the checks and balances of Indian democracy and introduce some of the clear-headedness of growth-driven China,” he wrote.
Gujarat’s real GDP has climbed 10.3% year-over-year between fiscal year (FY) 2003 and FY12, that’s 2.4 percentage points above India’s real GDP growth in the same period, Christopher Wood at CLSA pointed out in a note late last year.
Modi’s candidacy is “about marketing the impressive track record in Gujarat over a 12-year period of achieving broad-based growth across the agricultural, manufacturing and service sectors since Modi assumed office…” Wood writes.
“Modi’s best chance of winning convincingly is if he can tap, helped by the intelligent use of social media, ‘big data’ and the like, the pro-growth aspirations of an estimated 149m young voters who will be voting for the first time in next year’s general election, representing about 20% of the electorate.
Last year, Goldman Sachs put out a note titled ‘Modi-fying our view: raise India to Marketweight’. Timothy Moe, author of the note cited six key reasons for this, the top being, “”optimism over political change, led by BJP’s prime ministerial candidate Mr. Modi, is dominating economic concerns,” sparking outrage in India.
Is it all just hype?
But some legitimately wonder if Modinomics will work for the rest of India and if Modi has been too generous in slathering on this self-praise.
The Guardian and Quartz took a long look at Gujarat’s economy in the years before Modi came to power, and found that Gujarat was doing well in the two decades before Modi came to power. And certain indicators like foreign direct investment, show that Gujarat actually lags other states.
There are also those that argue that placing the blame of recent lackluster growth squarely on the shoulders of the central government is too simplistic.
“The belief in certain quarters is that as long as the next government were to go all out at de-bottle-necking projects, sentiment would surge and this would spark an investment revival in the economy,” writes Toshi Jain at JPMorgan. But he thinks this is an “overly-simplistic read on the situation” because many stalled projects have more to do with various state governments than the central government. Perhaps then, a Modi government would also hit the same roadblocks.
Modi can’t shake his past
There is of course one thing that Modi has never been able to dodge, questions surrounding his role in the deadly Gujarat riots of 2002, in which over 1,000 people were killed, women raped, and thousands displaced.
Modi’s detractors also point to his ties to the Rashtriya Swayamsevak Sangh (RSS) a Hindu supremacist group.
Nomura’s Alastair Newton points out that on a February 23 rally in Assam, Modi called for Hindu migrants from Bangladesh to be assimilated back into India. He also said non-Hindus should be sent back to their home nations. Modi’s rhetoric has raised concerns about what this could mean for neighbourhood politics.
Indian publication LiveMint also pointed to Modi’s decision to contest the seat in the holy city of Varanasi as a sign that he hasn’t abandoned his Hindu supremacist ideology:
“It is widely expected that Modi’s nomination from Varanasi will positively affect the outcome for the BJP in a number of other seats in Eastern Uttar Pradesh and Bihar which are electorally important as together the two states send 120 lawmakers to the Lok Sabha. Further, the choice of Varanasi is also symbolic in nature which indicates that the party may not have completely abandoned the Hindutva ideology.”
It’s a guessing game
For now the polls are calling for a BJP (Bharatiya Janata Party) and NDA (National Democratic Alliance) coalition, winning 230-240 seats and headed by Narendra Modi. But Indian polls have been woefully wrong in the past.
In 2004, the polls grossly overestimated the seats the incumbent would win and the Sensex crashed 11% the day after, and the rupee lost 3%. In 2009, the polls underestimated the seats the incumbent would win and the following day stocks went on a tear and the rupee surged 4%.
The bottom line however is that whichever party comes to power, they have a long road to reviving economic growth. Morgan Stanley’s Ridham Desai thinks the new government needs to push through five key reforms. Drive wage growth in line with productivity, cut the fiscal deficit, improve the business environment, rethink India’s urbanization policy, and address structural rigidities in the energy and mining sectors.
If the rise of what’s been dubbed India’s third front, a string of regional parties, does end with a messy coalition, the Indian economy could continue to sputter for another five years.