India Bets on Modinomics, Whatever It Is

India Bets on Modinomics, Whatever It Is

Asia has grown inordinately fond of “-nomics,” slapping the suffix on grand-sounding growth programs in such places as Japan, the Philippines, South Korea, Thailand and China.Thus far, the policies behind these monikers — based on the names of national leaders Shinzo Abe, Benigno Aquino, Park Geun Hye, Thaksin Shinawatra and Xi Jinping, respectively — have met with mixed success: Abenomics (all hype, no substance); Aquinomics (a reasonable winner); Parkonomics (a work in progress); Thaksinomics (seen the streets of Bangkok lately?); Xiconomics (way too soon to tell).

Add one more to the list: Modinomics. India is abuzz about the supposed economic chops of opposition leader Narendra Modi, who could be running India five months from now. Can his program steer India away from a full-blown financial crisis and toward double-digit growth? Who knows? Modi’s program remains disturbingly vague in details, which leaves me with three worries: Modi might turn out to be India’s Abe; his party isn’t the panacea investors think it is; and the nation’s gridlock may be set to get even worse.

Markets love the idea of a Modi-led government because of his success in the western state of Gujarat. Chief minister there since 2001, Modi cut red tape for businesses, attacked graft and produced 10 percent-plus growth rates. The idea is that Modi will apply his “Gujarat model” nationally and smash through India’s dysfunction and vested interests. Prone to Ayn Rand-esque dictums such as “I believe government has no business to do business,” Modi might sell off sprawling state-owned enterprises that stifle competitiveness.

But asked repeatedly how even a charismatic leader can ram reforms down the throats of reluctant states, many also run by powerful and ambitious personalities, Modi has consistently avoided answering. His argument — essentially, “Just wait and see what I will accomplish!” — reminds me of Abenomics in Japan. A year after Prime Minister Abe came to office pledging dramatic moves to open and deregulate a fossilized economy, he’s implemented none. Stock traders are euphoric; average Japanese have buyer’s remorse.

My second concern: Modi still has to deal with his own party. Ten years ago, the Bharatiya Janata Party was unceremoniously shown the door. At the time, Prime Minister Atal Bihari Vajpayee’s splashy re-election slogan was “India Shining.” Millions who didn’t feel part of the magic retorted with their own: “We won’t be ignored.”

The BJP’s successes were easy to articulate: rapid growth, an information-technology boom, rising stocks, some key state asset sales. Harder to explain was the failure to spread economic benefits to the 99 percent. The BJP has given little indication that it has since figured out that conundrum — or that it cares to do so.

Though Modi plays on his own humble beginnings, one man is rarely a match for India’s powerful parties. I have little good to say about the ruling Congress Party’s leadership over the past decade. But Prime Minister Manmohan Singh did take a variety of bold steps: introducing the Right to Information Act to boost transparency and expose graft; giving markets a bigger role in setting fuel prices; opening investment in retail, aviation and other sectors to foreigners; championing new land-acquisition laws; opening the door to nuclear power. These successes were simply eclipsed by the fecklessness of a party that squandered infinitely more opportunities than it created.

When Modi needs to be currying favor with chief ministers to expand the “Gujarat model,” he’ll also be preoccupied with battling the elites in his own party. And others as well: The sudden rise of the Aam Aadmi (“Common Man”) Party has increased the chances that neither Congress nor the BJP will emerge from elections with a commanding majority.

When it comes time to build a workable coalition, Modi’s personal baggage will weigh especially heavily. Anti-Muslim violence on his watch in Gujarat in 2002 claimed more than 1,000 lives. Modi’s reputation as a hardline “Hindu nationalist” turns off many smaller regional parties. The elections could well leave India with a hung parliament in which no party has even a slight mandate.

India doesn’t have any time to waste, not with China barreling ahead and credit-rating agencies on the verge of downgrading Indian debt to junk. Bad loans at the nation’s banks are at a record high, which will restrain lending and could spark a financial crisis. Smart and credible as he is, central bank Governor Raghuram Rajan has no control over the twin budget and current-account deficits that have sent the rupee to record lows. If Modi really does have a specific plan for how to address India’s economic woes, he’d better lay it out soon.

(William Pesek is a Bloomberg View columnist.)

To contact the reporter on this story: Willie Pesek in Tokyo at wpesek@bloomberg.net