While most world capitals have been waiting for significant economic reforms since Prime Minister Narendra Modi鈥檚 election to office in 2014, his government has prioritised social reengineering over economic growth in India.
Putting vote-getting religious sentiments above economic and strategic goals has diminished the enthusiasm with which other countries support Indian foreign policy.
And as a result of lacklustre economic policies, India鈥檚 rate of growth has declined to 4.5 per cent. What was once described as the fastest growing economy in the world, is now in its worst phase in
Unemployment is at an all-time high, industrial production is not growing and investment is The agriculture sector is in distress, and the fast-moving consumer goods sector is seeing its 鈥� 鈥� in a decade.
It is clear more than ever that social division and strife do not attract investment and is not conducive to economic growth.
Economic slide
For a nation of more than one billion people, such stagnation does not augur well. Global rating agencies , and have cut their forecasts for India鈥檚 growth. The World Bank and the International Monetary Fund have also dampened their past optimism about India, noting that India鈥檚 is diminishing the prospect of global economic expansion.
For many observers, the situation is disappointing because of the hopes they pinned on the rise to power of a conservative government in New Delhi. When he was first elected in May 2014, Modi promised 鈥榤inimum government, maximum governance鈥�. He brought to his office the image of a business-friendly chief executive whose no-nonsense style of functioning had brought prosperity to Gujarat when he was its chief minister.
In 2015-16, India鈥檚 stood at US$ 1.99 trillion and it had a labour of 860 million people. Both the and the predicted that India鈥檚 economy would grow between 7.3-7.5 per cent over the next two years. The World Bank even asserted that a 鈥渞esilient鈥� India would help drive economic growth in South Asia. But now India鈥檚 eastern neighbour, Bangladesh, has become the fastest-growing economy in the region.
And the latest Budget offers little hope of reviving India鈥檚 stagnant economy.
Social slide
The lack of focus on economic growth over the last several years can be traced to an over-emphasis on socio-cultural issues and majoritarian politics.
For instance, the Modi government鈥檚 launch of a programme to encourage foreign investment in India in February 2016 was overshadowed by the arrest of students from one of India鈥檚 top universities, the Jawaharlal Nehru University (JNU), on grounds of The narrative that emerged was that the Modi government was using a colonial-era law against university students while asking Indian and foreign corporates to bring state of the art technology and skills to India.
It is difficult to convince investors of a government鈥檚 promises about capitalist freedom when it is accompanied by visible repression. For years, India鈥檚 greatest strength globally was its reputation as a secular, inclusive, and pluralist democracy. India鈥檚 socialist economic framework did not attract capital, and the consensus among economists was that the country needed free markets alongside its political and cultural freedoms.
Starting in late 2014, there has been a steady decline in India鈥檚 reputation for tolerance. Attacks on religious minorities, especially Muslims, including lynchings tied to the demands of a on cow slaughter and beef consumption, do not bring investment. And neither do attempts to 鈥� 鈥� Muslims and Christians to Hinduism through ghar wapsi (鈥榬eturn to the fold鈥�).
Illiberal majoritarianism coupled with an unwillingness to dismantle controls that have limited India鈥檚 growth are probably the reasons why India is performing below expectations in the economic realm.
China鈥檚 rise
The economic and military rise of China has led many around the world to woo India as a potential rival to China. But New Delhi appears unable or unwilling to take advantage of these opportunities.
Indians often like the comparison that many around the world make between India and China. The two Asian powers have the world鈥檚 largest populations and have great potential as global powers. But they forget that China maintained a laser-eyed focus on building its economic and military capability for over two decades before it projected itself as a world power.
India, on the other hand, speaks incessantly about its potential for greatness without implementing economic reforms that can pave the way for that greatness to materialise. India鈥檚 last major economic reforms took place in 1991. It badly needs the next generation of economic reforms that will focus on critical areas of land, labour, and capital.
Getting on the right track
For now, India seems embroiled in debates about identity and ideology. And vigilante attacks, campus protests, and news stories about repression of minorities hardly paint a picture of stability.
The Modi government鈥檚 decisions on Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) are positive steps, but their impact so far is small. A lot needs to be done to improve India鈥檚 British-era infrastructure (rail, road, air, and ports), or accessibility to basic amenities like electricity and water.
None of these can be accomplished through culture wars. Businesses seek countries with secure tax regimes and political and social steadiness. But India鈥檚 complex and confusing taxation structures, the presence of retroactive taxation, and the government鈥檚 punitive approach to businesspeople have created an within the business community.
At a time when many US firms are India鈥檚 policy should focus on wooing these investors, improving ease of business, and offering incentives.
Instead, xenophobia, hyper-nationalism, and a desire for absolute political control seem to be those who have already invested in India away. And the BJP government has been more protectionist than even its predecessors.
Moreover, India鈥檚 friends and rivals will take New Delhi seriously when they see India investing more on defence and security. But instead of spending more on defence, India has been spending less. This year鈥檚 (excluding pensions) stands at only 1.5 per cent of the GDP.
Some apologists have blamed India鈥檚 bureaucracy, the 鈥榖abus鈥�, for India鈥檚 current economic mess and the lack of reforms. But the same bureaucracy had effectively implemented the 1991 reforms when commanded by the political leadership of the time to do so. The 鈥榖abus鈥� would have gladly done the same under instructions from their current political masters.
Given its focus on social and cultural issues, the Modi government does not seem to have the desire to significantly change the way India does business. Instead of shifting blame away from the political leadership, honesty demands recognition of the incompatibility of the current leadership鈥檚 social agenda and India鈥檚 economic and strategic aspirations.
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