The Rise of Modi: Indian Election 2019
The election of Modi to Prime Minister of India, as well as the rise of his party to a second consecutive win, has many people concerned. Modi is often called a populist, far-right leader, nationalist, or racist. This article will outline who he is; what he represents; the conditions in which he arose; what he promises to do; what he has already (or already failed to get) done; and what we can expect from this ‘man of reform’.
The phrase “Modi Wave” is used to describe the immense popularity of the leader of India and leader of the BJP party, Prime Minister Narendra Modi (Dsouza, 2019). India works on the same electoral system as the United Kingdom; First Past the Post, the party who wins the most seats wins the lot (assuming a majority). They then form a government. Unlike the U.S. system, you do not directly elect a leader. Here are the announced results at time of writing (Dale and Jeavens, 2019):
A party is required to get 272 seats to form a government. The Bharatiya Janta Party (BJP) is led by Modi (currently 68 years old). The party is known as Hindu nationalists (Dsouza, 2019). In the last election, BJP won 282 seats (Dsouza, 2019). As we can see from the BBC (2019a), the BJP has won a large majority, even larger than before. Perfectly able to form a single party government. As such, we can claim that the 900 million voters of India have given Modi an even larger mandate to rule. Here are the above results on a map on India:
This means that Modi has won a second election of a single-party government, a feat not done since Idhara Ghandi (Economist, 2019). This gives Modi a large amount of political power (Palmer, 2019). It is worth noting that the policies that Modi campaigned on changed between 2014 and 2019.
The Indian Nationalist Congress (INC) is led by Rahul Gandhi. The party itself is 133 years old. The party lost wide-spread legitimacy after being hit with corruption scandals in 2014. It has promised to increase manufactoring, to increase healthcare spending to 3% of GDP, but most famously, a Universal Basic Income scheme (Dsouza, 2019). The Indian National Congress party has done poorly (if a bit better than last time). Other third parties have done okay (Palmer, 2019). Previously, the INC won only 44 seats (Economist, 2019). This time, it has won 52 seats (Dale and Jeavens, 2019). Party officials from the party say that their credibility is low and the public does not trust in the party’s promises. The party has another problem; ‘Brand Modi’. Gandhi doesn’t have the appeal of his opposite number, and he is often believed to have gotten his position through nepotism, rather than merit (Pandey, 2019). Suffice to say, we can assume that they will be unable to amount any kind of real resistance to the Modi plan.
His First Election: 2014
In 2014, his slogans were based on development, cleaning up government, and Hindu pride (Palmer, 2019). There was the idea that India could grow as China grew; ‘good times are coming’. This has not been the case; especially in areas such as manufacturing.
In regards to work, India differs from America in one sense; when a job is lost from America, there is a sense of loss. A middle-class family loses that status. In India, there is no sense of gain, they see the low wages of agriculture and want to move somewhere better. The Indians have a sense of upward aspiration to get that higher income to enjoy a better standard of living, rather than the threat of lost living that the developed world has (Rajan, 2019). This upward way of looking has kept people hungry and eager for chance. Chance that is not always there.
India is highly unequal in wealth distribution. According to Credit Suisse’s report of 2012 (2018), the bottom 90% of India own 37.9% of the wealth in India; the top 10% own 62.1%, and the top 1% own 28.7% of the wealth. Ten years before in 2002, the bottom 90% of India owned over 45%.
India has difficulty emulating the Chinese model of taking agricultural workers into factories for an export led, manufacturing led growth. This is partly due to the fact that industrial countries have begun to ‘insource’ again. There is also a reduction in the importance of labour with further automation (Rajan, 2019). Remember; labour is cheap in India and therefore India’s comparative advantage to most developed countries; an advantage removed by automation (my own calculations place per hour electricity cost of an industrial robot in the United Kingdom somewhere around 10p per hour). Exports have been falling year after year (OECD, 2017):
The second problem with the Chinese model is that China is already there; it is producing higher quality goods through automation to keep its comparative advantage, as well as use the higher capital equipment as well (Rajan, 2019). China already has most of the infrastructure necessary. It has a working (if flawed) banking system. It has a working (if flawed) stock market. It has capital, investment, buildings, and provincial governments eager to get work and money flowing into the provinces, and able to offer incentives to get it. A necessary reform is that of privatisation; privatisation in India has stalled for nearly 15 years (Rajan, 2019). The problems of the China Model, however, can be seen here. A lack of privatisation makes the economy sluggish and stops people for pursuing marginal benefits for their lives, and incremental benefits for the entire economy. Businesses also produce employment; the majority of employment in China, another country dealing with population issues, is through Small-Medium Enterprises (SME). India simply is unable to invest as China does, and investment has been falling since 2010 (OECD, 2017):
In regards to manufacturing, India has had three (now four) successive governments (two terms of Congress-party led government) and one term (now two terms of the current party) promise to do something; the solutions put out there by technocrats are not solutions that the political class are willing to put into effect. Any policies that were untaken proved ineffective according to data from the Reality Check Team of the BBC (2019).
Modi has been as unable to stop the loss of jobs in manufacturing as anyone less. Unemployment in the country is becoming crippling, due to the agrarian crisis (OECD, 2017). 5 million jobs have been lost between 2016 to 2018. It reached a high of 6.1% from leaked government documents in 2017-2018 (Dsouza, 2019). This is the highest level since the 1970’s (BBC, 2019b).
Some people look at the strong growth and believe that India is doing well; Dr. Rajan (2019) argues differently. Rajan famously said on a T.V. interview; how can we have growth and 7% unemployment? The answer is that you cannot; the data is wrong and being controlled (Dsouza, 2019). People are asking for jobs, and if those jobs are not appearing, then the economy isn’t doing well enough. What is the job of an economy? Jobs, which lead to rising incomes, which lead to social harmony. In his anecdotal evidence, India does not have any of that.
When the markets begin to fail and inequality fails, and when spending fails, then we turn to blaming foreigners for losing jobs, and we blame trade for the reasons for the problems. The reality is a failure to adapt to the forces of technology (Rajan, 2019).
Additional promises include promises to clean the Ganges, which has the funds available, but little of it spent (Reality Check Team, 2019). We can also see the total effects of his administration through the macro-economic numbers (OECD, 2017):
We can see that real GDP growth has been steadily increasing (perhaps in wake of China’s weakening position as a trade power post-Trump trade war), as well as a falling CPI, meaning that goods have been getting cheaper for India. This seems good at the outset, but deflation of prices means that wages are also falling for the workers, which can mean one of two things: genuinely smaller wages, or greater unemployment. We already know India suffers from unemployment.
We can see that net exports have been falling since the take-over of Modi’s government, as well as increasing imports, and highly unstable exports means that any promises Modi has of creating an export-led economy is at best unstable.
The weakening 10-year bond rate shows a lack of confidence in the long-term expectations of the Indian market; the massive deficit spending of the Indian government will lead to eventual pay-back. Either through money printing, higher taxation, or defaulting on bonds. All of these leave investors cold, and we can see the long-term potential problems that Modi will leave India if he continues to spend as recklessly as he is doing.
We can see that the Modi government has been quite comfortable to spend beyond their budget; we can believe that he will be quite happy to continue this policy long-term. We can also see a massive expansion in money supply under his administration (CEIC, 2019):
We can see from 2013 we have an increase from just over $350,000 to $550,000 in the money supply; this has been under the current administration.
The increase in consumption from the public, as well as total domestic consumption, means that India is moving to a consumer as well as a producer; without rebuilding the manufacturing sector, India risks generating massive trade deficits leading to potential currency deflation or domestic inflation. The OECD (2017) recommends that inflation is to be reduced to 4%; this seems to have become mostly true:
That said, we have an economy that is growing supposedly 6-8%, but with an inflation rate of 4.6, lower than the rate of growth. This loss of growth being translated into inflation (also meaning that wages, employment, and so on are being lost) may be due to Modi’s over-enthusiastic monetary policy to print money to solve his problems. The lower inflation also means that we cannot use inflation to reduce existing debts over time as is possible; inflation would provide an avenue to allow the poorer to inflate away existing debt (assuming that the money reaches the poorer as equally as the rich; there is little evidence of that, sadly).
The Promise of 2019
In 2019, the slogans moved from the economy, and to focus on who are the Indians, and who are the enemies of the Indians (Palmer, 2019)? In short, nationalism.
There is a difference between Western and Hindu nationalism; Hindu nationalism is about placing the Hindu ethnicity over Muslims or other minorities; India belongs to the Hindus. Western nationalism tends to be more flag-waving and pro-military nationalism. Modi himself does not use Hindu nationalism directly; he allows his deputies to say so. Modi uses India nationalism, India First ideology (Palmer, 2019). The BJP even have an MP awaiting trail for aiding a terrorist attack that killed 6 Muslims (Economist, 2019). That said, there has been an uptick in terror attacks in Kashmir (Reality Check Team, 2019):
Bangladesh and Pakistan may enjoy working with the same government continues. However, the Hindu nationalism tends to be ‘pointy’ with those neighbours. Modi uses the recent skirmishes with Pakistan to show his strength; Modi has also referenced the growing Muslim population in the East as a problem (Economist, 2019). He has promised to halt all immigration except Buddhist, Sikh, and Hindu (Dsouza, 2019).
The second promise is that of money. Modi has promised to make India rich again; first a GDP of $5 trillion by 2025, then $10 trillion by 2032. To make it the third largest economy by 2030 (Dsouza, 2019). He has promised a large scale capital investment of 100 trillion rupees by 2024, as well as a reduction of tax rates for the middle class (a bit of Keynesian and a bit of neo-classic economics). 100 trillion rupees sounds like a lot, but the Indian government between 2014-2017 (half the time of his previous administration) has already spent between 677 trillion rupees to 810 trillion rupees per year on building roads, rails, and airports alone during this time to a total of 3,000 trillion rupees (OECD, 2019). China spends over 10 times as much in the same time-span. I am unsure how much impact this capital investment will have on long-term infrastructure, let alone reach Modi’s promises to the Indian people.
It is also worth noting that taxation in India is quite low; India taxes far below the OECD average (OECD, 2017), and as such, may contribute the large GINI coefficient and wealth inequality, as well as increase the deficit rather than taking the money from the wealthy of India who are doing, by all measures, very well. Less than 0.1% of Indians are millionaires (Credit Suisse, 2018). An increase in this taxation may be able to fund Modi’s ambitions.
Modi has promised large scale infrastructure reforms and large scale economic reforms (Economist, 2019). I believe this is to follow the Chinese model. His infrastructure reforms includes 100 new airports (China made a similar promise a few years ago) and 50 metro systems; a focus on improving the transport of goods and people across the country. Long term, the movement of these will allow India to become a more flexible and adaptable economy. Longer term, the natural advantages of these freedoms may allow India to edge out the Chinese, whose natural inflexibility provide a weakness to its own model. The BBC (Reality Check Team, 2019) has found that existing policies like these have proven ineffective and caused further problems.
But let’s not get too ahead of ourselves; India has many problems. An uneducated workforce, for example, in a world of automation is not a positive. The lack of land titling. The restriction of banking under state-owned firms strangling capital and internal investment (Economist, 2019). India also has the threat of a looming recession, and massive inequality within the population. There are also looming tensions between Pakistan and India (BBC, 2019b). Let us not forget the skirmish between India and China recently in 2017 (Kazmin and Singh, 2017).
A Boon For Women
Good news for reform; women were half of the vote. However, this did not translate to greater numbers of female MPs (Dale and Jeavens, 2019):
Good news is that the ruling party has increased the number of female candidates’ by 150% of the previous election (Dale and Jeavens, 2019). There has been an increase from 1 in 7.6 female MP candidates to 1 in 5.5. This is a move in the correct direction (although there has been a drop in candidates from other parties). Female voices will lead to greater female empowerment; this will lead to more educated women, greater access to birth control, and more educated children.
However, the promise of further protection of women against rape and sexual abuse was given by Modi, but there is little difference in the final rates of conviction for violence against women (Reality Check Team, 2019).
The Case of Farmers and Debt
“India has a strong appetite for soft reforms”
-Dr. Rajan, 2019
India is a country with a strong need for reforms. One group that desperately needs these reforms are farmers. For example, land titling would allow farmers to lease land safely for both better productivity for the people, and capital gain for the land owner (Rajan, 2019). These laws may even be politically popular, but Indian dislike for sweeping reform stymies even this useful, simple reform.
GINI co-efficient in India can be estimated as 0.85. This is deeply unequal. For reference, most countries sit around the 0.3 mark; anything above 0.6 is often the mark for potential revolution. This is likely the reason for the initial political promise of development and jobs for the masses who get nothing; this is certainly the reason for its success with the Indian people. The man who promises you work and money when none of it is coming to you is an enticing man to follow.
Stagnation in politics leads to stagnation in economics. A government must continue to reform, otherwise things such as jobs for the young will not come, which leads to an angrier population hungry for strong reforms (Rajan, 2019). Farmers matter in India, being over 50% of employment in the country (OECD, 2017). Over 300,000 farmers in India have committed suicide since 1995; the main cause of this is debt. Debt has overtaken financial wealth for the majority of the population; in 2005, financial wealth was 12.6% of the wealth of an individual compared to 3.8% of wealth being debt. In 2018, debt comprises 10.7% of an individuals wealth, compared to 9% financial wealth. Non-financial wealth, such as land, comprises the majority of wealth in the agrarian nation (Credit Suisse, 2018). The rising level of debt can be seen in the Reality Check Team (2019) report:
As we can see above, farmers (who I remind you, are 50% of employment in India) are suffering with over 30% of households in debt, with the average person in India having more debt than financial resources, and receiving a tiny fraction of the rewards of any economic growth. Farmers are hoping that Modi would increase the price of food, but doing so would burden all of Indian society, and may prove politically unpopular.
The market is very happy about all of this. The most watched market index, the SENTEX, rose above 40,000 points on Sunday (TradingEconomics, 2019). According to Palmer (2019), this is due to market confidence in this administration:
We can also see from the above graph that under Modi, India has has a fantastically successful stock market. This confidence may due to to the past history of the Modi government being relatively successful with business. This may also be due to Modi’s promises of reform and infrastructure. This may be due to the promises of India becoming the third biggest economy in 2030 (Economist, 2019). There was also an appreciation of the rupee against the dollar (Dsouza, 2019).
However, we must be careful. Modi has big plans, and big plans require large amounts of spending. Most of this spending will leave large deficits, and so investors should be worried. The people must also be cautious; large scale spending means that food will become more expensive due to inflation, and long-term growth will be threatened by both the crowding out of private investment from public investment, and the ability to purchase capital intensive machinery with a weakening currency. All of this at a time that China, the big rival, is moving into a post-labour intensive production phase.
The Future We May See
Trying to predict the future of India is sometimes a fool’s errand. India has been the economist’s favourite bet for decades, forever guessed to be the next world economic superpower. These dreams have not come true yet. Modi is not the first Prime Minister to say he will be different, but it does seem that the Indians believe him when he says so.
First, we must try to see what kind of leader he will be, what kind of example he will provide. A small worrying detail is that Modi has not taken a single question from a journalist while in power (Dsouza, 2019). You can read more about the distrust for the media here. Combine this with the rumours that universities are forced to change their data to fit political statements from Modi, and we see the rise of ‘alternative facts’ being created to suit political purposes (Dsouza, 2019).
Combine this with a Hindu nationalist attitude, a foreign attitude in which he hates all of his neighbours, and his habit of promising the sky and delivering little, Modi doesn’t display much of a positive personal philosophy. While no-one should expect a politician should be likeable, the virtues a politician has are the ones he will most likely act on. The virtues that allow him to win a second, massive mandate of the people are virtues that the people will expect him to act on.
So we can assume a nationalist rise from India; perhaps in company with China and the United States. We can expect a strong foreign position; his records with Pakistan and China, as well as his own domestic record in Kashmir, speak of a man who is stern and not merciful, but not easily bullied by world powers either.
In terms of his promises, he has solved few of his 2014 collection; the Ganges is not cleaned, women are not protected, jobs were not returned, massive spending has not produced employment, growth has not brought opportunity. India is more unequal than ever.
He has promised to increase infrastructure spending; construction work will always provide work for men with strong backs, perhaps to make up for the manufacturing shortfall. This infrastructure may in turn prove to tempt companies back to producing in India, especially in this time of the trade war and anti-Sino sentiment rising. However, his infrastructure expenditure is massively limited, and his government has taxation levels far below the average of most OECD countries.
He has also reduced both corporate and middle class taxes; neo-classical thought believes that this will produce long-term gain for lower taxes and greater consumption. However, this will produce even greater deficit spending, something his government is already happily performing. This does, however, make the bond market weaker, and show that the future of India under Modi will be rocky (if you trust investors).
His promises to bring back manufacturing are almost certainly false; the best he will be able to do is to either directly create state-owned manufactories to provide the work (a.l.a. China and massive government spending) or try to tempt foreign investors into building into India (who suffers from a lack of reform, lack of infrastructure, uneducated farmers, and a government who has a champagne taste but beer appetite). Neither of these are particularly great. If Modi likes the Chinese model, I imagine he will follow the S.O.E. model. Great short term benefits, and Modi will be out of office before the fallout comes back.
Modi has risen from the people who are suffering, unemployed, feeling under threat from Muslims, whose previous government was corrupt, and watch their country fall behind every other country in the world when it seems they do so much right. He is promising the people everything they want to hear; of course he is, that is what a democratic election always comes to. Populism is not always a terrible thing; a democratic leader should follow the will of the people. We can see the rise of it in Europe and elsewhere for this reason. But which will does he follow? Is he a reformer who will change the economy and defend India’s interests and businesses? Perhaps, but his record suggests a man who promises much and delivers nothing.
But is he a man who will use the Hindu pride and feeling of superiority to his advantage to distract from the failures of his administration? Why not? It worked once, and worked wonderfully too. His record on military matters and civil oppression are very good. It won him an election. It is a seductive force; anger is easier to stoke than hope. Hope dies when hurt; anger gets stronger when fought. It is a useful political emotion.
Modi has been given a fantastic mandate. He has a massive majority in his government; he can now enact the reforms that India desperately needs, and lift the majority of Indians out of poverty through smart policy. He could even follow the China model and directly influence the economy if it lifts the people out of starvation and debt, and into a chance for ambition and life. His first term has been lacklustre. He has my genuine hope that he will do something very special this time.
In all articles, I provide as much information for sources as possible, including links. I encourage everyone reading this article to read deeper, and make their own conclusions. For students, links are here so they can read the original source themselves.
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