Jonathan Holslag On world order and disorder

India’s Obama Moment

BRUSSELS – It was a motorcade like they only exist in India, seven cars wide on a three-lane road and uncountable flag waving scooters buzzing in between them. As soon as that boisterous clutter halted, a short bearded figure strode out to a podium for a speech that he claimed to be watershed in the turbulent history of India. Narendra Modi, the victor of India’s national elections, is certainly one of the most controversial politicians in the country, but he gained praise for being a reformer. In his victory speech Modi confirmed the promise to reform. India has to change and it can change, he insisted, as long as the nation sticks together. That change, however, could be wishful thinking.

The electoral contest turned into a defeat of the Indian National Congress, the iconic party of Gandhi that ruled – and disappointed in the last ten years. Its share of votes tumbled from 28 per cent to a mere 19 per cent. But the elections did not show, as it is widely reported that the whole nation rallied behind Modi’s Hindu Nationalist Party. Thanks to the voting system, the BJP will have 51 per cent of the seats in the lower house, but it only secured 31 per cent of the votes. So, even more than Modi’s unique opportunity to dominate the lower house, the elections reveal that India remains deeply divided and that half of the people voted for small, local and often radical parties.

I am the first to recognize the remarkable resilience of the Indian society and its democracy, but despite India’s Obama moment and the promise of change, the chance of success remains modest. First of all, Modi will have a hard time to show that he is serious about reaching out to religious minorities. “I am proud to be a Hindu, but I am an Indian first,” he asserted. Yet, many party members think different and stick to the party’s Hinduist roots. Hindu movements could also feel emboldened to stir up tensions and that goes certainly for the Rashtriya Swayamsevak Sangh, whose 45 million members were decisive in Modi’s victory. So, the new Premier has his hands tied.

The most important challenge, however, concerns the economy. Modi will have to race against time. In the next ten years, the Indian labour force will grow by 15 million people – 15 million people each year! That demands for a huge number of jobs, especially because the two traditional economic buffers no longer function. The agricultural sector is plagued by ailing infrastructure and the disastrous effects of excessive fertilizer consumption. The informal trade sector is no longer able to service in the cities with affordable products. India is thus in need of a labour-intensive economic boom. The outgoing government knew that too, but out of the100 million promised jobs in the manufacturing sector only 2 million were created.

Modi vows to roll out the red carpet for foreign investors and to trigger a boom in infrastructure. The country badly needs roads, railways, electricity, and factories. To convince foreign companies, the new Premier will have to spend almost his entire first term to combat red tape, especially because local governments are almost impossible to control and his party is a notorious part of the corruption problem. But there is more: the international climate is not favourable for the take-off of another manufacturing giant. Global growth rates have not yet recovered and Asian factories struggle with overcapacity. Moreover, compared to China’s take-off, manufacturing has also become less labour intensive.

Neither can the government count on the touted Indian consumer market. India’s domestic consumption miracle is grossly exaggerated. It remains about 4 times smaller than China’s and is largely built on deficits: a trade deficit, growing household debt, and, a huge government deficit. The government has been spending about 5 per cent of the GDP on subsidies to keep poorer households spending. Modi does want to change that, but as long as he has no alternative, it would be suicide political suicide to trim them. Yet, as long as they remain in place, the government will deplete its resources for infrastructure and education.

India’s new political star also inherits a very complex security environment. If anyone would be able to usher a thaw with Pakistan, it is Modi, but his own party will not allow it. Moreover, it will not be easy to backtrack from his electoral promise to be tough on Islamabad. Meanwhile, Pakistan continues to slide in turmoil and so does Bangladesh. China looms as a challenger. That leads us to the main question about Modi: can he resist his nationalist tendency in such a volatile neighbourhood when his economic changes do not work out as promised? For me, the likely answer is “No, he can’t.”

Published in de Morgen, NRC Handelsblad and Caixin.

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