HISTORY REPEATS

An economist explains why Narendra Modi winning 2019 won’t translate into big-bang reforms

Obsession
Modi's Moment
Quartz india
Obsession
Modi's Moment
Quartz india

Narendra Modi’s re-election as India’s prime minister in 2019 is increasingly assumed to be a given, especially by his staunch backers.

His party, the Bharatiya Janata Party (BJP), already controls over 17 of the 29 states in India, either as a single party or in an alliance. In 2017 alone, it won three of the five crucial state elections and forged an alliance to overthrow a ruling coalition in Bihar. In 2019, the BJP is expected to win a bigger mandate than what it won in 2014 promising big-bang reforms.

However, even if Modi wins 2019, India shouldn’t hope for any such reforms, Ruchir Sharma, Morgan Stanley’s head of emerging markets and its chief global strategist, said. He oversees assets worth over $20 billion and his job involves assessing the prospects of various countries.

“My criticism has nothing to do with any particular government or this government,” Sharma said at an event organised by industry body FICCI in New Delhi on Wednesday (Aug. 16).

His views stem from his understanding of the nature of Indian politics, where ruling political parties often focus on incremental reforms, than one big-bang reform, Sharma said.

“This is a recognition of the Indian polity. This is how the polity deals with the reform process, and it has always been incremental in nature. You get some spurts like in the 1990s when India had its back to the wall. But the reform process in this country has always been incremental in nature. So to expect anything more than that is foolhardy and you are going to be disappointed…When people tell me what if the current government comes back to power in 2019 with a bigger majority, will that accelerate the reform process, my answer is, ‘Why, when this has worked?'”

Sharma, who has authored two books, also said that the inability to undertake radical reforms by politicians in India could stem from the fact that they mostly don’t result in leaders getting reelected.

“Of all the states that had elections, we looked at the election results. Even if the state had delivered 8% economic growth or more under a chief minister’s term, there is a still more than a 50% probability that the chief minister lost the election. That emphasised the point that there is a very loose connection between economics and politics in this country and also some emerging markets, but India in particular. So, as far as politics is concerned, I have always ranked India on a scale of a steady six of 10, which is because we always tend to carry out incremental reforms over time. There is nothing damaging that any government does either, yet governments tend to do just enough to carry out the reform in the interim so that business can keep operating in an environment. In this country, it’s best to assume that the politician will do the least required to keep the economy going and that has been the path for the past 30 years or so.

Pointing out that reforms are often undertaken in the first few years of a new government, Sharma said the Modi dispensation’s performance so far has been along expected lines.

It is in line with India’s 30-year historical average of being incremental in nature. So I would say six out of 10 (in terms of performance). It is steady incrementalism which is being done on different fronts such as bankruptcy bill and in terms of the goods and services tax (GST). On the other hand, stuff which would have really made a difference, let’s say privatisation of public sector banks (PSB)…now, is that even possible in India? My answer is, no. Let’s not even dream about it. So we will get privatisation by malign neglect in India over time.

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