India at the Crossroads: Transformation or Regression?

By: Jagdish N. Sheth & Gyanendra Singh

As Modi’s first term ends, any objective evaluation of his government has to begin with that time-honored question: are India, and the majority of its citizens, better off than five years ago? How does the performance of his government compare with that of its predecessor?

 

Next, with elections around the corner, it is worth asking: does leadership matter? Or as some have suggested, India will continue its journey regardless of whichever government, led by whosoever, comes into being.

Finally, if leadership matters, then what is it about Modi performance that makes him different from other contenders?

Let us now look at these questions in turn— with objective metrics and examples.

Above all, India is far better off than five years ago. Fiscal management has been outstanding— lower deficit and current account balance, with lowest inflation within living memory— along with the highest growth rate among large economies. Major reforms such as GST (Goods & Services Tax), IBC (Insolvency & Bankruptcy Act), DBT (Direct Benefits Transfer), RERA (Real Estate Regulatory Authority), etc. have been enacted. Infrastructure has been built at an unprecedented pace. Electricity has finally reached every household; financial inclusion is substantially achieved, cooking gas and sanitation are available to 90% plus households. In addition, social reform campaigns for cleanliness and girl child welfare—areas that no other government had emphasized—have made major progress. By just about any metric— be it ease of doing business, less corruption, more innovation— India has moved up the ladder and is now considered a “bright spot” in the world economy, in contrast to being counted among the “fragile five” at the beginning of Modi’s term. Progress could have been even faster had the government’s effort for “deep reforms” in land and labor not been stymied by the opposition.

In contrast to Modi government’s record, its predecessor UPA did not carry out a single major reform to boost the economy during its ten year tenure: during its first term it coasted along at high growth rates buoyed by the reforms carried out by the previous Vajpayee government and the boom in the world economy, and then carried out populist initiatives like the Land Acquisition act, MGNREGA, Food Security Act and Right to Education Act which, in combination with unprecedented fiscal stimulus in the wake of the worldwide financial crisis for 2008-09,  resulted in increased regulation, higher subsidies, and inflation— to the point that a disillusioned electorate tossed out the government!

The individual citizen is better off than five years ago— India now is the sixth largest economy in the world; its GDP has grown by 49% to almost 3 trillion dollars at market exchange rates, or in excess of 10 trillion dollars at PPP (purchasing power parity) corresponding to per capita GDP of nearly $2,000 and $ 8,000 respectively. This is nearly a third more than five years ago— a growth rate unmatched by any other large economy with the exception of China. And while opposition continues not to acknowledge this progress, and hurls accusations one after another at the government, the electorate appreciates this progress: Modi continues to be the most popular leader even if his lustre has diminished somewhat due to the inevitable anti-incumbency effect.

In spite of this progress, India fares poorly when compared to its peers among the BRICS countries (Brazil, Russia, India, China, South Africa) or as compared to the developed OECD group of 34 countries. Economists like Vijay Desai have laid down the benchmark for India’s prosperity as reaching per capita GDP equivalent to Portugal or the OECD average— which is four times what it is today ( India’s long road: the search for prosperity ).Another key metric is Human Development Index (HDI) as measured by the United Nations, in which India languishes ranking at 130 out of 189 nations with a score of .64 (medium) versus .75 for China(high), and in excess of .80 for OECD countries(very high). Therefore, India’s journey is far from complete; even as its demographic bulge means ever increasing aspirations of its youthful population. At current growth rates of about 7%. It will take two more decades for India to reach “high income” or “high human development” country status, with a $10 trillion economy. The need for faster growth, at about 8-9% is widely acknowledged but can come only with “deep reforms” such as land acquisition and labor regulations. Modi himself seems to recognize the need for such a transformation, evident from his constant reminder to “perform, reform, transform” to his colleagues.

Many commentators believe that India can transform itself without transformational leadership— that no matter what government comes, a coalition or otherwise, India will continue its march towards its manifest destiny. We vehemently disagree— history teaches that leadership matters—every nation that has transformed itself has needed a transformational leader for a considerable period. Some examples of such leadership during the past century are: Ataturk in Turkey (1923-38), Roosevelt in United States (1933-45), Lee Kuan Yew in Singapore (1959-89), Deng Xiaoping In China (1978-92), and Helmut Kohl in Germany (1982-98). All of these leaders had the charisma, vision, integrity, pragmatism, and execution skills to change the trajectory of their nations to such a degree that historians acknowledge their leadership as “transformational”. Among India’s leadership, only Nehru, Indira, and Modi exhibit some of the qualities to be considered transformational leaders.

In the absence of transformational leadership, countries progress to a certain extent — but then can either fall into the “middle income “trap— such as Argentina, or Brazil that were brought down by corruption and commodities busts— or reach a plateau short of the peak—such as Japan, which stagnated due to its demographic bust and policy mistakes.

Also, the world does not stand still: today there is a “window of opportunity” for India to seize the moment as China slows down, its labor cost advantage diminishes, and labor-intensive industries seek to relocate. Other countries such as Indonesia, Vietnam, or Mexico are not oblivious to such opportunities. An example of India missing out through lack of reforms or policy is the garment industry, where Bangladesh is now far ahead of India! 

In a nutshell then, we believe that India is at a crossroad: it can either seize the opportunity to transform itself into a developed country over the next decade or two, or it can continue with its “business as usual” journey with its current growth rates. The continuing concerns with jobless growth or farmer distress are unlikely to be abated without “deep reforms” — and social instability is inevitable unless the population sees hope around the corner. And seizing this opportunity will require transformational leadership. Modi has laid the foundation, and seems to have the penchant for transformational leadership. Other contenders are mired in transactional leadership —either to oppose Modi or to support their dynastic ambitions—and do not have the track record to inspire confidence as an alternative.

Indian electorate has always chosen wisely: whether it will do so again in 2019 remains to be seen.

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(Jagdish N. Sheth is the Charles H. Kellstadt Professor of Business at Goizueta Business School at Emory University (Atlanta, USA); Gyanendra Singh is a former P&G executive)