AS his surprise landslide win became clear on Thursday Indian Prime Minister Narendra Modi promised that his second five-year term would see an inclusive government. This sentiment is common to most newly-victorious politicians. Nevertheless, it must be hoped that Modi recognizes that over the last five years, extremists in his Bharatiya Janata Party (BJP) have fostered dangerous divisions, particularly with the Muslim community.
Indians need to define themselves purely as citizens of their great country. A unified India can take pride in its economic and technological achievements and look to advance to claim its place as an economic superpower.
Investors were certainly pleased by the BJP’s unexpected triumph. On Monday after exit polls predicted an easy Modi victory, the Bombay Stock Exchange’s Sensex index jumped almost four percent and put on a further 2.5 percent in early trading on Thursday morning. There was similar exhilaration among the investment community five years when Modi won power with promises of freer markets and incentives for the private sector.
The Congress Party, which until 2014 had been the dominant force in Indian politics since independence in 1947, had been largely statist in outlook, preferring state banks and corporations to dominate the economy. Given India’s bloated bureaucracy and mountains of commercial rules and regulations, for much of its time in power, Congress oversaw lackluster growth in national wealth and the discouragement of entrepreneurial drive and vigor.
To a degree, Modi delivered on his promises to open up the economy. But whatever his personal inclinations about free markets, he allowed interference by conservative forces in his own party. His row with two successive governors of the central bank, the Reserve Bank of India, unsettled overseas investors. In 2016 he refused to renew the mandate of Raghuram Rajan, a respected former IMF chief economist and when Rajan’s replacement, Urjit Patel sought to maintain the bank’s independence, he too was ousted. Modi argued for and this February eventually received $3.9 billion of “excess” Reserve Bank capital. Rajan and Patel had wanted to use its strong balance sheet to recapitalize struggling state banks rather than being earmarked for normal government spending.
Modi was blamed for financial scandals involving once high-flying entrepreneurs. These however were part and parcel of a rapidly-evolving corporate scene as well as evidence that India still has to attack the corruption that inhibits its commercial performance. But Modi can be held accountable for the “demonetization” exercise which rather than catching tax cheats seriously damaged small businesses. On the plus side growth in what is now the world’s sixth-largest economy, is still around seven percent. But inflation is on the up and a recently-leaked government report revealed that unemployment was the highest in almost 50 years.
Yet despite rising hard times for many, particularly the heavily-indebted agricultural sector, voters have once again put their trust in Modi. But his new mandate brings the challenge of re-energizing the economy, which some respected local economists are warning might even slip into recession. This remarkable politician really must keep front and center his pledge that his new government will pursue inclusive policies. Allowing BJP hotheads to continue their divisive campaign against India’s Muslims could lead to economic as well as social disaster. The country’s prosperity depends on the unity of all Indian citizens.
