May 19, 2014

TSG IntelBrief: Prime Minister Modi and India’s New Direction

• After a five-week election that saw 551 million votes cast and a historic BJP victory, there remains a lack of concrete indications as to how Prime Minister-elect Modi will govern
• Modi’s tenure as chief minister of Gujarat was marked by strong economic growth and violent ethnic rioting; as national leader he will need to focus on India’s slowing economy and assuage domestic and international concerns over minority and religious rights
• The election of Modi, a man from humble beginnings and the second lowest caste, is evidence of significant and positive social change underway in India.

It is clear from the results of India’s historic election that Narendra Damodardas Modi and his Bharatiya Janata Party (BJP) have a mandate to govern without a coalition. Much less clear is how Modi will govern. It is rather remarkable that there is no consensus—even among Modi supporters—as to how the former chief of Gujarat will lead the nation of 1.2 billion people. This is the first time since 1984 that India has seen a majority government, and the first time in Indian history that the majority government is not the Congress party. With all the unknowns surrounding Modi’s coming term, there are three paths, all equally important and difficult, that he must steer the country along: economic growth, domestic stability, and regional influence. What Modi, India’s first prime minister born after the country’s independence, chooses to do in each of these paths will impact not just India but the region and world as well.


Economic Growth

Financial markets have expressed optimism in Modi’s election even though there are no details as to how he’ll reenergize India’s economic growth that has slowed to 4.8% this year. While this rate of growth would be the envy of the EU and US, it is not nearly enough to keep pace with the country’s young and expanding middle class. Half of the country’s population is under 25 years old, which bodes well in theory for long-term economic growth, but also places pressure on the government to create conditions for sustained and broad-based growth.

Adding to the burden of creating millions of jobs every year to match population growth is a stubbornly high rate of inflation, stemming from higher wages and a rise in food prices. In 2013, India had 11% inflation, which presents Modi’s government with a difficult task of reducing price increases while not slowing the economy. Modi had a relatively strong economic record during his 12 years leading Gujarat (though most Indian states did well during this time span) but the challenges of running an entire country’s economy are altogether different. As with any politician, Modi will be judged primarily on how the economy performs on his watch.

. Domestic Stability

There is notable concern that Modi’s strong sense of Hindu nationalism will inflame ethnic tensions in a country with a tragic history of ethnic stress exploding into violence. Though later cleared of complicity, Modi had been accused of condoning actions that resulted in the 2002 riots in Gujarat, which left approximately 1,000 dead, mostly Muslim, at the hands of Hindu gangs. The event led the US to deny him a visa and earned the mistrust of India’s Muslim population. The country is 80% Hindu, 12% Muslim, 2% Christian, and includes many other religions and ethnicities. As leader of this diverse population, Modi needs to take strong steps to ensure the protection of human rights. During his May 17 pilgrimage to the River Ganges, he stated “there’s a lot work that god has put me on this earth for,” amid talk of rebuilding a Hindu temple on a controversial site—sentiments that have contributed to fears of aggressive Hindu nationalism, even before his swearing in this week.

Economic growth, if broad-based and inclusive, can strengthen domestic stability and tamper ethnic or religious tensions, but it can also escalate tensions if growth fails to meet expectations. But even significant economic growth would not be enough to stem tensions if the government is widely perceived as strongly tilted towards one group. Muslim representation in this next Indian parliament is at an all-time low, and the BJP, which won 282 seats this week, doesn’t have a single Muslim representative. Modi will have to take both symbolic and practical actions to ensure his vision for India, one of the most ethnically diverse countries on earth, is one for all Indians.

On the positive side, Modi’s rise to power can be seen as a blow to the still-lingering Indian caste system. He came from the second-lowest caste, a stark contrast to the elite members of the once-dominant Congress Party. Modi’s supporters are young and less bound by restrictive cultural norms, like those enshrined in the caste system, a promising trend that speaks to India’s increasing domestic stability.


Regional Influence

As the second most populous country (and projected to overtake China by 2030) and Asia’s third largest economy, India has played a surprisingly minor role in a region roiling from the machinations of others. India has managed to have somewhat effective relations with Pakistan, a notable accomplishment given the 2008 Mumbai attacks by Pakistani extremists that killed 164 people. But its regional role hasn’t been commensurate to its size, an imbalance that permits China and Russia to act more aggressively as each country seeks to expand its respective sphere of influence. Because Modi’s campaign focused entirely on domestic economic concerns, there is a pronounced paucity of information as to what kind of regional role the new Prime Minister sees for his country.

India’s quest for energy will undoubtedly drive some of Modi’s foreign policy moves. India has backed out of a long-planned natural gas pipeline from Iran that was to run through Pakistan, citing sanctions on Iran as cause. India remains highly dependent on imported coal and oil (coal accounts for 40% domestic consumption, while oil is 29%). Like China, India has significant air pollution stemming from coal-burning power plants, and wants to increase its use of cleaner-burning natural gas, which accounts for 6% of its total consumption currently. To accomplish this, India will have to engage more with its neighbors to elicit international projects involving pipelines and liquid natural gas terminals, though it is unclear the extent to which India will initiate such efforts.

How Modi chooses to lead as it relates to these three paths will determine if a global population powerhouse can become an economic and political powerhouse as well.



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