Modi’s chance to reshape India’s economy

After his party’s triumph in the state of Uttar Pradesh, India’s largest and most politically important, Prime Minister Narendra Modi now wields greater power than any Indian leader in a generation. He will need it if he wants to continue to reshape India’s economy.
True, the results don’t drastically alter the math in the upper house of Parliament in New Delhi, where previous reform efforts have stalled, and the polls themselves were hardly a referendum on market liberalization. Yet Modi’s popularity is also inseparable from the pledge that won him office in 2014: to deliver the jobs India’s burgeoning population desperately needs (and thus far, isn’t getting). The only way to do so at the pace and scale required — with nearly a million new job-seekers entering the market every month — is to get private investment flowing again and to crack open India’s ossified land, labor and other factor markets.
Some of this should now be more possible at the national level. Modi could, for instance, begin cleaning up and selling off inefficient state-run banks in order to unclog the investment pipeline. The opposition Congress Party could perhaps afford to be obstructionist when swathes of the electorate had real doubts about Modi’s agenda. Facing a clear consensus in favor of good governance and faster economic development, and lacking any credible leader to rival Modi, the party will have a harder time blocking reforms.
More important, Modi’s Bharatiya Janata Party now controls territories comprising more than 60 percent of India’s population. That grouping presents an ideal testing ground for difficult land and labor reforms. While some measures have been attempted thus far, they haven’t been as far-reaching or as coordinated as they could be. Modi can change that by pressing state leaders to combine their efforts and resources into a more ambitious liberalizing agenda.
None of this is to say that Modi’s recent focus on cleaning up politics and the economy isn’t worthwhile, or that smaller reforms — opening up more sectors to foreign direct investment, say — aren’t welcome. It’s critical that the rollout of an already approved nationwide goods-and-services tax proceed swiftly and smoothly. Modi will have to be careful, too, to keep a check on more extreme voices in the BJP, who may take the party’s electoral success as license to promote a more hard-line religious agenda.
But with this victory, and facing the great likelihood of a second term in 2019, Modi has a renewed chance to give India the future its young and eager population deserves. He needs to seize it.
—Bloomberg