Modi should channel Reagan
AS A campaigner, Indian Prime Minister Narendra Modi has drawn comparisons to the man he met for dinner at the White House on Monday night: United States President Barack Obama.
Both men are dramatic orators who make good use of their personal story in speeches. Both have exploited new technologies, especially social media, in the effort to rally grassroots supporters to donate and come out to vote.
The US president with whom Mr Modi would seem to have the most in common, though, is not the 44th but the 40th: Ronald Reagan.
Like the Gipper, Mr Modi was elected at a time of malaise and drift, with an economy hobbled by high inflation and slowing growth. He took up office promising to lead a national revival, in part by eliminating excessive state intervention in the economy.
Many Modi fans imagined he would immediately sweep away reams of outdated laws and regulations, allowing the invisible hand of the market to operate freely for the first time in India.
In fact, Mr Modi is no more Mr Reagan (or his British counterpart Margaret Thatcher) than he is Mr Obama.
The US does not even seem to be Mr Modi's role model for economic policy. His decisions so far lean more towards the Chinese and Japanese models of state-led capitalism, rather than traditional Anglo-Saxon laissez-faire.
If Mr Modi were inspired by Mr Reagan, he would have prioritised an obvious series of initiatives: A cut in tax rates combined with curbs on government spending, the privatisation of state- owned enterprises, a tight money policy to strangle inflation and aggressive action against labour unions.
So far, Mr Modi seems disinclined towards any of the above.
While he may divest piecemeal stakes in some government- owned companies, he has made it clear that he prefers to give them more managerial autonomy and allow them to reform themselves rather than sell them off outright.
His administration's first budget made no concessions on tax rates. While some attempt was made to trim spending, the budget included no high-profile initiatives to end wasteful subsidies.
On monetary policy, Finance Minister Arun Jaitley has repeatedly favoured lowering interest rates, despite persistent inflation. On his trip to the US, Mr Modi promised the chief executives of major US companies that he was planning serious labour reforms. But he has yet to prove that he is willing to take on India's powerful unions - many of which are affiliated with his own political party.
Some hopeful Modi fans counsel patience, saying the Prime Minister should be given at least until his next budget to prove his willingness to push for more dramatic changes.
But consider the issues on which Mr Modi has concentrated so far. His priority is clearly infrastructure, be it roads, power, ports or railways. All these sectors require massive investments and involve considerable risk in terms of returns. These are not areas where private companies traditionally rush to invest.
Conversely, companies backed by state funding or cheap finance from state-owned banks and financial institutions can more safely assume these huge risks.
This is precisely why Mr Modi returned from a bilateral visit to Japan with commitments worth US$35 billion (S$45 billion) for infrastructure.
When Chinese President Xi Jinping visited India a few weeks later, he pledged another US$20 billion. Mr Modi will bring home no such promises from the US, no matter how successful his trip has been in terms of atmospherics.
In fact, in some ways, the Prime Minister is more statist in his approach than even leaders in Beijing. While China has largely liberalised foreign direct investment (FDI) across all sectors, Mr Modi has been reluctant to raise FDI caps above 49 per cent in sectors such as defence and insurance. He remains convinced that some "strategic" sectors should stay under Indian control.
While this approach worked well for Japan and China, it is far from guaranteed to achieve similar results in India.
The fact is that the Indian state, which is dysfunctional at several levels, is never likely to be even half as efficient as China or Japan. India's largely government-owned defence companies have not produced world-class products in six decades. Government-owned insurance companies have done a terrible job of spreading insurance to the masses.
Conversely, India's private- sector companies have already shown that they can be as efficient as US corporations. What they need are technology, investment and expertise - all things that the US private sector can provide much more efficiently than the Chinese or Japanese governments.
Last week, Mr Modi declared that for him, FDI meant "First Develop India". If he's serious, he's going to have to act a little more like Mr Reagan than he has so far.