What Modi Means for Indian Biz
WHY YOU SHOULD CARE
Because what’s good for the economy of the world’s largest democracy might just be great for the rest of the world’s as well.
By Prashant Agrawal
In the few days since the Indian election, the world’s largest democracy has seen its stock market reach an all-time high. Rakesh Jhunjhunwala, the Indian equivalent of Warren Buffett, believes India is about to experience an epic bull market, with the Indian stock market doubling over the next five years. With the election of the controversial Narendra Modi, Indians are confident that economic growth is returning to the country.
From roads to ports to power, Narendra Modi has made promises to fast-track projects awaiting government clearance. Under the now-ousted Congress Party, major infrastructure projects were notorious for their delays; one minister or another sat on project clearances indefinitely, keeping them from progressing. What Modi is known best for is his tenure leading the state of Gujarat — which went from having an energy deficit to having a surplus in only 12 years. Gujarat’s road network is also the envy of the rest of the nation, connecting rural and urban regions across the state.
There are four key agenda items: power, roads, ports and rail (all made easier to work on because Modi’s party just won a groundbreaking majority in Parliament). There’s the impressive 10-year plan to ensure 24/7 electricity for India, and speedier, safer freight and passenger trains — including India’s first bullet trains and a dedicated freight corridor — across the still rail-dependent country. There are Modi’s plans for bigger ports on all three sea-facing corners of India, and a rapid expansion of India’s 54,000-kilometer network of roads. Finally, land acquisition — needed for both private- and public-sector projects — will be much easier for all as Modi adopts Gujarat’s policies for all of India.
Part of a series on the happenings before, during and after the Indian election.
Ironically, a report by the last government lauded the Gujarat land acquisition model. Expect the Gujarat model to be replicated across the country. India is of a scale and size that dwarfs other democracies, and it will take time to scale the Gujarat model. But Gujarat is no small state — it’s the size of the United Kingdom. Modi is a proven administrator who, before he became chief minister of Gujarat, spent a decade in Delhi working for the Bhartiya Janta Party (BJP), so he is familiar with the ways of the central government. His experience as a state administrator will help him as he goes from being a chief minister to a prime minister who heads 30 chief ministers.
A manufacturing renaissance
In the West, India is best known for its IT services. Less known, but equally — if not more — important. is India’s resurgence in manufacturing. India is a leading maker of cars and car parts, pharmaceuticals, textiles and other goods. But Indian manufacturing growth has stalled, thanks to antiquated manufacturing and labor laws. The Wall Street Journal cites a Goldman study showing that India lost 5 million manufacturing jobs between 2005 and 2010. India needs to put to work more than 60 million people over the next five years. Expect the Modi government to prioritize revamping labor laws in order to make it easier to hire and fire employees. Manufacturing has employed hundreds of millions of Chinese; a single Foxconn plant can employ a half-million people. Plus, a Modi government will likely court away Japanese companies facing problems in China. When the U.S. shut Modi down, he turned to Japan (twice); now the time is ripe for India to replicate and disrupt China’s manufacturing reign.
Here’s a case study in the red tape and bureaucracy of the Congress Party: The 2012 finance budget famously enacted a provision allowing the government to examine — in legal terms — “retroactive tax claims on overseas corporate deals involving Indian assets that have occurred over the past 50 years.” International accountancies and law firms rushed to warn multinational corporations about the dangers of doing business in India. International law firm DLA Piper wrote a report arguing that “the only thing certain is uncertainty.” This has proven true so far. As uncertainty can be a death knell for business, expect Modi to issue clear guidelines enabling businesses to plan for the future.
Yes, Modi is a pro-business, market-oriented reformer, but he will surprise those who assume he’ll veer toward the right on the environment. Global warming is a security issue for India. The nation sees it up close: India is surrounded on three sides by water — the Indian Ocean, and the Arabian and Bengal seas — and will quickly face the ramifications of rising sea levels. With the Maldives potentially going underwater, as well as an increase in flooding in the Bengal basin, India is seeing the effects of global warming in its own backyard. Expect Modi to make an all-out push for alternative energy.
Modi changed Gujarat; now investors and Indians are hoping he will change India. What matters most is that many are already betting on it.
Prashant Agrawal is an executive director at a management consultancy. He is also an adjunct fellow at the Center for Strategic and International Studies, and a contributing editor and columnist for GQ India.
- Prashant Agrawal, OZY AuthorContact Prashant Agrawal