Modi’s formidable achievements hide his economic weakness

India's Prime Minister Narendra Modi. Picture: AFP

Does this April-May Indian election have something of the 2004 campaign about it?

I was in India for some of the 2004 campaign, and the result confounded everybody. Then, like now, the pro-business BJP was in power, the Indian economy humming along at 7 per cent ­annual growth and everyone, including Australia’s Office of National ­Assessments, thought the BJP would be handsomely ­returned.

However, the growth had produced socially uneven benefits, and rural discontent in particular saw the BJP tipped out and a Congress-led government installed in its place, which ruled for the next two terms.

The echoes today are eerie. Nonetheless, it is still more likely than not that Narendra Modi and his BJP will be returned for a second term in the marathon Indian national elections, which will stagger along from early April until late May with about 900 million eligible voters.

There is nothing like an Indian election.

Modi has been a bit of a mixed grill as Prime Minister, after in 2014 winning the first outright parliamentary majority for any party in several decades.

His achievements are formidable: India is now the fastest growing big economy in the world and is destined to become a global superpower, a few decades behind China but rising steadily. Across Modi’s term growth has averaged an impressive 7 per cent.

He is also a formidable nationalist. That there is a palpable, living sense of Indian nationalism all across this vast nation is an astonishing achievement of its politics and leadership, given that India is vastly more populous and diverse than the European Union, or the whole of South America.

Nothing excites Indian nationalist feeling more than the unifying majesty of cricket, or the dark trouble of conflict with Pakistan, or indeed with China.

The recent terrorist bombing in Kashmir that killed 40 Indian soldiers and was carried out by terrorists linked to Pakistan, and the subsequent retaliatory acts of limited but deadly military action from both India and Pakistan, play to Modi’s strengths electorally.

And without him giving voice to prejudice or hostility against other communities, Modi has waged a kind of minor pro-Hindu culture war in a nation that is 85 per cent Hindu. He has campaigned hard and effectively against corruption, which the ­average Indian hates. He has built a lot of infrastructure, which India needs desperately.

Finally, Modi is a giant and commanding personality with a personal story of rising from humble origins as a tea-seller’s son to become an immensely successful state leader in Gujarat and then Prime Minister of the world’s biggest democracy.

But Modi also has some real weaknesses. He has not fully succeeded in liberalising the Indian economy. There are two or three percentage points of growth going begging for want of reforms to free up the supply side. Indian economic growth, impressive as it is, is not sufficient to absorb new ­entrants to the ­labour force each year.

Sometimes Modi’s populism and nationalism have got in the way of economic reform.

Some genuinely good reforms, such as introducing a nationwide GST that replaced a bewildering array of inefficient state taxes, nonetheless hit his small business base disproportionately.

One huge reform — demonetisation — was a disaster. It took out of circulation most banknotes and was essentially an anti-corruption reform. But it achieved little on this score while being a huge irritant for Modi’s core voters who live in a cash economy.

There is, as in 2004, a lot of rural distress. Indian voters are determinedly independent. They hate being taken for granted. They appreciate Modi’s infrastructure, but the low levels of commodity prices, combined with the low productivity and huge transport costs of Indian agriculture, mean that farm incomes are stagnant. That’s worrying for the BJP.

And the Congress party has ­rediscovered its mojo. It was smashed to bits in 2014, achieving its lowest ever result. And it lost state election after state election. It is tied dysfunctionally to the Gandhi dynasty. Yet Rahul Gandhi led it to three surprise victories in state elections at the end of last year.

Congress won’t achieve a ­majority in its own right, or anything like it, but if it stages a substantial comeback and regional parties chew up BJP seats outside the Hindi band in the north, then an anti-BJP coalition government is a real possibility.

At the same time, Modi is no natural coalitionist and will have to develop or discover new skills if he is forced into minority government.

This election fight will be a humdinger.