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Nationalism Won’t Solve India’s Job Crisis
But Modi’s new power might just make critical reforms possible.
India’s national elections are finally over. After six weeks and 600 million ballots, the ending offered a surprising twist, an absolutely crushing victory in the lower house of parliament for the governing Bharatiya Janata Party (BJP) and its standard-bearer, Prime Minister Narendra Modi. The lingering question now is what India’s charismatic and controversial leader will make of his stunning mandate.
In 2014, as a fresh face on the New Delhi scene, Modi campaigned heavily on hope and promises of achhe din (coming good times). A mixed record on economic reform and development, however, led the BJP to turn, this time around, to unapologetic Hindu nationalism and national security. But nationalist fever can only carry India so far in the teeth of an increasingly stretched economy—especially when it comes to providing the jobs that Indians desperately require.
Modi needs to create jobs at a rate of 10 million to 12 million a year—the number of Indians joining the workforce annually. Half the country’s population is under 27. Young Indians face an especially daunting array of obstacles: steadily rising unemployment, a steep, long-term decline in rural jobs, and worsening inequality. Urban men between the ages of 20 and 24 make up 13.5 percent of the working-age population but an astounding 60 percent of the unemployed.
With nationalist sentiments and neighborhood antagonisms growing, Modi declaring himself a chowkidar (security guard) resonated with many voters. But, at the same time, they can identify with the altogether different virtues highlighted by the same man, who in 2014 proudly proclaimed himself the humble, lower-caste son of a chaiwallah (tea salesman) and made vikas (development) a centerpiece of his campaign.
That’s a vision that can also appeal to almost all Indians. An inclusive development agenda might help heal the wounds of a bruising campaign. Slow growth and job creation, on the other hand, will sharpen divisions.
In Modi’s first term in office, his government pursued a number of smart economic reforms. The National Democratic Alliance (NDA)—a coalition of the BJP and other right-leaning parties—deserves credit for beginning to root out corruption, demanding better governance, improving government services delivery, and strengthening business conditions. The latter, together with steps to relax foreign investment requirements, such as in construction, coal, and rail, has made a real difference.
But too often, the incremental and tentative nature of reforms belied the prime minister’s brand as a bold and decisive leader. And some sweeping measures in his first term went badly wrong. Demonetization in 2016 is widely seen as a disaster. Establishing a single indirect tax out of a byzantine system of duties levied at state borders was an unequivocally good idea, badly implemented, and in need of further simplification.
And despite massive urbanization, a startling number of Indian jobs are still tied to small-plot agriculture, and too few are in the dynamic services sectors. Most significantly, Modi’s signature policy initiative, Make in India, is not on track to deliver the originally promised 100 million new manufacturing jobs by 2022. Not coincidentally, household consumption appears to be declining, investment is drying up, and exports have long been flat.
Mainstream voices, including Modi’s own chief economic advisor, generally agree India needs structural changes, not just tinkering with foreign direct investment rules. The government’s think tank has recently laid out a detailed blueprint for such economic reforms. Yet as the pace of change ground to a halt over the last year and a half and the country geared up for elections, a number of world-class minds ended their government service. In their place, similarly experienced and independent voices need to lead the new agenda.
Implementing such measures demands political boldness. It’s hard to imagine any Indian leader enjoying a stronger hand than Modi right now. Opposition from India’s powerful states, which regulate a wide variety of commercial activities, has often stymied reform. But not only has the BJP comfortably extended its majority in the Lok Sabha, but the party is also part of the government in 16 of 29 states, up from seven when it rose to power in 2014.
Arguably the greatest constraint on India’s manufacturing economy has been complex rules that restrict the transfer of land, make it difficult to hire and transition workers, and create disincentives for businesses to grow to over 100 employees. Reworking them will be politically difficult and introduce short-term pain, but there may never be a better time to set in motion long-term land and labor reforms.
Labor-intensive manufacturing, construction, and services are inhibited by laws that effectively bar the door on new entrants and those leaving agriculture. Alongside additional public and private investments in health, education, and skills development (including job-producing vocational and apprenticeship programs), labor reforms offer tremendous, untapped employment generation potential for India.
The so-called license raj of red tape and gratuitous officialdom has continued to recede under Modi, but rumors of its demise are exaggerated. After early attempts at auctioning off Air India produced no suitors, the behemoth airline remains in the red and under state control. India’s banking crisis has partially subsided, but nonperforming loans in the sclerotic, primarily state-run banking system remain a drag on private investment.
If managed by an honest and transparent government, the revenues from the sale of state-owned enterprises can help underwrite the world’s largest public health program and strategic investments in education (including job-creating vocational and apprenticeship programs), infrastructure, and urban housing. The economic multiplier effects would be felt by all Indians.
Trade liberalization has become the third rail of Indian politics—arguably even more so than labor laws. Zealously guarding local industries and import substitution industrialization really never went out of fashion. In the final year of Modi’s administration, the NDA moved backward on trade to pacify elements of its base.
India’s subdued export performance is thus unsurprising. Often sheltered from global competition by tariffs and non-trade barriers like local content requirements, and insulated at home by cumbersome workforce rules, India has a worker productivity problem. That blunts its advantages such as lower wages. Outside of capital-intensive sectors such as automobiles, India has generally not benefited much from export-led manufacturing.
To become a global manufacturing hub, India’s leaders must overcome significant political challenges. India’s upper house of parliament blocked the NDA’s initial attempt at land reform. But the BJP has been steadily accumulating seats and may enjoy a majority in the Rajya Sabha by 2020. Modi will also need to manage influential swadeshi (self-reliance) elements within his base who often see the next British East India Company lurking around every corner in any international project. Finally, the opposition Indian National Congress party will probably pick itself up off the mat and may be tempted to lean on agrarian populism (which the BJP recently indulged in as well), if past serves as prologue.
Should Modi be derailed by politics as usual, his own doubts about a reduced role for government, or his centralizing tendencies, the risks of economic failure could be dire. India’s ambitious young dreamers are passionate about progress and desperately want to feel empowered. A pervasive lack of opportunity could lead some of them toward an exclusionary religious nationalism and the scapegoating of minorities in India. The democracy’s own history shows what has transpired when mob rule broke out in 1984, 1992 to 1993, and 2002.
How Modi interprets his mandate will be critical. India’s most gifted politician in a generation is often said to have his finger on the public pulse. Behind the loose talk of dropping bombs and the nationalist bombast, it remains entirely plausible that Indians decided that Modi, warts and all, offers the best shot at economic opportunity and a better life. Yet it’s also possible that voters flocked to the promise of security—and will overlook again Modi’s economic shortcomings, if he projects the kind of strength they want while marginalizing the groups they dislike. Based on these elections, don’t count on a cowed opposition to stand up against Hindu majoritarianism.
Which version of Modi will now govern: the chaiwallah or the chowkidar? A brave, new India’s future hinges on his answer.