If a country is lucky, every generation has a rock star leader who seems capable of actually making a difference. Hopes are high for what Indian Prime Minister Narendra Modi will deliver after winning the most resounding electoral victory in recent Indian history. But if his first 100 days in office are a sign of things to come, Modi will fail to deliver. Bad infrastructure, bureaucratic lethargy and pervasive corruption will ensure that India continues to stagnate.
Infrastructure is India’s Achilles’ heel. When Modi visited Japan this month to cajole Japanese firms to invest in India, most companies pointed to the terrible state of Indian infrastructure as a key constraint. Just how terrible is Indian infrastructure? In 2012, a daylong blackout left nearly 700 million people in North India in complete darkness. This was only a glimpse of a problem that plagues much of India: its power grids are among the most inefficient in the world. Its roads are the most dangerous in the world, with India accounting for 15 percent of the world’s fatal road accidents despite being home to only 1 percent of global motor vehicles, according to the International Business Times. It also ranks lower in key health care metrics than impoverished Nepal and Bangladesh, having the highest infant mortality rates listed in the Global Burden of Diseases, Injuries and Risk Factors 2010 Study. Modi has tried and failed to solve this problem. His government facilitated the issue of infrastructure bonds, but the autonomous central bank banned Indian banks from buying these bonds, which limits the depth of the bond market. With these limits, the odds of raising the billions needed for India’s critical infrastructure needs are bleak; foreign direct investment flows are too erratic for India to rely on them exclusively.
India’s lethargic bureaucracy is another key limitation. The World Bank lists India 134 out of 189 countries for ease of doing business. In 2012, the Hong Kong-based Political and Economic Risk Consultancy ranked the Indian bureaucracy the worst in Asia. However, Modi has done more than pay lip service in this area. In his first Independence Day address, he abolished the Soviet-style Planning Commission that had directed the Indian economy since 1950. But this is not enough. The Indian Administrative Service, which sends district level administrators to all of India’s 675 districts, should be the next target. A vestige of the colonial days, IAS and its officers today wield tremendous power and little functional value. If Modi could loosen their stranglehold on the country, innovative, bottom-up policies may emerge to complement business needs. Removing the IAS, however, is so unfathomable that any Indian reading this column is probably chuckling at my naiveté. The bureaucracy is basically too powerful to curtail, crippling India’s potential for growth.
Corruption is the final hurdle. Transparency International ranks India 94 out of 177 nations in its Corruption Perceptions Index, and foreign businesses often cite corruption as motivating their unwillingness to work in India. Many countries have laws, like the Foreign Corrupt Practices Act, that ban companies from working with corrupt entities. Indian foreign direct investment regulations require foreign firms to partner with Indian companies; however, corruption runs so rampant in India that it is impossible to meet FCPA requirements with most partners. Corruption must be controlled if Indian firms need global partners to grow.
Just because Modi will likely fail to jump-start the Indian economy does not necessarily mean he is a total failure as a leader. In fact, he has achieved more in his first 100 days than any prime minister before him. His foreign visits have allayed fears of neighbors (such as Nepal) who are tired of Indian interference in their domestic affairs. His recent visit to Japan brought in more than $34 billion in aid. The reality, however, is that much of this is window dressing. Modi seems incapable of tackling the true bottlenecks to growth. A group that is crucial to India’s growth remains unimpressed with him: global businesses. Until Modi institutes policies that dramatically improve infrastructure, cut bureaucratic red tape and fight endemic corruption, India is destined to stagnate.
