Will ′Modinomics′ help boost India′s development? | Asia| An in-depth look at news from across the continent | DW | 12.01.2015
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Will 'Modinomics' help boost India's development?

In a bid to transform India's economy, PM Narendra Modi has pledged unlimited reforms at a summit in Gujarat. DW speaks to economist Rajiv Biswas about the likelihood of "Modinomics" succeeding across India.

Speaking at the "Vibrant Gujarat" investment summit, Indian PM Narendra Modi pledged to slash red tape and banish India's reputation as a hard place to do business. Modi spoke of his plans to lift hundreds of millions of Indians out of poverty, including the opening of more than 100 million bank accounts, a 'Make in India' campaign to promote manufacturing and attract foreign investment, and plans to expand the rail, road, energy and digital networks.

The summit was held in Modi's home town of Gandhinagar and was attended by host of world and business leaders, including US Secretary of State John Kerry, UN Secretary General Ban Ki-moon and World Bank head Jim Yong Kim. More than six months into Modi's rule, India's economic growth remains sluggish, with GDP expanding at an average of 5.2 percent in the first three quarters of 2014.

Kerry told the summit the United States looks forward to stronger trade and diplomatic ties with India. Kerry's visit to the South Asian nation, his second in six months, comes just a few weeks before US President Barack Obama is due in New Delhi for talks.

In a DW interview, Rajiv Biswas, Asia-Pacific Chief Economist at the analytics firm IHS, says that while replicating the Gujarat model across a large and politically disparate country such as India will be difficult, PM Modi's management style is likely to accelerate economic development in significant parts of India, particularly in states where his Bharatiya Janata Party (BJP) holds state government.

Rajiv Biswas

Biswas: 'The US government regards India as a key strategic partner for the long term'

DW: What did PM Narendra Modi want to achieve by inviting major businessmen and world leaders to the summit?

Rajiv Biswas: One of PM Modi's key priorities for the Indian economy is to significantly boost foreign investment into industry, infrastructure and urban development. The "Vibrant Gujarat" Summit offers him the opportunity to showcase India's capabilities, since Gujarat has become famous internation ally as a fast-growing Indian state that has good quality infrastructure and many foreign multinationals that have successfully established manufacturing operations in Gujarat.

Since PM Modi was the Chief Minister of Gujarat for many years, it also offers him the chance to show foreign investors that he has a strong track record of working together with foreign investors to successfully implement new projects, and therefore that he will be able to replicate this performance at a national level.

What is special about this summit?

It is highly unusual to find so many global investment delegations led by senior ministers from around the world attending what is essentially an investment summit held by a single Indian state.

Of course, the crucial ingredient that has made this summit such a global draw is "Modi Magic," since Modi himself has built a huge international charisma amongst governments and private sector multinationals since he was elected as Indian PM in May 2014.

What exactly is "Modinomics," and can it really be applied to the rest of India?

"Modinomics" is essentially about having a political leader who is able to create efficient bureaucracy, develop the necessary infrastructure to support industry, and work successfully with foreign and domestic investors to get their projects implemented efficiently and to strict deadlines. As Chief Minister of Gujarat, Modi developed a fearsome reputation for managing his government like a CEO, with efficient and timely performance and a strong anti-corruption stance.

The state of Gujarat has been one of the fastest-growing states in India over the last decade, outperforming national average GDP growth by an average annual growth rate of 1.7 percent. This significant performance reflects the rapid development of state infrastructure and industry, helped by the state's reputation as an efficient, business-friendly state with good infrastructure, notably a surplus of electricity generating capacity in the midst of a nation crippled by severe shortages of power.

As prime minister, Modi is trying to bring the same style of government management into the Indian government. While replicating the Gujarat model across such a large and politically disparate country will be difficult, PM Modi's management style will accelerate economic development in significant parts of India, particularly in states where the BJP Party holds state government.

Even some other states run by opposition parties may eventually face political difficulties if they resist "Modinomics," since their state electorates may become discontented if they see BJP-run states are achieving better economic development success using "Modinomics" than their own state governments.

What message did the US want to send out to India by sending US State Secretary John Kerry to this summit?

The US government regards India as a key strategic partner for the long term, not only as a large emerging market economy which offers considerable future market opportunities for US exports and investment, but also as an important political and defense security partner. Currently, US-India bilateral trade is around 100 billion USD.

The US has signaled the high importance it attaches to the relationship with India and to PM Modi himself by sending a very senior member of the Obama cabinet to the Gujarat Summit. Given the background context of a previous refusal by the US government in 2005 to grant Modi a visa to travel to the US, Washington is particularly keen to strengthen ties with Modi's administration.

How is Kerry's visit to India linked to US President Barack Obama's upcoming trip to India?

President Obama is due to visit India in a couple of weeks' time, as the chief guest for India's Republic Day. Kerry's visit will help finalize the preparations for some of the key outcomes expected during Obama's visit, including a new ten-year defense framework agreement which is expected to be signed, and which will be far wider in the scope than the previous bilateral agreement it replaces.

Did the investment summit ultimately succeed in awakening the interest of foreign investors in India?

The Gujarat Summit is showing very positive outcomes in terms of new investment commitments by both Indian and foreign multinationals, signaling that India is now seeing a resurgence of investor interest after several years of stagnation during the twilight years of the previous government led by Manmohan Singh.

Hindu nationalist Narendra Modi, the prime ministerial candidate for India's main opposition Bharatiya Janata Party (BJP), gestures as he addresses his supporters during a public meeting in Vadodra in the western Indian state of Gujarat May 16, 2014 (Photo: REUTERS/Amit Dave)

Biswas: 'As Chief Minister of Gujarat, Modi developed a fearsome reputation for managing his government like a CEO'

At the Gujarat Summit, several large Indian multinationals, including Reliance Industries and the Aditya Birla Group, have made large new investment commitments for Gujarat. There have also been significant new investments announced by foreign multinationals, with the CEO of Rio Tinto announcing that thousands of new jobs would be created by his firm in India in the diamond-cutting industry.

Plans for a major new joint-venture involving a four billion USD investment by US multinational SunEdison and India's Adani Enterprises were also announced, for the manufacture of low-cost solar panels in India.

Rajiv Biswas is Asia-Pacific Chief Economist at IHS, a global information and analytics firm. He is responsible for coordination of economic analyses and forecasts for the Asia-Pacific region.