William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."
As COVID-19 devastates India, Prime Minister Narendra Modi faces an underappreciated challenge from milestones.
The immediate ones are, naturally, infection, hospitalization and deaths, and the extent to which the delta variant is racing ahead of New Delhi's medical capabilities. But also looming in the background of Modi's every misstep: the legacy of 1991.
That was the year of India's Big Bang. New Delhi, faced with a balance-of-payments disaster, began dismantling its socialist system. Under then-Finance Minister Manmohan Singh, India embarked on a bold, multifaceted journey to create a vibrant private sector, a stable of innovative world-class companies and a place on the world stage for Asia's No. 3 economy.
It is a work in progress, of course. Modi was elected in 2014 essentially to supersize reform efforts. He rose to the top job on the strength of his 13-year stint running Gujarat. On his watch, the western state had a reputation for rapid growth, better infrastructure and lower corruption than others, and more inclusive income dynamics. That, coupled with copious amounts of charisma, made Modi a folk hero.
As prime minister, Modi has been more bombast than action. After putting a few wins on the board -- opening aviation, defense and insurance a bit more to foreign investment -- he pivoted to spin. Modi displayed more passion in talking up Hindu nationalism than urging lawmakers to modernize a rigid economy.
Modi prioritized massive rallies to celebrate his make-India-great-again movement. He did a joint one in 2019 with then-U.S. President Donald Trump in Texas.
Then COVID-19 arrived to flip the script. It is hard to spin away overwhelmed hospitals, depleted oxygen supplies and slow vaccination rollouts. Modi's how-India-defeated-the-pandemic speech at the United Nations in January has aged poorly as the virus tears through the world's second-most-populous nation.
Yet so have Modi's modest reform achievements as New Delhi officialdom grapples with 1991 comparisons. There is a palpable sense of disorientation over how to handle the 30th anniversary of India's economic renaissance. The worry is that from a reform standpoint, Modi's seven years in power stack up so poorly against that most significant moment.
Granted, the goal posts get fuzzy. Singh did set India on the path toward middle-income status, but few would cite his 2004-2014 turn as prime minister a roaring success. Not bad, just rather laid back given the magnitude of India's rich-poor divide.
Hence the collective desire for a Modi character to, by the sheer force of his persona, bulldoze epochal reforms through a change-averse parliament. And a notorious New Delhi bureaucracy that serves itself, not the 1.3 billion Indians. Seven years on, not so much.
As COVID does its worst, the costs of years of spin over action are increasing exponentially. In a July 26 report, Moody's Analytics warned of dire economic fallout from the current infection wave -- the one Modi's spin doctors claim the foreign media is exaggerating.
This "second wave, which is now coming to an end, may have more lasting damage to the economy as the pandemic's one-two punch hit small enterprises very hard," Moody's argued. Looking forward, it said, "exports will once again be the foundation for recovery."
But what exports? China's V-shaped recovery seems to have topped out just as reports turn bleak on the effectiveness of its Sinovac vaccine. The U.S. is grappling with tens of millions of Americans who refuse to be vaccinated. Europe's snap back faces delta variant headwinds. Japan, too, should the Tokyo Olympics continue to cause record infection rates.
Rising global commodity prices also could fan inflation risks. The problem for Modi is how much he has relied on the Reserve Bank of India. He is on his third RBI governor, having dispatched with the previous two for insufficient monetary laxity. Modi's current money man, Shaktikanta Das, will be limited by overheating risks. That, in turn, could make it harder to paper over the bad-loan troubles plaguing state-run banks.
These bad loans are a microcosm of the Modi era. There is an alternative history where Modi's team acted boldly to clean up the financial system. Instead, we saw half-measures and fobbing off responsibility to the RBI. Basically, complacency.
Now the nonperforming loan problem is seen rising to 9.8% of assets by March 2022 from 7.5% in March 2021. The RBI admits the ratio could rise to 11.2% by March in its most severe stress test scenario. Given COVID rates, even that might prove optimistic.
The same with a recent Fitch Ratings forecast that India can grow 10% in the fiscal year ending in March 2022. Of course, any expansion of gross domestic product might look stellar compared to the 24% GDP plunge in the April-June 2020 quarter. Yet it is hard to fathom how India might credibly grow faster than China as infections surge.
Indian businesses wondering whether to expand, households mulling spending plans and investors doubting New Delhi's COVID numbers is not a great basis from which to build a recovery. A recent report by former top government adviser Arvind Subramanian, researchers at the Center for Global Development and Harvard University argues that India's death toll is 10 times higher than the 400,000-plus New Delhi claims.
If Modi had done more to whip up structural reforms than nationalist pride, India might have entered the pandemic with fewer preexisting conditions. Or at least with a better reform record than 30 years ago.