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India will suffer for Modi's failure to tackle corruption

Election rhetoric should not hide missed opportunities for better reforms

| India
Modi's administration appears willing to use anti-corruption investigations as a tool of political intimidation.     © Reuters

The longer India's election drags on, the more rattled Prime Minister Narendra Modi appears. In a long campaign that moves finally toward its conclusion on May 19, Modi could have laid out a bold economic vision. Instead, he took potshots, not at opposition leader Rahul Gandhi, but at his late father Rajiv Gandhi, claiming India's former leader, sometimes known as "Mr. Clean," had ended his life tarred by corruption.

A curious gambit, Modi's attack ostensibly referred to the Bofors weapons scandal, which began in the mid-1980s and was still rumbling on at the time of Gandhi's assassination in 1991. Rather than winning political points, it served largely to illustrate the increasingly frenzied air with which Modi has defended his record on corruption -- one of many areas in which he has delivered less than enthusiasts hoped, and where India has thus missed a decisive opportunity to leave behind its reputation for cronyism and weak governance.

A drumbeat of graft accusations marked the last two months of campaigning. Gandhi hammered Modi relentlessly, focusing on allegations related to the sale of dozens of Rafale fighter jets, in a deal between France's Dassault Aviation and Indian businessman Anil Ambani was struck during Modi's tenure.

Gandhi also coined one of the election's more memorable phrases in "chowkidar chor hai [the watchman is a thief]," a barbed reference to Modi's painting of himself as a kind of national guardian against a return of the kind of scandals which flourished before his 2014 election. In response, Modi changed his Twitter handle to "Chowkidar Narendra Modi," and many hundreds acolytes followed suit -- a move that served merely to underline further his neuroticism about losing his own "Mr. Clean" image.

It may well be that this ends up not mattering much. Most polls suggest Modi will cling on to power, albeit with far less aplomb than he managed in his 2014 landslide, and most likely at the head of a minority coalition government.

The conventional wisdom is that Gandhi's corruption focus has also been a mistake. The issue resonates with prosperous urbanites, this thinking goes, but takes airtime away from those topics that matter to the broader mass of voters, such as jobs and farm poverty. There is some truth to this, but even so corruption still remains one of India's most animating electoral issues.

In early May, in West Bengal, a crucial battleground state, I watched firebrand opposition leader Mamata Banerjee lead an enthusiastic call-and-response chant of "chowkidar chor hai," in front of a baying crowd of thousands of supporters. Voters more broadly aren't impressed by Modi's record on graft either: one of the country's more reliable pre-election polls found 42% claiming corruption had worsened on his watch, against only 36% who felt the other way.

This is not to say his government has been without success. The decade before 2014 was marked by dozens of outrageous national scams. Placing Rafale to one side, Modi has presided over far fewer.

Whoever wins this election, there is not likely to be a recurrence of India's most insidious recent form of cronyism, in which crafty entrepreneurs siphoned away money borrowed from public sector banks, or simply declined to repay loans. Yet while regulators and lenders have both grown wise to the tycoon's tricks, this is also partly because the banks remain in such a weakened state, with $200 billion or so worth of bad loans, reducing their willingness to lend across the board.

The best that can be said of Modi's record is that the mix of booming growth and scandals that marked earlier administrations has not repeated. But this is just as likely to be because India's recent growth, despite averaging in the region of 7% on Modi's watch, has never threatened anything close to boom-like conditions. The test of India's crony economy will come when the banks have been patched up, the tycoons have rediscovered their animal spirits, and the country hits its next cyclical upturn. To try and skim off the top, you need something from which to skim.

Here, sadly, the omens look less promising. To leave behind its reputation for questionable political and economic governance India' needs better quality regulatory institutions, an area where Modi's record has been weak. Two central bank governors have left in the face of political pressure since 2014. Regulators and courts have struggled to deal with a range of corporate furors, from the recent collapse of Jet Airlines to a nepotism scandal involving ICICI Bank, the largest private sector bank by assets.

Modi's administration too often now appears willing to use anti-corruption investigations as a tool of political intimidation. Even supposed successes, such as new bankruptcy rules designed to recover funds from collapsed businesses, show signs of running into the sand. And all of this is without mentioning the debacle of "demonetization," the chaotic cancellation of high-denomination bank notes in 2016, a measure Modi justified once again on anti-corruption grounds in an interview this weekend.

The truth is whoever wins India's election, a governance revolution, and thus a dramatic long-term reduction in corruption, is unlikely to follow.

It would mark an improbable upset were Rahul Gandhi, leader of the Congress Party, to emerge as Prime Minister when results are announced on May 23. For all the ferocity of their anti-corruption rhetoric, neither he nor India's other opposition leaders show much in the way of ideas to put their country on a better path. Modi's Bharatiya Janata Party's manifesto did include a short section on governance, but that too was devoid of specifics.

This is not for lack of options. Any number of reforms could help, from investment in courts and regulators to handing more autonomy to the police and reducing the kind of onerous red tape that allows graft to thrive. This is still a country where cases languish before the courts for decades. Political funding reform would be especially welcome, to drive out the conflicts of interests which follow the vast flows of illegal donations needed to fuel India's elections, which one estimate suggests this time might cost as much as $7 billion.

In 2014, Modi promised a tantalizing combination of economic competence and corruption-reducing zeal. On neither front has he delivered, which perhaps explains why his campaign rhetoric this time round has so often been marked by divisive nationalistic rhetoric. The watchman might not himself have been a thief. But too often he has appeared asleep on the job.

James Crabtree is an associate professor in practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is author of "The Billionaire Raj."

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