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Modi: the strongman losing his grip

In election mode, India's leader resorts to populist handouts to boost flagging support

| India
Indian Prime Minister Narendra Modi has run out of economic options. (Hindustan Times/Getty Images)

There are few more obvious signs of the electoral alarm coursing through Indian Prime Minister Narendra Modi's Bharatiya Janata Party than next week's annual government budget.

Finance Minister Arun Jaitley is expected to cash-in his reputation for fiscal prudence by pushing giveaways for farmers, whose votes will prove critical in the parliamentary polls that are likely to begin in April.

Modi, until recently India's dominant political force, looks vulnerable. Facing a tough re-election battle, he is busy pushing a populist agenda to bolster his political fortunes. It smacks of too little, too late. Observers are asking a once heretical question: might Modi lose?

Anxious Modi supporters find plenty of reasons to worry. The BJP were trounced in a series of state elections late last year across the country's Hindi-speaking northern heartland, the same region that provided the bedrock of Modi's 2014 electoral triumph. The opposition Congress party, until recently seemingly in terminal decline, emerged victorious in a trio of contests, giving a long-needed fillip to its leader Rahul Gandhi.

Modi has since tried to wrest back control in starkly populist fashion. Most notably, he extended India's controversial affirmative action system of quotas for government jobs -- originally designed to assist the lower castes -- to include poorer members of India's upper castes -- people who historically have tended to support the BJP.

The move won broad backing, but only served to show the extent to which Modi has now run out of other economic options. Economic growth looks set to come in at respectable at 7.2% during the current fiscal year ending in June, according to government forecasts. But this has not translated into the kind of well-paying private sector jobs voters care about, hence why they back largely symbolic sops that might provide some limited access to poorly-paid public sector jobs instead. Support for Modi's management is ebbing too: a Pew poll last year found that 56% of Indians thought their economy was headed in the right direction, down sharply from 83% the year before.

Even as he seeks to reverse some of this slide next week, Jaitley cannot be profligate. To avoid alarming investors, he must hit his fiscal deficit target of 3.3% of gross domestic product next year. Nonetheless he dropped hints last week of an agricultural relief package. This could involve direct payments to farmers costing around 1 trillion rupees ($14 billion), according to estimates from Reuters. To fund it, India's overall public spending will likely have to rise over the next few years.

At the halfway point of his government it was much easier to make a positive case for Modi's economic stewardship. India's fiscal position looked healthy, buoyed by cheap oil prices. Inflation was under control. Dramatic reforms were hard to find, but his government at least had made few mistakes.

But after nearly five years, that case rings increasingly hollow. Modi's tenure now seems scarred by self-inflicted wounds, from the debacle of "demonetization" in 2016 to his decisions in effect to force from office not one but two respected central bank governors, Raghuram Rajan and Urjit Patel.

Other problems go deeper. Despite the US-China trade war, almost no one is talking about global multinationals moving factories to India, a reflection of repeated failures to boost manufacturing. Meanwhile, a corruption furor over the procurement of Rafale fighter jets from Dassault of France has dented the Prime Minister's reputation for clean government.

More politically worrying for Modi, though, are signs of life among his political opponents. Gandhi's Congress has hammered Modi on the Rafale issue, while also pledging populist gimmicks of its own. More significant could be pacts brewing among regional parties, beginning this month with a tie-up between two players in Uttar Pradesh, India's most populous state. Were India's many regional leaders to fashion a functional anti-BJP alliance, it would reduce dramatically Modi's chances of returning as Prime Minister.

The odds of this happening should not be oversold, of course. Regional parties are divided and fractious. National opinion surveys suggest Modi remains reasonably popular, with a shade less than half of Indians viewing him positively, according to a mid-2018 poll from the The Centre for the Study of Developing Societies, a New Delhi based research institute.

The BJP also retains a formidable funding and organizational advantage. Because of this, feverish speculation about a likely BJP defeat is probably overdone, suggests Rajeeva Karandikar, a polling expert and director of the Chennai Mathematical Institute. The idea of Gandhi or another lesser-known regional figure as India's next Prime Minister can no longer be quite ruled out. But more likely is a scenario in which Modi loses his parliamentary majority, but hangs on to power by cobbling together a minority coalition.

Still, even this outcome will have profound consequences. Foreign investors have grown used to asking when and if Modi will use his parliamentary heft to push through growth-enhancing reforms. Even were he to limp back to New Delhi, the chances that Modi will finally push forward with measures to shake up loss-laden public sector banks or outdated labor market rules look slim, in turn denting India's long-term growth outlook.

India's liberals, meanwhile, have often worried that Modi and his Hindu nationalist supporters will lead their country down a more authoritarian path, in the mold of other Asian populists from Turkey's Recep Tayyip Erdogan to Rodrigo Duterte of the Philippines. That particular future now looks less likely. But the risk remains that Modi, sensing his own fragility, might still decide to energize his political base by pushing divisive religious measures, for instance by backing plans to build a new Hindu temple in the holy town of Ayodhya, on the site of a mosque destroyed during 1992 anti-Muslim riots.

In this way, a politically chastened Modi, shorn of his majority, might leave India with a leader unable to introduce economic reforms and tempted instead to deploy populism to bolster his faltering position. Put another way, the risk India faces is less Modi the strongman chief, and more Modi the weakened leader. That is, if he manages to come back at all.

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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