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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Una Galani
MUMBAI, May 15 (Reuters Breakingviews) - Narendra Modi has many stripes - much like the tiger, India's national animal. The charismatic leader of the world's largest democracy enjoys huge support for his bid to clean up the country. But three years into his five-year term he now looks more populist than pro-market – and appears in no hurry to use his extraordinary mandate to push through difficult reforms.
The son of a tea vendor swept to power in 2014, forming India's first single-party majority government in three decades. He has continued to amass support in local elections for his ruling Bharatiya Janata Party, scoring a landslide victory in Uttar Pradesh, a state home to roughly many people as Brazil. There is now widespread confidence that Modi will serve at least two terms.
Against expectations, Modi's bold currency experiment last year actually helped his party in local polls. Withdrawing almost 90 percent of banknotes by value made clear his determination to weed out corruption. It also helped convince voters that the BJP is a party for the poor – not just for small business.
His popularity comes down to two main things. He has tapped into the aspirations of a young population, daring to push for what seems impossible: a clean and corruption-free country. Cities are now dotted with signs promoting campaigns like "Swachh Bharat", or "Clean India". And New Delhi is pointedly making a scapegoat out of Vijay Mallya, one of the nation's most errant tycoons.
The BJP also benefits from a desperately weak opposition. Few liberals still respect the Congress party, which previously dominated politics in independent India, and is now under the leadership of Sonia Gandhi and her uninspiring son, Rahul.
Under Modi's watch, India has become the world's fastest-growing large economy, with annual growth of 7 percent. Cheap oil has helped to tame inflation - now watched by a new monetary policy committee at the country's central bank. With financial and political stability, sentiment indicators are running high. The benchmark Nifty 50 index is at a record peak, and so is foreign direct investment.
The prime minister has created a sense of positive motion with various reforms. Instead of rewarding cronies, New Delhi now transparently allocates coal and telecoms spectrum. The government won support in parliament for a bankruptcy act, and a so-called Goods and Services Tax. And foreign investment caps have been significantly pared back in all but a few sensitive sectors, like banking and retail.
These achievements are, by the government's admission, low-hanging fruit. And Modi looks less open to market forces in other ways – apparently preferring Chinese-style state capitalism.
For example, instead of raising revenue by privatising state assets, he is trying to reform the bureaucracy. Meanwhile, the top brass talk about creating national champions in sectors like oil and gas. New Delhi is also still bashing foreign firms: chasing multinationals for farcical tax claims, imposing price caps on stents, and cutting royalties for seed producers.
The biggest miss, though, is Modi's failure to deal with the bad debt clogging India's state-led banking system. That is dampening animal spirits of companies that need to invest for the future. Fixing the problem may require spending funds worth 3.5 percent of GDP. Arvind Subramanian, the government's chief economic adviser, suggests this is primarily a political problem, given the risk it may be perceived as a rich man's bailout.
Modi's changing stripes may simply reflect a determination to be re-elected in 2019. But it also creates unease about India's future direction. More than half way through his first term, it is unclear what sits at the very top of the premier's agenda: religion, development, or a sheer craving for power. All seem plausible.
The choice of a firebrand cleric to lead Uttar Pradesh might reflect Modi's own wishes. Alternatively, it may be a bid to appease his right-wing Hindu backers. Fans of Modi's economic achievements worry about his apparent reluctance to rein in extremist views, and what that could mean for Muslims and other minorities in the officially secular nation. A glance across the border at Pakistan shows the risks of unbridled intolerance.
Equally, there are deep changes to the labour and land markets, for example, that Modi will struggle to implement without making more populist concessions to the poor, who would be most affected. To wield that kind of power, the prime minister must continue to make gains in state elections both now and after the next general election, so that the BJP can gain control of the upper house of parliament.
The centralised manner in which Modi runs his government, empowering a very small band of allies, has also fuelled concerns that the solitary figure is just hungry for power. That is not necessarily a bad thing if it is used to lift growth to 10 percent. Indeed, that is perhaps the only way to create enough jobs for the 12 million people entering the workforce each year, and to meet the aspirations Modi is helping to foster.
India has had some false dawns with reformist agendas that fizzled out. And there are cautionary parallels with other emerging markets, like Turkey under President Tayyip Erdogan, where a strong leader has drifted further and further away from "market-friendly" behaviour. China's Xi Jinping proposed a decisive role for market forces only to backtrack. India’s tiger leader is for the most part heading in the right direction but will keep the world guessing about his masterplan.
On Twitter twitter.com/ugalani
- Narendra Modi was elected as India’s prime minister on May 16, 2014.
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Editing by Quentin Webb and Nicolle Liu