February 4, 2019 / 3:17 AM / 3 months ago

Breakingviews - India Insight: If Modi loses, graft can return

MUMBAI (Reuters Breakingviews) - India’s anti-graft gains may fade with Narendra Modi. The prime minister has started to shift the consensus on corruption in his nearly five years in charge. Yet the leader once touted as certain to serve three terms faces a struggle to ensure his Hindu nationalist Bharatiya Janata Party retains its grip in a general election due by May. If the strongman is weakened, bad habits could return.

India's Prime Minister Narendra Modi speaks with the media inside the parliament premises on the first day of the winter session, in New Delhi, India, December 11, 2018. REUTERS/Adnan Abidi

Modi was elected in 2014 by voters fed up with scandals under the ruling coalition led by the Congress party. Graft afflicted everything from the awarding of telecom licences to contracts for the Commonwealth Games. With growth faltering, a promise to deliver good governance and “acche din” - or “good days” - helped the son of a tea-seller secure the first majority for an Indian political party in about three decades. 

Corruption-busting reforms have since come thick and fast. Although policies are still bedding down, India now has a bankruptcy regime which shifts the balance of power from tycoons to their creditors. A nationwide goods-and-services tax will make it harder to dodge levies. A real estate law is forcing transparency in a sector famous for hoarding “black money”, and licences are awarded using transparent auctions. 

These changes to the world’s fastest-growing large economy have elevated India’s position on the global stage. Foreign direct investment hit nearly $40 billion last year, a record. The country attracted more overseas funds than China for the first time in a decade, according to Dealogic.

Modi’s willingness to spend his political capital by implementing long-discussed reforms set him apart. The premier has also broadcast his anti-corruption message in other ways. He has given the quasi-independent Reserve Bank of India cover to push the biggest defaulting companies into bankruptcy, including the Ruia family’s Essar Steel, and to oust the chief executives of underperforming banks.

He is also making a show of holding errant tycoons to account. A British court has ordered the extradition of spirits baron Vijay Mallya to face fraud charges in India. Meanwhile, authorities are demolishing a plush sea-facing bungalow owned by the (unrelated) diamond billionaire Nirav Modi, allegedly at the heart of a giant fraud at Punjab National Bank.

Indian politics remain a messy and expensive business: the Centre for Media Studies in New Delhi earlier estimated the 2019 poll could cost up to $8.4 billion, twice the cost of the previous national ballot. But the premier still benefits from the perception of a relatively scandal-free government.

Accusations about impropriety in the acquisition of Rafale jets from France’s Dassault Aviation have so far failed to enrage the public. Similarly, whispers that New Delhi has unfairly supported tycoons like Mukesh Ambani have fallen flat with consumers who benefit from super-cheap data through upstart mobile operator Jio, part of his flagship Reliance Industries.

MODI’S MISSTEPS

The premier has, though, made several missteps that could lead to a voter backlash. The heart of the problem is his attempt to lead in an overly centralised manner, as he did as chief minister in Gujarat state. That approach has allowed Modi to keep a stern eye on his cabinet, leaving little room for them to be led astray. However, the failure to trust those around him has also led to bad outcomes.

Modi’s decision in 2016 to suddenly ban large banknotes, for example, surprised even his top advisors. Although many Indians still support the so-called demonetisation because of the perceived blow it dealt to rich cash-hoarding crooks, figures from the RBI suggest it achieved nothing of the sort. What’s more, it compounded the pain for small-and-medium enterprises when they had to adjust to a unified tax code just months later.

A power struggle with the RBI resulted in the departure of two central bank governors in almost as many years, reinforcing a sense that New Delhi has little respect for India’s institutions.

Elsewhere, the financial elite are fed up with Modi’s pursuit of big businessmen which has frightened off private investment necessary to create jobs. Indeed, a shortfall of sustainable employment is a fundamental reason why agricultural workers are up in arms. They account for half the country’s workforce but just 17 percent of its economic output. That’s a problem in an election that will have more than 100 million first-time voters. 

Finally, the prime minister has alienated fringe voters with an aggressive pursuit of his Hindu nationalist agenda. They looked past an earlier controversial BJP campaign pledge to explore building a temple on the site of an old mosque destroyed in anti-Muslim riots. But Modi has taken things further. A beef ban and his failure to speak out promptly against vigilantes attacking and seizing the cattle of Muslim farmers have come to symbolize a growing lack of tolerance.

Indeed, it is these self-inflicted wounds that have thrown Modi’s position into doubt, rather than the strength of opposition parties that have joined forces against the BJP. He remains the most popular leader but his rating has fallen to 46 percent from 65 percent a year ago, according to an India Today poll of over 12,000 voters across almost one- fifth of India’s parliamentary constituencies.

If the BJP has to form a coalition, it may find it has too few allies, or be forced to cede key ministries like home and finance. If the party wins too few votes, Modi might also be replaced by Nitin Gadkari, currently transport minister and a favourite of the party’s ideological parent, the Rashtriya Swayamsevak Sangh. Even if opposition candidates like Rahul Gandhi of the Congress party or West Bengal’s fiery Chief Minister Mamata Banerjee appear attractive alternatives, they will have a less firm grip on their cohorts.

Modi’s strongman tactics have been divisive but he has started to tidy up India’s graft. Even those who dislike the leader admit that, without him, corruption can seep back into the corridors of power.

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