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India à la Modi

Hope and change on the subcontinent

Jun 2, 2014, Vol. 19, No. 36 • By JONATHAN FOREMAN
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The Indian elections that ended with a resounding victory for the Hindu nationalist Narendra Modi and an even more resounding defeat of the ruling Congress party have huge implications not just for India’s potential prosperity, political evolution, and unity but also for the region and the world economy.

Narendra Modi

Narendra Modi


For most of the seven decades since independence, the Indian National Congress party—and therefore the Nehru-Gandhi dynasty—has ruled India and dominated Indian political life. The Fabian socialism, bureaucratic protectionism, and tiers-mondiste “nonaligned” inclinations of Nehru and his daughter Indira Gandhi set the tone for mainstream Indian politics for well over half a century. And that family’s quasi-hereditary hold on the prime ministerial residence has been reproduced on a smaller scale in parliament, with seats that are essentially passed on from one family member to another, and in the states by hundreds of hereditary political fiefdoms.

The fact that up to a third of India’s citizens still lack access to clean water or reliable electric power, that a quarter of the population is illiterate, and that the country’s transport infrastructure is decades behind that of China can largely be laid at the door of the Congress party and the Gandhi family—although the country’s leaders have a habit of blaming their failure to improve the population’s lot on the legacy of colonialism, the restraints imposed by democratic politics, or the “foreign hand” (i.e., the malign influence of the CIA and Pakistani subversion).

It was only in 1991 after a huge balance of payments crisis and decades of feeble growth that India’s leaders finally began to liberalize the economy, allow some foreign direct investment, and dismantle parts of the notoriously corrupt “License Raj,” in which permits were required for almost every form of economic activity. These reforms, as limited as they in fact were, unleashed long-suppressed entrepreneurial energies and led to a massive leap in growth and the emergence of a new, ambitious, 300-million-strong “middle class” (characterized by owning at least one major electrical or motorized device, like a fridge or scooter).

However, the reform drive petered out in the face of opposition from the hard left, from an intellectual elite whose reflexive hostility to capitalism, “globalization,” and “neoliberalism” remains undiminished, and from business families and associations that benefit from a system founded on cronyism, connections, and monopoly. Corruption scandals, often involving government programs supposed to be “pro-poor,” have grown larger in scale and more frequent.

Partly as a result of all this, India’s economic rise has stalled. Annual growth of more than 8 percent has dropped to 4 percent. These days you no longer hear nearly so much ebullient talk in New Delhi about India as a “superpower” or this being “the Indian century.” Foreign companies, many of which have fallen prey to red tape and bureaucratic protectionism, or to New Delhi’s habit of retroactively imposing punitive taxes, are now much more cautious about investing in India. Millions of Indians who believed the hype about the irresistible rise of “Incredible India” feel betrayed by their rulers.

All except in one Indian state—Gujarat—where Narendra Modi has been chief minister since 2001, and where businesses, foreign and domestic, not only don’t have to fear the destructive whims and ruthless predation of bureaucrats and politicians but feel positively welcome. Since Modi came to power Gujarat has become a hub for pharmaceuticals and the automobile industry and boasts the country’s largest oil refinery as well as its biggest private-sector, deepwater port. It has grown much faster than India as a whole. And while India has dropped on the Fraser Institute index of economic freedom, Gujarat has gone up.

It is hard for foreigners to appreciate just how extraordinary this is without understanding how little purchase free-market ideas have had in India—and the extent to which the Indian right has tended to be as protectionist, statist, and xenophobic as the center and left. For instance, only last year Modi’s party, the BJP, opposed allowing foreign direct investment in “multibrand retail,” i.e., supermarkets. (The current mom-and-pop system of distribution leads to some 30-40 percent of food produced in India being spoiled.)

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