Modi Pledges To Do More Than Just Boost The Stock Market

By John Richardson

ModiTHE blog is delighted that Narendra Modi sees the bigger picture through this bold statement: “By 2022, no Indian should be without a home, without clean water, without electricity and without a toilet.”

Fantastic. This is exactly what we wanted to hear rather than a load of unrealistic nonsense about India achieving another  economic miracle, driven by manufacturing growth, on the lines of what has happened in China. If Modi is unsuccessful, India runs the risk of squandering its demographic dividend of a youthful population.

Here are just three of the many reasons why a focus on export-focused  manufacturing will not work:

1.) Demographics guarantee that  the demand growth in the West simply won’t be there to support a surge in Indian export-based manufacturing.

2.) China, despite its rising labour costs, is in pole position to seize whatever growth there is  in export markets. It has huge, state-of-the art capacities in many manufacturing industries, great supply-chain efficiencies and a government prepared to, where necessary, support exports for the sake of jobs.

3.) Given the fractious nature of Indian politics, it seems unrealistic to expect all the local governments and the NGOs to line up behind a manufacturing-driven growth agenda.

We think the Indian economy should instead focus on boosting local consumption growth, in effect bypassing the export-focused manufacturing stage of development that China has already completed. Now China is becoming more internally focused as it tries to boost domestic consumption.

Modi recognises that India can only boost its own domestic demand by alleviating extreme poverty. And poverty, and human misery, will remain extreme as long as so many people lack the basic essentials of life.

For example, as fellow blogger Paul Hodges points out in his excellent post on Modi, quoting data from this Bloomberg article:

•600 million Indians currently have to defecate in the fields, or wherever they can find an available place.

•They total 60% of the world total of residents who have to live without toilets.

•The previous government spent just 0.1% of GDP on water and sanitation provision, less even than Bangladesh.

The great news for the rich minority who supported Modi during his campaign is that they have more than-recovered their investment through a booming local stock market.

Let’s hope that Modi’s economic reforms are a great deal more broad-based than a surge in equity values, and that he receives the support he needs to be successful.

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