Narendra Modi has much to prove

Wall Street Journal

What a difference a year can make. At this time last year, Narendra Modi was an outsider to New Delhi, hoping to beat the odds and lead his right-of-center Bharatiya Janata Party back to national power after 10 years in the wilderness.

Today Prime Minister Modi stands at the pinnacle of Indian politics. In May, he led the BJP to India's first single-party parliamentary majority in 25 years. He has since steamrolled a dispirited and disorganized opposition in a string of state elections. A leader whose reputation for hard-line Hindu nationalism once evoked suspicion in Western capitals has successfully projected himself as the one politician who can right India's battered economy and help the country fulfill its strategic potential as a bulwark of democracy in a region threatened by both an aggressive China and a resurgent radical Islam.

But though  election may have rescued India from drift and despair, his promise remains largely unfulfilled. In 2015, investors will watch closely to see if the new government can deliver the economic reforms its predecessor, led by the left-of-center Congress Party, could not. As the year ended, the government signaled its willingness to grapple with tough issues—using executive action to bypass a squabbling Parliament and ease land acquisition for industry, allow commercial coal mining and raise the foreign-investment cap in insurance.

This decisiveness is welcome, but it is also cause for concern. So far at least, Modi has largely failed to show that he can steer the vast ship of the Indian state as deftly as he did the much smaller state government in Gujarat. Armed with both a popular mandate and the bully pulpit, Modi should be able to tame Parliament instead of being forced to circumvent it.

At this point, the new government faces several challenges. As a party that has previously ruled India for only six of its 67 years since independence, the BJP lacks a deep bench of experienced administrators. But Modi has been loath to inject fresh talent from the private sector or to use the lure of power to poach competent technocrats from rival parties. He appears overly reliant on career civil servants to turn into reality his two principal economic slogans: “minimum government, maximum governance” and “the government has no business to be in business”. A few individual exceptions notwithstanding, it is hard to think of a body less suited to implement this vision of less intrusive governance than the Indian civil service.

To further complicate matters, the government has failed to tame hotheads among its own supporters who interpret Modi's mandate as a victory for their crude brand of cultural nationalism rather than for the economic development he promised on the stump. Last month a junior minister used vile language to describe those who don't believe in the Hindu god Ram. And this week goons from the Bajrang Dal -- a thuggish vigilante group associated with the Hindu nationalist Rashtriya Swayamsevak Sangh that provides the BJP with much of its leadership -- attacked theaters to protest a movie they say hurt Hindu sentiments. Such incidents may be isolated, but they tend to dominate the headlines and provide a rallying point in Parliament for an otherwise divided opposition.

Lacking a majority in the upper house of Parliament -- where the BJP and its allies control only 59 of 245 seats -- the government needs to build a working coalition on economic issues instead of allowing its legislation to be drowned in the din of constant protest.

Notwithstanding the bumpy start, the odds of Modi delivering significant economic reform in 2015 look bright. To begin with, the political fundamentals are on his side. After a string of election victories, the BJP and its allies control not only the federal government, but also states that account for about half of India's $1.8 trillion gross domestic product. This makes decisions made in New Delhi much more likely to be implemented in such economically significant states as Maharashtra, Gujarat, Andhra Pradesh and Haryana.

Finance Minister Arun Jaitley has taken large strides toward creating a national consensus on a goods-and-services tax that would unite India's patchwork quilt of states into a national market. In private conversations with economic pundits, the prime minister has signaled that he is not averse to privatizing loss-making state-owned firms, though he is not looking for a showdown with unions early in his first term. Meanwhile, the BJP itself continues to evolve in a more market-friendly direction. The wing of the party mistrustful of foreign investment has largely been silenced by the prime minister's call for manufacturing-led modernisation.

If 2014 in India was about high political drama, 2015 ought to be about the nuts and bolts of better governance. Modi still carries a great deal of goodwill with both his electorate and the international community. But this is the year he must prove that he is as good at wielding political power as at accumulating it.

Sadanand Dhume is a resident fellow at the American Enterprise Institute, and a columnist for WSJ.com

This article was first published in the Wall Street Journal. Reproduced with permission.