Overseeing one of the world's fastest growing economies should be reason enough for Indians to renew Modi's term. But India's divisive politics is weighing down his prospects. Ironically, Trump's trade attacks on India could provide Modi with just the ammunition he needs to mollify his opponents.
Indian Prime Minister Narendra Modi addresses an election campaign rally in Meerut, India, Thursday, March 28, 2019. India's general elections will be held in seven phases starting April 11. As Indians go to the polls in the coming weeks, they will be voting on whether to enable Prime Minister Narendra Modi to continue his ambitious economic reform program of the largest democracy on Earth.
Financial markets and investors—both in India and abroad—would not look kindly on Modi if he were to now shift far to the left for political expediency. And they should. Why? Because India has experienced a high average annual growth rate in real GDP during the time Modi has been in office. Growth rose from 6.4% in 2013 to 8.2% in 2015; dipped to 7.1% in 2016 and further to 6.7% in 2017, but rebounded to 7.3% in 2018. For 2019, the IMF projects India will grow 7.5%, and in 2020 grow at 7.7%.
Modi has made no secret of the fact that he’s intent on overhauling a supremely complex, multi-layered, ossified economy—a direct result of the fact that, apart from the early 1990s, in our lifetimes, India has been subjected to comparatively limited systematicreform of its real sector. To this end, Modi and his economic team have made some clever policy moves since coming to office.
introducing a nationwide sales tax to integrate an otherwise excessively complicated disparate system of different state and federal taxes; The reform did exact costs. But these costs had to be faced sooner or later. Any way you cut it, there would be a backlash. In fact, most economists would agree that the longer a needed reform is put off into the future, the costs of reform will get only larger and larger. And no matter when the reform takes place, the benefits would not come immediately, and moreover, they would be diffused economy-wide.
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