Economic liberals should exercise caution in their praise of Narendra Modi

ideas-image-141128-3 Last week saw the first visit to Australia by an Indian Prime Minister in 28 years, to an enthusiastic reception from politicians and the Indian diaspora in Australia alike.
 
Whether Narendra Modi is an economically liberal reformer doesn't matter hugely to the Australia-India relationship, which will grow with a little TLC. But people who portray him as a go-getting reformer need to understand that it's the Indian people who stand to lose if he doesn't follow through.
 
Much has been made about Mr Modi's 'pro-business' stance, but developments thus far suggest that enthusiasts of economic liberalism should be more cautious in their praise.
 
For one thing, being pro-business is not the same as being pro-market. Moreover, it is not the same as being in favour of small government. Being pro-business also means favouring particular industries or sectors, and protecting others through carefully-designed tariff arrangements or heavy-handed use of public money to direct private capital. In terms of minimising government intervention and allowing the market to do what it does best, the Modi government's record leaves much to be desired.
 
The protectionist instinct is also evident in the government's stated decision to ban foreign supermarket chains (such as Wal-Mart, or perhaps one day our own Coles and Woolworths) from expanding into India. The policy protects small vendors and, a cynic might remark, their political power, but also prevents millions of Indians – particularly poorer, urban Indians – from taking advantage of the benefits to consumers from economies of scale and greater competition.
 
Yet curiously, the government has also left the door open for liberalising rules surrounding foreign direct investment of online retailers. While there are many benefits of this should it materialise, it is an odd thing to make consumption easier for wealthier and middle-class Indians in a manner that fails to benefit people who do not have the standard of living required to shop online.
 
There are also no plans to prune India's sclerotic public sector or the size of the ministerial cohort in charge of it. The Economist recently reported Mr Modi's observation that there is a global market for 'alternative medicines' in which Indian businesses could better participate. The way to make that happen, it seems, is not to ease regulatory burden but to appoint a new minister: for yoga, Ayurveda, and other traditional medicines. It is also not encouraging for good governance that nearly a third of the cabinet has been charged with crimes, including five for serious offences.
 
Australians stand to benefit from ever-deepening trade, defence, and cultural ties with India. But it's clear Mr Modi's government – and India itself – face massive challenges before there will be similar benefits for the Indian people.

jha-trisha-lowTrisha Jha is a Policy Analyst at the Centre for Independent Studies.