Modi's big plans and bigger challenges

NEW DELHI - India's new Prime Minister Narendra Modi has hit the ground running to tackle a mountain of problems left behind by the previous government.

He has set a blistering pace, announcing changes and unveiling a road map for his five-year term, promising to fix everything from the economy and foreign policy to governance, infrastructure and corruption in a country that has fallen from its perch of a rising Asian power.

But rivals and analysts say Mr Modi seems to be a man in too much of a hurry.

His agenda, they say, is ambitious and he could be biting off much more than he can chew, considering the hurdles in his path: a resource crunch including a lack of funding, a rusty and bloated bureaucracy as well as resistance from state governments and even voters themselves to the changes he plans, among other things.

"Any smart politician knows that the window of opportunity for reform is normally smaller than it seems, and meaningful change is never painless," said Mr Neelkanth Mishra, director of equity research at Credit Suisse Securities (India).

"It won't be long before the euphoria of hope gives way to restlessness at the pace of change or, at least, gets diluted by the inevitable dissonance from the replacement of the old with the new. It will be change management on a gargantuan scale, and it won't be easy, painless or quick."

Mr Modi has sought to brace the nation for the bitter medicine he has to administer.

"I am well aware my steps may dent the immense love the country has given me," Mr Modi said on Saturday. "But when my countrymen realise these steps will result in getting financial health back, I will regain that love."

The new prime minister has already jolted the heart of New Delhi's establishment since taking office last month. He started off with a diplomatic coup by inviting South Asian leaders to his inauguration, an unprecedented move.

He scrapped ministerial panels set up by the previous government as a decision-making layer; summoned top bureaucrats for an unprecedented meeting and lectured them to work without fear; pushed for speedier environment clearances to projects; and made it known he was likely to visit seven countries by November.

But his all-encompassing to-do list presented to Parliament last week by President Pranab Mukherjee has prompted analysts to ask a critical question: Where will the money for it come from?

India's infrastructure fund requirements for the 2012-2017 period alone are estimated at US$1 trillion (S$1.25 trillion) and the government has been hoping the private sector will pitch in since its own finances have been pressured by welfare programmes, subsidy burdens and interest payments.

This is exacerbated by the fact that the bad loans of India's 40 listed banks grew 36 per cent to 2.43 trillion rupees (S$50.9 billion) last year, putting lenders under stress.

"Raising resources is going to be a challenge," said Mr D.K. Joshi, chief economist at analytical firm Crisil.

Reforming India's power sector best illustrates the kind of challenges Mr Modi is expected to face as it involves dealing with recalcitrant state governments and consumers long used to paying a pittance for electricity.

India has an installed power generation capacity of 235,000 MW and peak demand is around 160,000 MW. However, power shortages are chronic, with outages of more than 10 hours per day in some states that do not want to produce as much power as they can because producing more power and selling it at politically convenient prices would mean higher losses.

To deliver on his promise of uninterrupted power supply, Mr Modi will have to convince states to raise tariffs.

The bureaucracy, once called the steel frame supporting India, is seen to have become rusty and rejuvenating it is critical for Mr Modi to execute his plans.

Mr Naresh Chandra, a former Cabinet secretary, told The Straits Times the bureaucracy had gone into a defensive freeze under the previous government for fear of audits and probes in the wake of a spate of corruption scandals.

The bigger challenge is expected to come from the middle and lower level workers - most of them unionised - in sectors such as the railways, public-sector banks and state-run firms. These bloated behemoths badly need reform but the unions are not likely to give in easily, analysts say.

Mr Chandra applauded Mr Modi's diplomatic moves.

"You should have an ambitious agenda on the foreign policy front as you are not always in control and, on many issues, you can only do that much. When you set out goals, there is no guarantee you will get 100 out of 100," he said.

Mr Modi's Bharatiya Janata Party brands the doubts being expressed over his agenda as "cynicism" and said his first speech in Parliament last week is a major challenge to such cynicism.

"He is a big realist. He has not survived for so long by being a fantasist," Mr M.J. Akbar, the BJP's national spokesman, told The Straits Times.

Mr Modi and his supporters stress that he has his track record as the chief minister of Gujarat state to back him up, and that he proved cynics wrong there as well.

However, while believing that Mr Modi is capable, Mr Mishra warned that "it would be simplistic and incorrect to expect a replication of Mr Modi's successes in Gujarat at the national level".

yprajesh@sph.com.sg