If acknowledging one of the weakest spots is taking the first step towards addressing it to further a grant growth plan, Indian Prime Minister Narendra Modi has done it in just a few days.
In the Independence Day speech on Saturday, Modi warned that corruption is eating away at India “like a termite”, while reiterating his commitment to eradicating graft and poverty. The following Monday, Modi told investors in the UAE that his country needs $1tn in investments, touting long-term opportunities in India.
Here, however, is the realty check for the business-friendly premier.
Systemic corruption in India weighs heavily on economic growth. In 2014, India was ranked 85th out of 175 countries - compared 94th in 2013 - in Transparency International’s Corruption Perceptions Index. The country had the fourth highest cumulative illicit financial outflows (which could otherwise have been sourced for domestic investments) of $439bn during 2003-12, says a December 2014 report by Global Financial Integrity, a Washington-based research entity.
Domestically, 186, or 34%, (compared with 30% in 2009), of elected members to the current Indian parliament, have criminal records, according to the Association of Democratic Reforms (ADR), a New Delhi-based advocacy group.
Modi won a landslide victory in May 2014 partly riding on his promise of clean governance, after the previous Congress-led government was mired in a string of corruption scandals. But 13 of his 45 ministers have been charged with criminal offences, with eight facing serious charges according to the ADR. India’s highest court said last August politicians with a “criminal background” should not serve in government.
Modi’s Independence Day speech came after some of the most senior figures in his Bharatiya Janata Party, including the foreign minister as well as the chief ministers of Rajasthan and Madhya Pradesh states, became embroiled in corruption scandals.
In his meeting with UAE executives, Modi’s main message was that “they should look at India as long-term investors”. But India attracted just $377bn in foreign direct investment between April 2000 and May 2015, according to figures from the Department for Industrial Policy and Promotion.
In a wider sense, India’s nearly $2tn, 60% consumer driven economy (one of the world’s 10 largest) offers great prospects for investors. The economy is seen on track to reach the long-term target of taking its place as the world’s third largest, behind China and the US, with an improving investment climate.
There are roadblocks, though. India is seen as a laggard in productivity. Of the potential global oversupply of 90mn low-skilled workers in 2020, 27mn will be in India, says the McKinsey Global Institute. The country is unenviably placed 142 of 189 countries in the latest update of the World Bank’s ease of doing business ranking.
Modi’s reform agenda has stalled of late due to a host of issues typical of the Indian polity. But no one, especially global investors, doubts his commitment.
If Modi wants to leave the legacy of a modern leader having put India irreversibly on a firm growth trajectory, he has to tackle India’s systemic corruption straight head on.
He’d better start with his own party.