10 Leaders The EconomistOctober 26th 2019
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hen vladimir putinarrived in Brisbane for the g20 meet-
ing five years ago, he cut an isolated figure, frozen out of
the civilised world by the annexation of Crimea, the invasion of
eastern Ukraine and the shooting down of a passenger airliner
with Dutch and Australian families on board. Western leaders
kicked Russia out of the g7 and imposed sanctions. Some re-
fused to greet Mr Putin. He left early, snubbed and humiliated.
Five years later he has swaggered back onto the world stage,
presiding over the conflict in the Middle East, building a strate-
gic alliance with China and driving a wedge between natoallies.
It was his residence in Sochi, not President Donald Trump’s Mar aLago estate in Florida, that Recep Tayyip Erdogan, the president
of Turkey, visited on October 22nd to seal the fate of Syria, and
some 40 African leaders flew to on October 23rd in search of
weapons and money (see Middle East & Africa section).
The meeting with Mr Erdogan cemented Russia’s dominant
position in the Middle East with a deal establishing joint military
control over what used to be Kurdish territory. Earlier this month
Mr Putin was welcomed in Saudi Arabia, the world’s third-largest
oil producer, by Crown Prince Mohammed bin Salman. Saudi
Arabia’s military band played Russia’s national anthem while its
jets let off a trail of smoke the colour of the Russian flag. Russia,The spy who came in from the cold
The West should learn some lessons from the success of Russia’s presidentPutin’s worldS
tories of theclampdown in Jammu & Kashmir and the
threat to strip millions of poor and mostly Muslim people in
Assam of citizenship, a form of ethnic cleansing by bureaucracy,
have seeped into the world’s consciousness, but many Western
businesspeople are still inclined to defend the Indian prime
minister. Even if Narendra Modi is bad for democracy, they say,
his pro-business philosophy is good for the economy. But, as our
special report this week argues, that argument no longer washes.
India’s economy is incompetently managed and doing badly.
Growth fell from 8% in the middle of last year to 5% year-on-
year in the most recent quarter. That might not sound too bad,
and other emerging economies are also suffering, but India
needs to grow fast just to keep its vast workforce fully employed.
Worse, the slowdown looks less like a dip than a
prolonged cold shower.
Some banks and many other lenders are in
crisis, with a $200bn mountain of bad debts. In
the six months ending in September, the total
flow of financing to businesses fell by 88%. Five
successive rate cuts by the Reserve Bank of In-
dia, the central bank, have failed to pull down
commercial lending rates, and in any case firms
are not investing. Consumer demand has levelled off or fallen,
too. Sales of cars and motorbikes have tumbled by 20% or more.
And with the combined fiscal deficit of the federal government
and the states already approaching 9% of gdp, and tax receipts
falling well below expectations, there is little scope for stimulus.
When it first took power in 2014 Mr Modi’s government inher-
ited an economy with plenty of problems, but it did too little
about them. The latest downturn continues that disappointing
pattern. With the exception of a steep cut in corporate taxes earli-
er this month, to 25%, which brings India into line with other
countries in the region, the official response has been scatter-
shot and timid. This, say critics, reflects both an unusual paucity
of expertise in Mr Modi’s government and conflicting views inhis circle, as competing interest groups vie for his ear. Neverthe-
less, the outlines of what needs to be done are clear.
To start with, Mr Modi should recruit an economic team that
is based on competence and experience rather than affinity for
the Bharatiya Janata Party’s Hindu-nationalist ideology. It must
tackle both the financial crisis and sagging demand. To fix the
banking system, the banks and the lightly regulated shadow
banks that have recently been lending heavily need to be stress-
tested and, where necessary, the banks recapitalised. Eventually,
the state-owned banks could be privatised and the shadow banks
put under the same prudential regulations as other lenders.
A broader privatisation programme would give the govern-
ment the money it needs to succour demand. It should make use
of levers such as the national rural-employment
scheme to get money to the distressed hinter-
land. In the longer run, the tax system, labour
laws, the regulation of land-ownership and fid-
dly, protectionist tariffs should all be given a
thorough overhaul.
Many of these items have been on the to-do
list of every Indian government for decades. But
the long history of stasis only strengthens the
case for change. And in Mr Modi, with his vice-like grip on parlia-
ment, his reputation as a friend of business and his need to right
a foundering economy, India at last has a leader with the power
and the incentives to push through big reforms.
The fear is that, instead of getting to grips with the economy,
Mr Modi will stop posing as a reformer and fully embrace his al-
ter ego, as a chest-thumping Hindu nationalist. Just months into
his second term, he has already abolished India’s only Muslim-
majority state and is threatening to expand to the rest of the
country his scheme to hunt down supposed foreign interlopers
in Assam. In the face of India’s growing economic problems, Mr
Modi’s focus on communal grievances seems even more repre-
hensible. Alas, he may yet draw the opposite conclusion. 7The muddle Modi made
India’s GDP
% increase on a year earlier2009 11 13 15 17 19051015The prime minister is damaging the country’s economy as well as its democracyIndia’s economy