Economic Management: The Lesson Biden Could Take from PM Modi
India’s general elections, which will be spread over multiple weeks, kick off on Friday with voting in 102 of the country’s 543 constituencies. The outcome of this mammoth exercise is not really in doubt. Prime Minister Narendra Modi has maintained, if not increased, his favorability ratings since he last won re-election in 2019. Such enduring popularity, in an age when most democratically elected leaders are struggling, can appear mystifying.
The standard “pocketbook” argument clearly doesn’t explain Modi’s success. While India’s economy might be posting impressive growth numbers, employment and wages haven’t kept up. Government data shows that, for the past decade, Indians’ average monthly real earnings have either declined or remained stagnant. Almost half the workforce is still paid below the government-mandated minimum wage. This implies that too few Indians have benefited from Modi’s policies for economic reasons alone to account for his popularity.
In fact, while Modi’s muscular Hindu nationalist rhetoric is wildly popular, especially in India’s north, his economic management may indeed be what is keeping him in power. And the lessons from that success could usefully be studied by leaders elsewhere — especially those, such as US President Joe Biden, who are betting their re-elections on big subsidy-and-spending packages.
Modi’s biggest macroeconomic priority hasn’t been to juice growth or wages. Instead, he has focused on controlling inflation. Even though his government has not been too keen on independent regulators or institutional reforms, it did push through legislation early on that set an inflation target for India’s central bank for the first time. The Reserve Bank of India’s six-member monetary policy committee has since been left mostly on its own to manage rates, in spite of occasional grumbling from the finance ministry in New Delhi.
Meanwhile, the government has deployed a mix of macro- and microeconomic levers to keep prices from spiraling out of control, including during supply disruptions brought on by the Covid-19 pandemic. Federal budgets have sought to shrink the deficit. While fuel taxes are high, they have also largely insulated Indians from wild, inflationary swings in energy prices.
The government insists — though without providing much evidence — that trade with Russia after it invaded Ukraine also keeps energy costs down. Even India’s attempts at industrial policy have been on the cheap: Elon Musk appears to have been lured to the country by the promise of lower tariffs on Tesla Inc.’s cars, not government handouts.
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