India’s East Asian Dream

SINGAPORE – On August 15, Narendra Modi delivered his first Independence Day speech as Prime Minister. Though he continued the tradition of addressing the country from the ramparts of Delhi’s historic Red Fort, the speech broke with convention. Shunning a written text, Modi extemporized for an hour, mapping out an explicit vision for India, including an economic model that constitutes a clean break from India’s past.

Since 1991, India has been slowly changing its policy framework away from the socialist vision of its first prime minister, Jawaharlal Nehru. However, for political reasons, the changes were always justified in an almost apologetic way. Indeed, many Nehru-era institutions continue to exist – and even thrive.

In one fell swoop, Modi announced the abolition of one of the most important of these institutions: the powerful Planning Commission, which had continued to churn out Soviet-style “Five-Year Plans” and remained at the heart of a centralized resource-allocation process. Its successor, the National Development and Reform Commission, will probably function more as a think tank – providing ideas and ensuring policy coherence, but with no power to allocate.

Modi also argued for a new economic-growth model based on export-oriented manufacturing. This means encouraging domestic entrepreneurs to manufacture goods for export and inviting the world’s top companies to relocate production to India. This effort is important, because India’s economy and exports are dominated by services, which have grown steadily relative to overall output, now accounting for almost 60% of GDP. By contrast, the industrial sector’s share of GDP has remain unchanged, at around 26%, for the last three decades (the manufacturing segment is even smaller, at 14.9% of GDP).