Narendra Modi and Malcolm Turnbull should have used their popularity with voters to instigate significant reform, John Hewson writes.
Global growth forecasts have been downgraded yet again, as major developed economies haven’t responded as expected to low or negative interest rates, China continues to fudge its growth numbers, Japan sinks back yet again into recession, and many key emerging economies remain in deep recession.
The suggestion that the developed economies may be moving into what is being referred to as a “growth recession”, where their average growth rate is predicted to remain at 2 per cent or less for the next decade or so, is gaining credibility with every downgrade.
Interestingly, the main standout is India – an economy that is growing above 7 per cent, well ahead of China – an outcome of which they are justifiably proud.
I have been in India this week as the Modi Government brought down its Budget that attempted to consolidate this growth, as well as the fiscal position, by holding the deficit to less than 3.5 per cent of GDP.
It was pretty much a “business-as-usual” Budget that disappointed those who were hopeful of significant reform; reforms that had been promised by Modi from the time of his election, approaching two years ago now.
It is a very real question as to whether India can hope to sustain such a strong relative growth performance without dramatically accelerating the pace of reform, so as to guarantee a sustained boost in national productivity.
As tough as it will be in such very difficult and challenging global economic circumstances, the complexity and unpredictability of which is being compounded by a range of geo-political tensions, mass migration especially in Europe, and, indeed, the possible fragmentation of the EU, fundamental structural reform becomes an imperative.
Unfortunately, the Budget was more about short-term politics than good policy, or good government, or structural reform.
Modi, having been hailed as something of a ‘Rock Star’ leader, arriving with great expectations, has seen his star wane somewhat in recent months. His Party performed unexpectedly poorly in the recent Bihar State election, and is now very concerned as to how they may fare in several other, significant State elections to come.
The Budget clearly reflected this with its focus on assistance to agriculture, regional areas, and the poor, with little for business, and some increase in taxation on middle-upper income groups and the wealthier.
It also goes without saying, the more politics is allowed to dominate, the more structural issues and challenges are left to drift and mount, the more Modi’s popularity and political capital will be eroded, and the tougher it is going to be to catch up with the reform imperative.
The parallels with Australia’s own ‘Rock Star’ leader Malcolm Turnbull, and his reform and policy challenges, couldn’t be starker. He too arrived with “great expectations”, and he too already seems far too willing to sell out to short-term political pressures from his backbench, and/or as perceived in the electorate.
The tragedy is that both Modi and Malcolm were elected to lead, and their electorates would have cut them both considerable slack to get on with reform – reform that was carefully and well explained and defended, against a clear medium-term objective to boost national productivity and prosperity, as they transition their economies/societies.
Malcolm is very fond of saying that “It is an exciting time to be an Australian”. I suspect, until he demonstrates otherwise by providing essential, substantive leadership, we should simply add the two words, “Prime Minister”, after the word Australian, at the end of that quote!
This piece was also published in the Southern Highland News.