Why are Asia’s ‘reformist’ leaders struggling to reform?

On his first official visit to India, Chinese President Xi Jinping landed in Ahmedabad, spent a couple of days in Prime Minister Narendra Modi’s home state of Gujarat, and then went to Delhi for more formal meetings. Beyond their meals and walks and similar jackets, Modi and Xi also shared a strikingly similar path to becoming their respective countries’ top leaders. Their promises were similar, and their fate also appears similar of not having lived up to those promises.

For starters, both came from cadre-based organizations, the Rashtriya Swayamsevak Sangh (RSS) and the Communist Party of China (CPC). Both had grassroots experience. Both led provincial governments before coming to national politics. Both leaders were projected as anti-corruption crusaders and reform driven. Both also came to power with similar agendas, of a “China Dream” and of achhe din (better future). They both have carried the burden of fulfilling their respective multiple electoral promises of economic growth, efficient government and clean governance.

As leaders of large developing countries, Xi and Modi had similar agendas of growth and both began by anchoring those agendas in the historical context of their country’s rise and popular nationalism.

Generating jobs and creating business and employment opportunities was one of the promises of the Modi government, and diversifying economic growth and generating domestic consumption as a driver of economic growth has been Xi’s significant priority. Without achieving those targets, China faces the danger of the middle-income trap, while India could lose its demographic dividend if adequate empowerment opportunities are not made available within the next decade or so.

India

Besides these, Prime Minister Modi also made multiple commitments such as getting black money back from Swiss banks, the “Make in India” campaign including in defense, and the “National Mission for Clean Ganga” among others.

There is now more and more evidence that the major step of demonetization that the Modi government announced in November 2016 has done little to check black money, as cash has returned and the rate of tax-filing growth has been consistent with previous periods.

Implementation of the goods and services tax (GST) has found it difficult to overcome initial hurdles and may have added to the economic slowdown that occurred after the demonetization.

The Make in India campaign has been a slow starter and the Rafale jet-fighter deal with France, which should have been a showcase of technology transfer and Make in India, has created an element of doubt over the claims of clean governance.

Some recent personnel changes such as in the Reserve Bank of India have also raised questions over the autonomy of institutions under the Modi regime.

China

President Xi also set out a wonderful set of reform targets in the Third Plenum of the 18th National Congress of the CPC in 2013, for example by calling for markets to play a more decisive role in resource allocation. What followed in policy since that was what is known as supply-side reforms and other structural reforms.

However, very little of that has been implemented. China’s coal and steel production, for example, has risen after slowing down in the first two years of the Xi era. The banking sector in China is proving to be quite a white elephant.

Moreover, China’s notorious and slow-to-change state-owned enterprises have also been major targets of the reform initiatives of Xi and Premier Li Keqiang. However, they are now incentivized to join the Belt and Road Initiative (BRI) by improving their productivity.

More recently, on the 40th anniversary of reforms and opening up initiated by the late paramount leader Deng Xiaoping, Xi reminded bureaucrats, ministers and local leaders of the need to implement existing reform policies as a priority rather than announcing reforms that just stay on paper.

As far as China is concerned, it is chasing three goals concomitantly:  reforms, stability and growth. However, there is nowhere in the world that all three can be achieved at the same time. China is unlikely to be an exception.

Moreover, trade war with the US is likely to exert further downward pressure on the Chinese economy from the present annualized GDP growth rate of 6.6%. That would mean that various sectors and leaders will in all likelihood resist reforms pressure, citing stability concerns like many provincial leaders have done so far.

In both India and China, their leaders have made lofty commitments and pursued contradictory targets. The reforms they have committed to are also the ones that have hurt their core constituencies.

The middle class and business elites support their leaders but can’t change the ways of work overnight. On the other hand, institutions acquire their own interests and resist further reforms.

Domestic consumption has been India’s strength and China’s weakness, inclusion the other way around. These reformist leaders, both now well into their tenures, were supposed to have changed the course of this problem, but seem only to be stumbling their way toward doing so.