India’s Prime Minister Narendra Modi has returned from a highly successful trip to Silicon Valley, where he met with the CEOs of top tech companies. For a man who was at one time denied a visa to the U.S. because of his alleged role in the Gujarat riots, he likely had no complaints about his reception. His critics were also muted.

So where’s the beef? Modi has returned to the hurly-burly of Indian politics where the beef catchphrase – an advertising slogan for Wendy’s fast-food franchise in the U.S. and Canada — has acquired a dangerous life of its own.

It started in the western state of Maharashtra, where members of the ruling Bharatiya Janata Party (BJP) met the President of India to seek his assent to the Maharashtra Animal Preservation (Amendment) Bill. The bill was cleared by the state assembly in 1995 but has become law only two decades later. Under it, consumption and storage of beef is a crime punishable by up to five years in jail. Several other states have introduced their own beef bans.

Consuming beef is an emotive issue in India, where the majority regards the cow as a holy animal. Soon there were beef vigilantes out on the streets. In Bisada village, Dadri district, right next to Delhi, a mob broke into the house of a man suspected to have stored beef and consumed it. They battered him to death. Politicians of all hues have taken one side or the other. This is what has come to be known as beef politics.

There are no elections in Uttar Pradesh (UP) where Bisada is situated. But neighboring Bihar is in the midst of a poll to the state assembly. The second-largest state in the country after UP, it has 50 seats in the Lok Sabha, the lower house of India’s Parliament (UP has 80). The five-phase elections started on October 12 and will end on November 5. The counting is on November 8.

“It will send the wrong message if the BJP loses here,” says a political analyst. In the short run, it does not matter. Modi enjoys a majority in the Lok Sabha and these are only state assembly elections. The general elections in which the 50 Lok Sabha seats will be up for grabs are still three years away. Opinion polls show both alliances – the first BJP-led and the second a motley crew of half a dozen parties — are running neck and neck.

But the danger is that Modi’s economic agenda might get derailed. As it is, there have been skirmishes — particularly with foreign investors — over the pace of reforms. However, most observers have accepted that there will be no big bang. That way there will be no concerted protests from opposition parties, which have brought the Lok Sabha to a standstill.

For Modi, the catchphrase “Where’s the beef?” has acquired a dangerous life of its own in India.

Not everybody agrees. Rajesh Chakrabarti, executive vice president (research & policy) at the Wadhwani Foundation, feels that the expectation that Modi would “suddenly ramp up the pace of reforms” was “probably unrealistic.” It is “simply impossible to do so in a country as large and complex at India,” he says. Chakrabarti adds that with a year-and-a-half of being at the helm, Modi “needs to hasten the reforms process,” because “that is the promise on which he came to power. He needs to do things faster and bigger.”

Gopal Naik, professor of public policy at the Indian Institute of Management, Bangalore (IIMB), says: “To some extent, I am disappointed with the pace of reforms under Modi, but I can understand that political complexities make it difficult. However, while we may be making incremental improvements with the small steps, what we now need is big bang reforms to move to the next stage of development.”

Wooing Foreign Investors

Foreign investors, however, have reason to be happy. In a judgment widely welcomed in financial capitals around the world, the Bombay High Court has struck down an Income Tax Appellate Tribunal claim of Rs. 85,000 million ($1.31 billion) in a transfer pricing case against Vodafone. Other global majors like IBM, Shell and Nokia have been fighting similar cases. The government has now indicated that it will not go to the Supreme Court against the High Court order. This is one of the many cases being fought by Vodafone.

In another bid to woo foreign investors, the government has said that firms with no permanent establishment in India will be exempt from minimum alternate tax (MAT). The income-tax department had earlier this year issued notices to more than 150 foreign portfolio investors to pay tax from April 1, 2015. The government then appointed a committee under Justice A.P. Shah to study the issue. The Shah panel said that MAT was inapplicable to those companies that had no permanent residence in India.

A hearing on the applicability of the MAT provision is on before the Supreme Court. Castleton Investment, a Mauritius-based foreign company, has appealed against the claim of the IT department to charge MAT on its profits. After the Shah panel found that MAT was unwarranted, the government formally accepted its recommendations. “Providing certainty in the tax law is the function of the government,” said Finance Minister Arun Jaitley. “The ambiguity was required to be clarified, so we have done it.” Wrote the Financial Times (FT): “India pulls back from $6.4 billion tax raid on foreign investors.”

Modi’s efforts – and there are several social initiatives as well — have already started paying dividends. The country is well on its way to becoming the fastest-growing large economy in the world; its stock markets are booming and inflation (always a top-of-mind issue in India where the price of onions has brought down governments) is under control.

In a move reminiscent of Chinese provinces two decades ago, the centre is encouraging states to compete with each other to attract investments. The media has seen a new category of high-growth advertising – states promoting themselves. Teams have started visiting other countries to attract dollars.

To show how successful they have been, the government has tied up with the World Bank to rate the states in terms of “ease of doing business.” In the recently published results, Gujarat comes out on top followed by Andhra Pradesh and Jharkhand.

India currently ranks 142 among 182 nations in the World Bank’s Doing Business study. According to Department of Industrial Policy and Promotion (DIPP) secretary Amitabh Kant, India should be among the top 50 countries by 2016. A lot of redtape has been unraveled so far, and Modi seems focused on cutting through the rest of the tangle. “I don’t know if enough has been done, but Modi is definitely on the right track,” says IIMB’s Naik.

There are signs already that these measures are working. The country has jumped 16 places in the World Economic Forum (WEF) Global Competitiveness Report 2015-16. The WEF has given Modi a pat on the back for this achievement.

India also attracted the most foreign investment in the first half of this calendar year. The country received $31 billion in foreign capital inflows; China was second with $28 billion and the U.S. third with $27 billion, according to data from fDi Markets, a Financial Times data service. India was fifth last year, with China, the U.S., the U.K. and Mexico following.


On the ground, depending on where you look, there is plenty of action. In the U.S., Modi met Facebook CEO Mark Zuckerberg, Tim Cook of Apple, Satya Nadella of Microsoft and Google’s Sundar Pichai and sought their support for Digital India — a government initiative launched on September 1, 2015, to connect 500,000 villages in the country. It received full support from the tech giants and others like Qualcomm and Oracle. “India to displace China as Silicon Valley’s next frontier,” wrote USA Today.

According to some observers, Digital India may be a bit too pie-in-the-sky, and it will likely take decades to come to fruition. However, there are reforms taking place in other sectors which together add up to significant change. Early on in his tenure, Modi hiked the foreign direct investment (FDI) limit in defence, insurance and some other industries.

According to some observers, Digital India may be a bit too pie-in-the-sky. However, there are reforms taking place in other sectors which together add up to significant change.

In insurance, the Insurance Laws (Amendment) Bill 2015 was passed by Parliament on March 13. On July 30, a press note introduced composite caps on FDI. The note further said that funds received through debt instruments like foreign currency convertible bonds and depository receipts would be regarded as foreign investment only when they were converted into equity.

Banking and finance are where most of the changes have taken place. According to business daily The Economic Times: “ICICI Bank, HDFC Bank and their private sector peers could turn into fully foreign-owned entities if a proposal to raise the overseas investment limit in the sector to 100% from 74% is accepted. The measure is being discussed by the finance ministry, DIPP and the Reserve Bank of India (RBI).”

After two decades of drought, RBI governor Raghuram Rajan issued licenses for two new banks in April this year. Eleven entities were given payment bank licenses in August. Another 10 permissions were granted for small banks in September. Bandhan Bank has already gotten off the ground.

Dovish governor Rajan has also finally lowered interest rates by 50 basis points. He has been at loggerheads with industry for sometime now, provoking a public debate on whether his veto powers on the interest rate should be removed. In India, the RBI decides the interest rate after consulting an advisory committee made up of economists and senior industrialists. The industrialists have been suggesting a lower rate to encourage growth; Rajan has held his ground because he feels a lower rate would increase inflation.

There are also developments in the public sector bank space. Jaitley told the media at a meeting of the Indian Banks Association that government shareholding in IDBI Bank would be reduced. Though the IDBI Repeal Act of 2003 does not specify any minimum shareholding to be retained by the government, it was later on clarified that it would be at least 51%. The new IDBI would be modeled after Axis Bank which started life as UTI Bank. The government holds a 29.19% indirect stake in Axis Bank.

Jaitley also told the assembled bankers that the government was planning to cut its stake in public sector banks to 52%. The P.J. Nayak committee had recommended an overhaul of all banking laws to bring the holdings in public sector banks to below 51%. State-owned banks need more money to meet Basel norms and the government has no resources to refinance them.

Still, in the finance arena, many believe the Prime Minister’s Jan Dhan Yojana has made a good beginning. This program, which seeks to ensure that every Indian has a bank account, had chalked up 185 million new accounts by the end of September. The total deposit in these accounts was Rs. 249,390 million ($3.9 billion).

This is peanuts at a macro level, particularly as more than 50% of the accounts have zero balance (which means that the account holder takes out all the money as soon as it is deposited). But these are just bricks in the wall of nationwide financial inclusion. Modi’s new India is being built with such bricks not blocks.