How to run a continent

INDIA IS A continent masquerading as a country. Like America, it is a federation that divides power between the centre in Delhi and 31 states with their own elected assemblies and rulers (five more “union” territories are run from the centre). It has a national parliamentary system where the lower house matters more but the upper one has veto powers. And it is saddled with a bureaucracy that can stifle reformist politicians, though it also has an assertive judiciary, pushy media and lots of activists.

Until recently one institution looked chronically weak: the prime minister. The previous incumbent, Manmohan Singh, was timid and allowed his boss in the Congress Party, Sonia Gandhi, to wield power behind the scenes. “The truth is, nobody was in charge,” says a former cabinet minister. Now Mr Modi dominates, drawing strength from his emphatic national election victory in May last year. His Bharatiya Janata Party (BJP) won 282 of 543 seats in the lower house, the first overall majority ever for a party other than Congress.

The “Modi wave” of electoral success had started earlier, and continued later, with strong performances in several states beginning in December 2013 and carrying on for a year. On its own, the BJP now runs eight sizeable states with one-third of India’s population. Add in states governed with or by allies, and that tally rises to 13 states and 41% of the population.

Congress, long the chief national force, has been the main loser: it now controls nine (mostly small) states with only 12% of the population. It could well also lose elections in Assam and Kerala next year, leaving it to govern barely 7% of India’s people. Karnataka may well go the same way in 2018, all but eliminating the party in important states. Mr Modi talks of creating a “Congress-free India”.

Congress’s structural decline began in the states, but was partly concealed by its successful decade at the national level that ended last year. Eventually the rot from below worked its way up: one reason for its national defeat last year was the loss of its main power base in Andhra Pradesh (AP). So far the party has recovered none of its standing.

The general election was a catastrophe, with the party getting just 44 MPs, but it is still not sure exactly what went wrong. Jyotiraditya Scindia, a young Congress leader, asks ruefully, “What didn’t go wrong?” Jairam Ramesh, a more senior figure, worries that Congress is on the verge of irrelevance.

Part of the answer is poor leadership. Rahul Gandhi, scion of the Nehru-Gandhi dynasty, is poised to take over, but regularly proves himself incapable. He retreated from public life for nearly two months of this spring’s important budget session of parliament, going abroad to “introspect”. That would have been a sacking offence for most politicians, but his mother, Mrs Gandhi, wants him to run the family business. Ramachandra Guha, a historian in Bangalore, says that the party is “definitely finished” and that “everyone knows that Rahul is a dud.” Mr Gandhi’s more charismatic sister, Priyanka, is sometimes mentioned as a better bet; she is decisive and assertive, reminding many of her grandmother, Indira Gandhi. But her husband, Robert Vadra, has had to fend off allegations of corruption, which have cast a shadow on her.

For now Congress’s main strength lies in retaining control of the upper house of parliament, where it can block bills sent by Mr Modi. But a third of its members are replaced every two years, with new ones appointed in proportion to the parties’ strength in relevant state assemblies, so the BJP’s heft in the upper house will steadily increase. Eventually Mr Modi’s party should control both houses and be able to pass bolder laws, though that could take two years or more. In 2017 the prime minister will also have a say in who becomes president, a mostly ceremonial post that occasionally matters. So even if Mr Modi loses popularity, he may become more powerful.

But it is a firm law of Indian politics that if things appear to be going swimmingly, a potential disaster is already lurking. In February the BJP was thrashed in polls in Delhi, winning just three of 70 seats. An upstart movement, the Aam Aadmi (Common Man) Party, led by an anti-corruption activist, Arvind Kejriwal, won a landslide victory. The result owed something to special circumstances, but probably reflected a wider perception that Mr Modi had frittered too much time on travelling abroad and not delivered on promised economic improvements. “He lost because of arrogance,” says a friend of nearly three decades. In fact the BJP’s share of the vote, at 32%, hardly declined. The decisive factor was that all other voters, including former Congress ones, united behind Mr Kejriwal.

The question is whether such a defeat could be repeated in more important states. A test looms in Bihar (population 102m), with an election that will probably be held in October. The BJP had hoped it could win this, yet Bihar’s chief minister, Nitish Kumar, who runs a regional party, has joined other regional party leaders in an anti-BJP front. That unity may not be easy to sustain, but if it works in Bihar, then other states could follow.

Against that, the prime minister’s camp has enjoyed a fairly smooth ride in the media so far. India’s press and its screechy TV stations have not been particularly hostile. Mr Modi anyway likes to bypass them. He has not appointed a press spokesman, preferring one-way communication with his 12m followers on Twitter. But he does give the occasional interview, including one to The Economist for this report.

Longer-term trends seem to be working in the BJP’s favour. The electorate is increasingly urban, educated, connected and hungry for jobs, and therefore less interested in welfare pledges from Congress and more responsive to Mr Modi’s aspirational talk (though Mr Kejriwal’s populist promises of cheap power and water also ring a bell). Mr Modi’s organisation on the ground looks strong, too, drawing on an army of Hindu nationalist volunteers. In April the BJP claimed its hundred-millionth member, though not everyone believes that number.

Conversely, rural voters might turn against Mr Modi, and regional figures like Bihar’s Mr Kumar could pose more of a threat. Their collective popularity, unlike that of Congress, is stable. At every general election since 1996 regional parties together have won roughly half the total vote, a pattern repeated last year.

Gonna be a devolution

Intriguingly, just as Mr Modi is accumulating power nationally, he is overseeing the devolution of some of it to the states, prompted, he explains, by his recent experience as chief minister. One of his early decisions as prime minister was to scrap Delhi’s Planning Commission, a relic of Soviet-style centrist policymaking. It created rigid national schemes in fields such as education, rural jobs and urban renewal which required the states that implemented them to put up significant funds. The states felt disempowered.

The commission has now been replaced with a less powerful think-tank, Niti Aayog, leaving the states with more discretion over what they spend. They will also have more money, thanks partly to a new rule that entitles them to all funds from the sale by auction of natural resources. Favoured states have been urged to experiment with liberalising their economic policies. Rajasthan, Madhya Pradesh and a few others are making a start by easing labour laws.

The process has been dubbed “competitive federalism”: states are meant to compete for capital and talent (a process China has managed without the federalism). Arvind Subramanian, the government’s chief economic adviser, calls it a “real watershed”. Individual states, he points out, are often better run than central government. Mr Modi says that “a one-size-fits-all approach does not work in India.”

Even more important, Mr Modi signed up to proposals by India’s 14th Finance Commission that gives state governments 42% of central tax receipts, up from 32%. Mr Subramanian says that, taking into account all tax receipts, the states now control 62% of the total. Though they have lost some funds that used to be doled out by the old Planning Commission, they have more autonomy than before. Jayant Sinha, the junior finance minister, sees a “very big change for state-centre relations”. Chandrababu Naidu, chief minister of southern AP, notices a welcome shift. Baijayant “Jay” Panda, an MP from Odisha, a small eastern state, says that “states have different needs, so the shift of discretionary spending is huge.”

A well-connected businessman thinks Mr Modi has shown “a genuine instinct that India can’t be run from Delhi, it’s his really big idea.” But Mr Modi also has a strong motive for courting state leaders just now. He plans to change the constitution to push through a nationwide tax reform, bringing in a goods and services tax (GST). That will require support from two-thirds of both houses of parliament, as well as backing from most states. Proposals for a GST, a form of sales tax, have been lingering for years. Its introduction would mark a welcome political and economic shift, removing barriers, freeing internal trade and spurring state competition. Onno Ruhl, who heads the World Bank’s office in India, calls it “an excellent test of how to challenge vested interests”. But it is sensitive because it will deny states their most important direct source of revenue. States currently get some funds from the centre but also raise money by taxing fuel, alcohol and other goods at their discretion.