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Children play in the streets of a resettlement community for survivors of anti-Muslim violence that tore through Gujarat in 2002 on the outskirts of Ahmedabad, the state’s largest city. (IAIN MARLOW/THE GLOBE AND MAIL)
Children play in the streets of a resettlement community for survivors of anti-Muslim violence that tore through Gujarat in 2002 on the outskirts of Ahmedabad, the state’s largest city. (IAIN MARLOW/THE GLOBE AND MAIL)

Subcontinent stagnation: How India botched its economic miracle Add to ...

Jaswant Singh has very little in common with Indian billionaires like Ratan Tata.

He runs a small roadside shop that sells candies to school children and spends his nights in a small, cramped house in the north Indian city of Varanasi with his wife, his daughter and 14 other members of his extended family. His business isn’t doing that well, either: Mr. Singh holds up a container of pink sweets and explains that every time he goes to buy more in bulk, the prices have gone up. “It is very difficult to survive,” he says, running his hand through his black sidepart.

But despite circumstances many Indians frustrated by the country’s stagnating economy can understand, Mr. Singh’s opinions on India’s ongoing national elections are remarkably similar to those of the country’s business class and wealthy elite.

Like them, he desperately wants Narendra Modi to win.

Mr. Singh says the ruling Indian National Congress Party has mismanaged the economy and become corrupted. Behind a counter at his tiny roadside shop in Uttar Pradesh, a poor state with 200 million people, he says he looks west to the prosperous state of Gujarat where he sees in Mr. Modi’s 12-year reign as the state’s chief minister the sort of uncorrupted, stable, pro-business leadership that India now desperately needs at the national level.

“We’ve seen what Congress has done with the economy,” says Mr. Singh, his stubble-covered jaw set in a grimace. “We are going for Modi. We saw what Modi did in Gujarat. We are hopeful. Everybody is depending on him.”

Throughout India’s six-week election process, which concludes on May 16, Mr. Modi has coasted on a broad wave of dissatisfaction with the country’s deflating economy. In just a few years, India has gone from an emerging-market powerhouse with blistering growth to a stagnant mess of stalled economic reforms, haphazard regulation and rampant corruption that have helped rob the country of its enormous promise and kept many of its citizens in poverty. Reviving India’s botched economic miracle is now the key motivating factor for voters in elections that could radically alter the course of the world’s largest democracy and second most populous country.

Most polls suggest the controversial Mr. Modi and his right-leaning, Hindu nationalist Bharatiya Janata Party (BJP) are heading to a historic victory over the National Congress Party, which has ruled almost uninterrupted since India’s independence from Britain. If they win, Mr. Modi’s rise will have come about because of the economy’s decline.

“This is the first election where the economy matters,” says Shailesh Pathak, president of corporate strategy at Srei Infrastructure Finance Ltd., an Indian firm listed on the London Stock Exchange. “And that’s what Modi is playing to.”

Hangup at Vodafone

Andre Jerome once took a call from a panicked Indian employee who had a gun held to his head.

The corporate lawyer from Quebec was the general counsel for Vodafone Group PLC’s Indian operations, and a staff lawyer in the poor and occasionally lawless northeastern part of the country was on the phone, surrounded by criminals. They wanted official company letterhead in order to write themselves phony references.

“It’s crisis management,” Mr. Jerome says about doing business in India. “It’s really crisis management, all the time.”

Mr. Jerome first suggested calling the police, but the lawyer said the man holding the gun was the local police chief’s brother-in-law. Mr. Jerome told his employee to hand over whatever they wanted.

But Mr. Jerome refused to follow his own advice when he received a rather alarming letter from the Indian tax authority.

Vodafone had bought its way into the Indian market with an $11-billion (U.S.) acquisition of a large cellphone provider owned by Hong Kong-based Hutchison Whampoa Ltd. The purchase came through a Cayman Islands-based firm that, however legal, left the company open to political attacks. A few weeks after Mr. Jerome arrived, he received a letter from the Indian tax authority demanding Vodafone pay a sum that eventually swelled to around $5-billion.

The global firm quickly became Exhibit A for India’s rapidly deteriorating investment climate.

Mr. Jerome battled through India’s court system, brushed off various requests for bribes, and eventually secured a positive Supreme Court verdict in 2012. But he was flabbergasted when the Congress-led government, two months after the top court’s ruling, introduced retroactive amendments to the country’s tax law that would allow the government to again pursue Vodafone over the funds – a move that led U.K. Chancellor of the Exchequer, George Osborne, to say it was hurting India’s international reputation. And Vodafone was far from the only foreign company facing a tax dispute: Nokia PLC was also slapped with a demand, and companies such as Morgan Stanley and IBM also ended up in tax disputes.

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