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India: Here’s what Goldman Sachs missed in its controversial Narendra Modi assessment

Q&A: The firm argues Modi as India’s prime minister would spur growth. Indian investment broker Shankar Sharma begs to differ.

Modi india pm candidate economic recordEnlarge
Gujarat state Chief Minister and the Bharatiya Janata Party's (BJP) prime ministerial candidate, Narendra Modi (C) wears a garland as he greets supporters during an election rally in New Delhi on September 29, 2013. Goldman Sachs recently reported that he's viewed favorably by investors. Not everyone agrees. (Sajjad Hussain/AFP/Getty Images)

NEW DELHI, India – On Friday, India’s government lambasted Goldman Sachs over research that claimed electing opposition candidate Narendra Modi as prime minister would boost India’s economy.

“Goldman is parading its ignorance about the basic facts of the Indian economy, and it also exposes its eagerness to mess around with India’s domestic politics,” said Anand Sharma, commerce and industry minister, in an interview.

Indeed, the Goldman endorsement could be construed as controversial or risky.

Modi represents India’s Hindu nationalist movement, the Bharatiya Janata Party (BJP). Critics contend that he shares the blame for a slaughter of Muslims in Gujarat state, where he has been chief minister since 2002. While Modi denies wrong-doing and has never been charged, the evidence is apparently strong enough that the US has cancelled his entry visa.

Still, Goldman is far from alone in its optimism about Modi. Nearly three quarters of India’s business leaders think he would be a great prime minister. Modi and the right-wing BJP are proud to point to the average 10 percent growth per year since he gained power in 2002. His message is alluring for middle class Indians who have suffered lately from a falling rupee, and who blame the current Congress-led coalition government for failing to push through economic reforms.

So, what about the other 26 percent of business leaders who are pessimistic about Modi?

Some have reservations about Modi’s record as chief minister of Gujarat and the sorts of policies he might implement. They point to debt that soared under Modi, and say if you look at the data, other Indian states can boast similar or better records. They attribute much of Modi’s reputation to a ‘Vibrant Gujarat’ PR campaign that attracted foreign investors to his state.

Here, with the dissenting view on Modi, is Shankar Sharma, a director at First Global, one of India’s leading investment brokers.

(The interview has been condensed and edited by GlobalPost.)

What would Prime Minister Modi would mean for investors?

Shankar Sharma: I think investors should be looking for an alternative only if what is presently available is very bad. In my view, India’s current economic management is inarguably the best that we have, and one of the best in the world. I know this runs contrary to the general narrative. I tend to take the view that everything popular is probably wrong.

Optimism about Modi as prime minister is completely without any rational basis. We have absolutely no data and no analysis that supports what some sections of the media and some parts of the middle class believe, that he is the solution or the magic bullet. And forget about Modi, this is about BJP as a party.

That’s pretty damning isn’t it? Given that we’ve been told about the Gujarat development story being the best in India, why do you say there’s no rational basis for that?

I prefer to look at the data, forget the fluff. I have juxtaposed the Gujarat data alongside data of every major state in India. A lot of what is written about Gujarat comes from journalists being briefed and not checking. Then it gets marketed and it becomes the truth.

I’ve seen no discernible difference between the data in Gujarat and the data in at least half a dozen other major states. About seven or eight states account for roughly 65 percent of the GDP of India. You’re talking about all the major states of India.

But on one particular count Gujarat does stand out: the sharp build-up of debt that Gujarat has had in the last ten years.

It is now the most indebted state on a per capita basis.

Whatever growth you have in Gujarat has been achieved has come at a very high build up of debt.

The other thing is that Gujarat has always been an amazingly progressive state. I have been going since 1988. It’s a majorly safe state for women. And the roads in Gujarat were always the best in India. So what is the big deal about what is there today?

It’s simply, in my view, excellent spin, and hats off to him for having done that. Good spin can overcome a lot of things. The plain data is very contrary to what is being projected out there.

Is there more to the