MUMBAI, India — A jeans maker saw his delivery costs cut by half when the highway police stopped asking for bribes. An aluminum wire factory faced only three inspectors rather than 12 to keep its licenses. Big companies like Corning, the American fiber-optic cable business, found they could wield a new bankruptcy law to demand that customers pay overdue bills.
Prime Minister Narendra Modi promised nearly five years ago to open India for business. Fitfully and sometimes painfully, his government has streamlined regulations, winnowed a famously antiquated bureaucracy and tackled corruption and tax evasion.
But cutting red tape has yet to translate into broad growth for this emerging economy, or spark much outside investment. Small and medium-size businesses have struggled to keep up with the pace of the overhaul. Some, which seldom paid taxes before, went bankrupt. Civil servants stumbled repeatedly in efforts to turn Mr. Modi’s abruptly issued policies into simple-to-follow standards.
Now, as 900 million Indians go to the polls, Mr. Modi has to persuade voters to stay the course and convince them that his reforms — unconventional to many — are taking root. As the campaign between his Bharatiya Janata Party and the opposition Congress Party heats up, Mr. Modi faces an opponent, Rahul Gandhi, who contends that the prime minister has disrupted a functioning economy and caused job losses.
“The economy is actually in tatters,” a Congress Party spokesman, Randeep Singh Surjewala, said.
Mr. Modi’s team argues that if his party wins the national vote, which ends Sunday, growth will follow. “The first two years after key reforms, growth tends to slow,” said Amitabh Kant, who heads Mr. Modi’s economic policy commission. “Then the acceleration happens.”
Supporters of Prime Minister Narendra Modi and his Bharatiya Janata Party holding pictures of him at a rally last month in Kolkata, India.CreditAtul Loke/Getty Images
Key statistics on growth and unemployment have been delayed or disputed in recent months, leading to a torrent of economic bickering. Yet India has actually done more over the past four years to make it easy to do business than any country except tiny Djibouti and even tinier Brunei, a review of World Bank data shows. Researchers assessed the ease of obtaining construction permits, connecting electricity, drafting contracts and other variables.
Business leaders, interviewed last month, consistently explained that they had seen corruption pared and bureaucracy reined in. Tax demands have been simplified, and many businesses now can go online to file for government permits and licenses.
A factory district in Mumbai, a metropolis that is India’s most populous, shows how his program of change has started to crack a patronage system where everyone took a little but the national economy lost a lot. Mr. Modi’s idea to minimize graft has been worthwhile, business owners said, even if the execution at times was bungled.
Rahul Gandhi of the opposition Congress Party last month in Wayanad, India. He contends that Mr. Modi has disrupted a functioning economy and caused job losses.CreditAtul Loke/Getty Images
Mehta Creation, a jeans maker in a dilapidated concrete building in the northern outskirts, paid a welter of taxes until two years ago. That included the dreaded octroi, a British import from medieval times that allowed states and some cities to collect taxes whenever goods crossed a boundary.
Mehta Creation’s budget was contorted by corruption. To avoid the octroi, which could triple the cost of a delivery and add delays, Mehta paid drivers about $5 for each parcel of jeans and then reimbursed them up to $6 per parcel to bribe the local police at every border, said Dhiren Sharma, the company’s chief operating officer.
Mehta’s costs dropped after the government abolished 17 taxes, including the octroi, two years ago and established instead a national value-added tax on most business activity.
Then Mehta had a zipper problem. The single tax was fine for companies, like Mehta, that had been reporting income. But smaller businesses — like the zipper company it depended on — largely worked on cash payments and had seldom paid taxes.
Under the new law, Mehta had to pay a tax of 5 to 12 percent on each pair of jeans sold to retailers. Its suppliers too were obligated to pay a similar tax, and, in this supply chain, Mehta was supposed to earn a credit for the taxes its suppliers paid.
But the zipper supplier and half of Mehta’s fabric vendors initially ignored the tax, Mr. Sharma said. Mehta was forced to pay the missing money. Mehta wrangled with its vendors to pay. So the Modi program energized a sort of accountability, from vendor to vendor, that was effective, if chaotic, in generating tax revenue.
“In the last two years, everything has changed,” Mr. Sharma said. The national sales tax “is very good, but it could have been implemented in a better way.”
Workers at Shakti Industries in Mumbai, which uses aluminum cords to make wire for sale to jewelry manufacturers.CreditAtul Loke for The New York Times
Next door to Mehta, seven employees of Shakti Industries work beneath a large hook holding a huge roll of aluminum cord. Daily, they thin the cord into wire and flex it around spools to sell to jewelry makers. Before Mr. Modi was elected, the tiny shop was visited by regulators from a dozen government agencies, with many demanding bribes, said Vipul S. Kamani, the owner.
Now, just three agencies are involved, he said. Licenses can be issued mostly online. A government computer generates a random inspection cycle, making it harder for inspectors to demand regular bribes. Mr. Kamani said he was saving money and “saving a lot of time, too.”