Successful societies create spillover benefits far beyond their own borders. America's market liberalism became a beacon for Western Europe, Japan, and other Southeast Asian countries. Likewise, if India modernizes its economy while hanging on to its tradition of democratic pluralism, it could transform the Muslim world, especially India's neighbor and nuclear-armed rival, Pakistan.

Sadly, however, Indian Prime Minister Narendra Modi, after two years in office, is taking only baby steps toward economic modernization — and a giant leap backward on pluralism. Nothing illustrates this better than the ho-hum budget and the paranoid anti-student jihad that the Modi administration has simultaneously rolled out in recent days.

Modi detractors and supporters alike agree that this year's budget is a left-wing spending plan by a right-wing administration. It is long on freebies and short on free-market reforms. Wall Street Journal commentator Sadanand Dhume, a market liberal who supported Modi, observes that this budget signals the end of Modi the reformer, and entry of Modi the political survivor.

The budget doubles down on precisely the kind of populist rural subsidies that Modi opposed when the Congress Party, whom he toppled, was in power, handing farmers income guarantees rather than productivity-boosting reforms. To keep within the deficit target, the budget actually cuts infrastructure investment by 12 percent, a really dumb move given how much India's crumbling roads and transportation affect the basic quality of life of every Indian.

Modi insists that he can't enact bolder reforms because the upper house of parliament remains in the hands of "obstructionist" opposition parties — a naked appeal for more power. However, even as he's unable to stand up to the left-wingers in parliament, he is moving swiftly to crush the left-wingers on university campuses.

A few weeks ago, the administration arrested several students at New Delhi's Jawaharlal Nehru University, basically India's UC Berkeley. Why? They had organized a meeting to commemorate the three-year anniversary of the execution of Afzal Guru.

Guru was a Muslim convicted by the previous government for his role in a 2001 terrorist attack on parliament. He was hanged and buried in secrecy without informing his family. What's more, civil libertarians allege that his confession was coerced to appease the nation's majority Hindu population. So, as they do every year, JNU's lefty student activists recently held campus protests demanding secularism, equality, and socialism.

No doubt Guru is a questionable symbol for causes that range from the noble (secularism and equality) to the ridiculous (socialism). But instead of debating and discussing these ideas, as is appropriate to a free society, a Hindu student group on campus with ties to Modi's Hindu nationalist Bharatiya Janata Party gate-crashed one of the Guru events. They accused the activists, especially their firebrand leader Kanhaiya, of being a "Trojan horse" for Pakistan.

National TV channels such as Zee TV, whose owner is a known sympathizer of the militant wing of Modi's party, ran clips from the event showing Kanhaiya and others chanting "Long Live Pakistan" and "Death to India." And a Modi cabinet minister bandied around a tweet by one of the activists exposing his pro-Pakistan and anti-India sympathies.

Except the tapes turned out to be doctored and the tweet came from a parody account. A Zee TV reporter resigned in disgust at the lack of journalistic ethics of his organization. Another TV host aired a dark screen for his entire show to draw attention to the irresponsible manipulation of imagery to incite popular passions.

But that didn't prevent the government from accusing and arresting Kanhaiya and his comrades for anti-national seditious activity. Never mind that in order to do so it had to rely on a colonial-era interpretation of India's notorious sedition laws, which make it a crime not just to raise arms against the state, but even speak out against it. India's British rulers used this interpretation to throw Mahatma Gandhi and other freedom fighters behind bars in a failed attempt to abort the Quit India movement.

Worse, despite orders from the court to arrange extra police protection when Kanhaiya was escorted in and out of hearings, given that Hindu lynch mobs were baying for his blood, cops stood by and let BJP thugs beat him up outside court.

As if that wasn't bad enough, the thugs, who, incredibly, included BJP lawyers and politicos, were granted bail within hours. But Kanhaiya remained in jail until a few days ago, his bail hearing postponed for weeks. Why? Because the police convinced the court that they were hot on the trail of new evidence of an anti-India conspiracy.

All of this only demonstrated the endemic corruption in India's justice system, precisely one of the things Kanhaiya, a PhD student who hails from a poor, rural Hindu family, was protesting. But it also reveals just how easy it has become in Modi's India to use the flag to gag dissenters. Kanhaiya is an unusually brave man who, hours after his release, delivered an epic peroration condemning the administration, its tactics, and its narrow nationalism. But he has become a cause celebre and therefore has some immunity. It is unimaginable that his arrest won't have a chilling effect on speech on and off campuses, especially among Muslim activists, which was undoubtedly the idea behind the crackdown. Indeed, as one commentator put it: "An allegation of sedition in India has become like an allegation of blasphemy in Pakistan; an invitation to violence and an appeal to the basest tribal fears of citizens."

This was exactly the fear about Modi when he was elected, given his track record of fomenting anti-Muslim sentiment. The hope, however, was that he would bury his militant Hindu nationalism and focus on inclusive economic development, as he promised during his campaign.

His current course, should he stick to it, won't only be a tragedy for India, but also for Pakistan and the broader Muslim world. Despite the rivalry between the two countries, average Pakistanis are great admirers of Indian democracy compared to their own repressive quasi-theocracy. Pakistanis routinely praise India's commitment to pluralism, free speech, and secularism (which Modi's Hindutva brigade has taken to deriding as "sickularism"), even acknowledging that their Muslim brothers and sisters are better off in India because they can speak freely and question their government.

If India manages to deliver more prosperity and better living standards to its people while hanging on to its political traditions, the reformist forces within Pakistan could well become unstoppable. India and Pakistan are cultural twins in every respect except religion, and Pakistani rulers will have a hard time deflecting attention from their own incompetence if their country palpably lags behind India. And a reformed Pakistan will stand as a model for Afghanistan, Saudi Arabia, Iraq, and Iran and other Muslim countries. These countries have become cesspools of Islamic terrorism partly because of the economic and political stagnation that they can't seem to find a way out of.

This is of course conjecture and speculation. India's success might change nothing at all. But its failure will certainly snuff out hope. That's why it's vitally important that the world urge Modi to make a course correction. Thirty-six U.S. congressmen did just that recently, when they wrote a letter to Modi expressing "grave concerns about the increasing intolerance and violence experienced by members of [India's] religious minority."

President Obama, who has emboldened Modi's bad behavior by his unabashed feting of him, should follow suit.