This edition of Terms of Trade is perhaps the last one before the Election Commission of India announces the schedule for the 2024 general elections. While predicting electoral outcomes in India is always fraught with risks, there is reasonable ground to argue that this is among the most predictable elections in the country after the 1984 contest. Narendra Modi's asking for more than 400 seats for the Bharatiya Janata Party-led National Democratic Alliance (NDA) is nothing but a tacit iteration of this fact. The Congress’s 1984 tally of 415 Lok Sabha MPs is the highest ever in India and the only time any party or alliance has crossed the 400 mark.
Whether BJP and NDA cross the 370 and 400-mark, respectively, is a question best left for the day of the results. However, the fact that most of us are debating this and not whether the BJP will come back to power is itself an extraordinary political phenomenon. Even in 2019, when the BJP increased its 2014 tally and the Congress did not win enough to get the leader of the Opposition’s post, the pre-result discourse was different. So, what’s changed?
It is useful to begin this discussion by quoting from The Intelligent Person’s Guide to Liberalization, an excellent book written by Amit Bhaduri and Deepak Nayyar in 1996 when the debate on economic reforms was at its peak in India.
“It is not altogether surprising that most people are familiar with failures of governments through their experiences. However, most people are much less conscious of the failures of markets because these failures look impersonal and natural. They are difficult to recognize. To many conservative economists, market failures appear as natural events, somewhat like acts of God, say an earthquake or a flood,” the authors write.
Let us go back to the moment that made the 2019 Lok Sabha interesting for the first time, even if on purely a false ex-ante basis. While the BJP did face political headwinds in the immediate aftermath of its landslide 2014 victory after big defeats in the 2015 Delhi and Bihar assembly elections, it managed to regain the narrative after winning Uttar Pradesh in 2017 barely months after unleashing demonetization on the Indian economy. Things changed drastically when rural anger and discontent over the roll-out of the Goods and Services Tax (GST) almost led to the unimaginable in December 2017, namely, a BJP defeat in Gujarat.
2018 did not bring good news for the BJP either, with the party failing to win a majority in Karnataka and losing Rajasthan, Madhya Pradesh and Chhattisgarh to what looked like an increasingly resurgent Congress, months before the 2019 elections.
The overarching theme in these losses for the BJP was rural anger, which was seen as a result of back-to-back blows of demonetization and GST on the informal economy. The government was seen as being directly responsible for the economic misery of the people.
The BJP pretty much threw the kitchen sink at the problem after the 2018 results. It announced reservations for economically weaker sections among upper castes, a direct income transfer scheme for farmers with retrospective effect and dialled up the national security rhetoric to full volume after air strikes were conducted to avenge the Pulwama attack. What followed, is, of course, history.
Let us fast forward to the second term of the Modi government now. A couple of months after it had just presented its second budget in February 2020, the world got hit by a once-in-a-century pandemic with massive health and economic costs. The Indian economy was no exception and it suffered its largest ever contraction in 2020-21.
The pandemic’s economic cost, to be sure, was anything but class-agnostic. The white-collar workforce could continue to work from home and, in fact, accumulate savings because conspicuous consumption pretty much stopped.
For the blue-collar workers employed in the non-farm sector and contact-intensive small businesses, the economic costs were brutal. Sure, the harsh lockdown imposed by the government made things worse, but the general opinion was to see the pain as a natural calamity rather than policy-induced. In fact, the government was seen as a benefactor with some cash transfers and free food grain provisions. Also, unlike in the case of demonetization and GST, no opposition party explicitly demanded that the lockdown be rolled back.
While the global economy has had two major economic disruptions after the pandemic, namely, the Russian invasion of Ukraine and the monetary tightening in the aftermath of an inflationary spike, India has remained relatively unscathed by these, mainly on account of access to cheaper Russian crude oil and not much of a fiscal stimulus during the pandemic in India which kept the labour market weak. Real rural wages have been flat for a long time in India now. Headline GDP growth numbers might tell us that the economy is doing extremely well with three back-to-back years of 7% plus GDP growth. However, the latest GDP data also shows that private consumption growth is the weakest since 2002-03 in the economy and significantly behind the headline growth number.
Why is there no economic anger then, unlike what was the case in the aftermath of GST and demonetisation?
The answer lies in the asymmetry between the political manifestation of economic pain from markets and governments. Unlike policies such as GST and demonetization, this round of pain for the poor – what many economists have also called the K-shaped recovery – has come via the market route and they do not blame the BJP or the Modi government for it. In fact, the government is only seen as somebody who is trying to help in the form of free food and cheaper LPG cylinders etc.
The opposition is trying to corner the government and the BJP from an error of omission route, namely, what it could have done but is not doing. Congress’s promise of filling three million government vacancies if it comes to power is an example of that. But it is more difficult to exploit economic anger politically in this manner than it is by cornering the BJP for its errors of commission, such as demonetization and GST. Of course, one can also argue that the opposition, especially the Congress, lacks the political chutzpah of the BJP and especially Narendra Modi to make economic promises which appear completely outlandish – ₹15 lakh in bank accounts or 20 million jobs every year – but still get credibility.
Meanwhile, the BJP’s line of attack on the Congress still blames everything wrong with the economy on the policies of the most important political figure in the current Congress leadership, namely, Jawaharlal Nehru. It is Nehru who killed India’s economic prospects and kept Indians poor by shackling markets and animal spirits, we are told, continuously. The Congress’s problem is that most of its leadership and well-wishers in the intelligentsia actually believe this argument, or fall for the half-truth that it is. Unshackling markets when Nehru was in charge was not really a choice because it was a revolution without any willing vanguards.
Indian capital was crystal clear that the government had to take the lead to develop the required productive capacity in the domestic economy as the private sector did not have the kind of resources needed to do it. This is not to say that the state did not have its problems, but it cannot be accused of doing something when there was nobody else to do it. The tide turned on the Congress and the Indian state when private capital was big enough to spread its wings and it started feeling suffocated by the capital controls of the pre-1991 era. The deregulation of the economy since then has brought huge material gains. The BJP, to its credit, has mastered the game. It has slashed corporate taxes to make big businesses happy, is collecting the largest ever share of taxes from the personal income tax route and is getting the maximum (political) bang for the buck by delivering welfare through the DBT route. It has also learnt its lessons of not doing anything outlandish on the economy front which can generate fresh momentum for the opposition and allow it to open a flank from the error of commission route. This is the crux of the economic narrative in the run-up to 2024.
The Congress’s relationship with big business in India is instructive in answering this question. It was the natural party of choice for Indian capital in the pre-independence era. The relationship continued, first by convenience and then by opportunism or pragmatism in the pre-reform period. However, as soon as there was a worthy national competitor in the form of the BJP, also firmly opposed to the economic left, this class made a pivot which has only become stronger in the post-2014 period. The biggest reason for big capital’s love for Modi and the current-day BJP is that it expects it to keep class tensions in check not by throttling democracy but by being extremely popular among the poor.
But what if millions of Indian poor were to have a similar realisation that government policies (of welfare transfers) are not giving them enough to live the life they want to? Will today’s first-time voters be satisfied with free food grain or toilets five or 10 years down the line? This is stuff they have grown up with (even if thanks to Modi) and therefore will tend to take it for granted. Also, the universe of things which inform this generation’s aspirations is infinitely larger than what has been the case in the past in India. Modi himself knows that these problems are much more difficult to solve and therefore has kept a timeline of 2047 for India to become a developed country.
Modi and the BJP under him must surely be aware of this contradiction and therefore be planning to do something to resolve it. The Congress and other opposition parties, on the other hand, are still looking for answers in the pre-1991 part of the puzzle, namely, the state solving India’s structural transformation and inequality challenge by promising more reservations and more government jobs. Neither the doctor nor the patient trusts this medicine to cure the disease based on historical experience. To give a tangible example, Congress's promise of three million government jobs is equal to the size of just two Lok Sabha constituencies of the size of Varanasi.
To the BJP nothing can be better news than the Congress still being caught in what can at best be described as dogma or an attempt to somehow grab power. If the opposition has to have a fighting chance against the BJP, it must fight the economic battles of the future — inequality and limited upward mobility — rather than evoke the pre-1991 era where state-controlled markets.
Whether or not the opposition or the Congress can do it is as much a question of the political as it is economic, but that is a discussion we will come to sometime later.
Roshan Kishore, HT's Data and Political Economy Editor, writes a weekly column on the state of the country's economy and its political fallout, and vice-versa
Roshan Kishore is the Data and Political Economy Editor at Hindustan Times. His weekly column for HT Premium Terms of Trade appears every Friday. ...view detail
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