A lot of tides have come and gone on the Ganga since the full Budget was presented on 5 July. It was delivered by an eager Nirmala Sitharaman. She, who is educated at the Leftist citadel JNU, and joined the party only in 2008. The freshly minted Finance Minister didn’t, as Modi himself put it, pause for a sip of water during her two hours plus readout of the most free form Budget ever presented by the Government of India. It initially bamboozled quite a few with its covering fire statements about a $5 trillion economy by 2024 based on a likely $ 3 trillion economy by the end of this very fiscal.
It has been only about three weeks since then, but, it seems like an interminable age of realization. This government has begun with a sharper left turn than all the five Jaitley Budgets and the interim one presented by Goyal. The Modi 2.0’s roadmap for the future is a dusted-off update of Indira Gandhi style socialism. There is scant attention to revenue generation through growth. It resorts to welfare spending on the poor, grown up with additional zeros better suited to 2019. There is an emphasis on taxation of the rich and disdain for “money-making”. The central idea is to blatantly reward the nearly 50% of the voters, cutting across caste and creed, that enabled a better win for the BJP than 2014. This amalgam of urban and rural poor is the new BJP vote bank.
That the Modi government has thought it best to focus on this constituency by providing it tangible benefits, ignoring all others including foreign investors, business and industry, the services, exports, real estate and even agriculture, is the strange thing. How does Modi 2.0 expect to pay for its welfare and baton twirling on the international stage? India has even become a “donor nation”. The FIIs have already pulled out a couple of billion in less than a month. FDI has stopped in its tracks. The foreign exchange reserves have dipped by a like sum. The stock market, the first to give the thumbs down to Modi 2.0, has plunged continuously since 5 July.
That the poor have done the BJP proud is understood, but the BJP used rich people’s money to win this election. It took the support of the middle class that cheered Narendra Modi’s honesty, dedication and nationalism. So how is it legitimate to promote a vote bank, numerically heavy as they are, at the expense of all the other stakeholders?
The BJP has developed an arrogance overnight. It is no longer worried about middle-class opinion or vote. It has cunningly decided they have nowhere else to go. Journalist Shekhar Gupta quipped the middle classes have become the BJP’s Muslims.
The opposition, such as it is, was decimated, not once but twice, and the remainder, particularly in the provinces, is rapidly defecting to the BJP. So future elections to be won are being supplemented already with “inorganic growth” — both at the Assembly level and in both Houses of Parliament.
Modi 1.0 was no great shakes at the economy either, despite the expectations raised in the 2013-14 campaign. ‘Acche din‘ was a great, if empty, slogan in 2013, and it remains so in 2019. Except now it is being selectively applied to the denizens of the ruling alliance and their vote bank. It is proudly counted in gas connections, toilets, rural roads, e-chaupals, electricity and healthcare leavened with Mudra loans. The rich, of course, are expected to continue filling the BJP coffers, and not those of the opposition, whether they want to or not.
The NDA has still got a lot of sympathy for its line that it needs more time to implement its grand vision for India. This vision is to take it to the top three economies in the world, with $10 trillion in GDP. But this is apparently designed to beguile the chattering classes.
What is going on is somewhat different. Not only is the growth plunging, throwing lakhs of people out of their hard to come by jobs, but the BJP is still concentrating on mopping up more votes. In a parliamentary appearance shortly after winning in 2019, Narendra Modi extended his other much-used slogan “sabka saath, sabka vikas” into “sabka saath, sabka vikas, sabka vishwas“.
That ‘sabka‘ has been reworked to exclude those who are not electorally important. So now, and the passing of the triple talaq bill for the third time in the Lok Sabha is a case in point, the Muslims, mainly Muslim women, are next in the BJP’s sights. ‘Sabka vishwas‘ is a call sign to India’s Muslims. Whether it works or not, it is an astute political move. It wards off criticism by firing the first volley for inclusiveness. It blunts the charge of those who call the NDA a purely Hindu nationalist government.
In the 2019 general election, Modi was helped, in no small measure, by a whiff of grapeshot from Balakot. Modi owes Pakistan and its terrorist organizations, as well as the Indian Armed Forces for contributing handsomely to his victory. Those factors, and the risk-taking ability of his own decision making. It let him pull off and milk the surgical strike in 2016 using crack ground troops. In 2019 he did it again using precision airstrikes. There is nothing like jingoism to make people forget their troubles and project oneself as a great and decisive leader. It won George W Bush and Obama their second terms. So why not Modi?
But that prompt military decision-making ability and nerve is never, it appears, applied to foster the growth of the economy. The backfiring of the “Shining India” campaign cost the NDA the government in 2004. The “suit-boot Sarkar” jibe early in Modi 1.0 has turned Modi into a shade of red ever since.
So Modi sticks to masses of process improvements. And banking on infrastructure, inclusive of a modernization of the railways designed to provide a long term boost to the lives of people. In the short term, the government may have calculated, spending Rs 130 lakh crore in five years on infrastructure and the railways will contribute 8% growth per annum. But, Modi is already backing away from the foreign borrowing announced in the 5 July Budget. The scrutiny and accountability that the government may be subjected to seem to be the problem. This, even as the domestic banks are almost maxed out with government debt already. And tax shortfalls from all sources are rumoured to be a third down.
Any other global headwinds like a conflict involving Iran and the Western powers could further queer the pitch.
However, why is the Modi government 2.0 not promoting overall growth instead of a quixotic backing for hobby horses like electric cars that will not only further damage the automobile sector, down 20% already, but sequester the fuel tax the government collects? Perhaps it is thinking of lower oil imports.
FMCG and real estate have shown a collapse in consumer demand, too. But instead of doing anything to revive these sectors, and others, including services, that clock up more than 50% of the economy, the government has chosen to increase taxes to make up for its shortfall in collections. But these higher rates of taxes may not see better realisations as people restructure and take evasive action.
There is a sharp slowdown in consumption in rural areas too, suggesting the paucity of spending money. That the Modi government has been covering up and fudging economic data for at least the last couple of years is alarming. Avoiding a public gaze prior to the elections is understandable, but inaction even after a thumping win is inexplicable.
This sharp economic slowdown is now being highlighted by all quarters but the government is ignoring it. The thinking may well be that there will be a cyclic upturn in the economy in two or three quarters. The IMF continues to give India a 7% GDP growth for this whole year and again for the next, down from an earlier prognosis of 7.3% per annum.
A counter-argument is to allow some slippage in the fiscal deficit to say 5% from the present 3.3% and use the proceeds, helped partially by higher inflation than the present 4%, to get the economy going again.
Meanwhile, there is nobody to challenge the government. The BJP is busy harvesting defections and targeting a number of state governments such as Karnataka, West Bengal, Madhya Pradesh and Rajasthan. Modi 2.0 can, if push comes to shove, brazen it out, and we have to get used to our tribulations in place of the promised Acche Din.