Terms of Trade: The knowns and unknowns about Modi 3.0

The BJP is down from its 2019 tally, but it is much closer to political power even after the 2024 losses than it used to be in the Vajpayee years

With the election results behind us we now have a new government in place. Without any prejudice to the gravity of the fact that the BJP does not have a simple majority of its own in the Lok Sabha, the government per se has seen almost no change in terms of key positions in the union cabinet. We will have to wait till the last week of June to know whether the BJP will concede the post of the Lok Sabha speaker’s post to one of its allies. Predicting politics with certainty in a country like India, especially under a collation government, is a territory where only hubris can take you. With this caveat in place, this week’s column will try and make some broad predictions about what might and might not change in the next five years.

ANI Photo(MEA X)

Three things which are very likely to change

A more aggressive and risky social engineering by the BJP

The BJP’s biggest nightmare from the 2024 results will be a replication of Uttar Pradesh results in the state elections scheduled for 2027 and even outside the state. What the Samajwadi Party (SP) and Congress alliance in the state has achieved in Uttar Pradesh, is simply speaking, a critical consolidation of about 10%-15% of votes over and above what the SP’s traditional Muslim-Yadav consolidation could offer in the past.

It is eminently believable that a large chunk of this extra vote share has come from the ranks of non-dominant OBCs and Dalits even though upper caste voters might have played a critical role in certain pockets. From the BJP’s perspective, allowing this process to continue is to kiss goodbye to its rainbow Hindu consolidation and, with it, political power.

What can the BJP do to counter this setback? What is interesting is that the Modi government had actually set such a plan to counter such a challenge in motion when it created the Justice Rohini Commission to stratify OBC reservations. While the report of the commission has not been released yet, hearsay has it that will put a cap on quota for dominant OBCs such as Yadavs and reserve a bigger share for non-dominant OBCs. Any such policy is bound to create a material rift between dominant and non-dominant OBCs and therefore hurt Mandal parties whose leadership continues to be dominant OBC.

The theoretical gains of such a rejig notwithstanding, it is bound to open a pandora’s box. Any such policy change will also have very little traction without a detailed caste census. Will the BJP bite the bullet on upsetting the Mandal cart and agree to a caste census by clubbing it with a Rohini Commission kind of re-stratification? The 2024 results have increased the temptation for taking this risky road, the potential social disruption from which can be massive.

BJP’s dominance vis-à-vis its allies

This is where the 2024 result is going to hurt the BJP’s ambitions of dominating everything from parliament to panchayat the most. Between 2014 and 2024, the BJP always tried to ride roughshod over its allies. Whether it was denying the Shiv Sena its historical role of the senior partner in the state alliance in Maharashtra or tacitly cutting the Janata Dal (United) by turning a blind eye to Chirag Paswan putting up candidates against the JD(U) in 2020 assembly elections in Bihar – the former’s party was a part of the NDA at the centre while it did this – allies were always under risk from the BJP.

Parties like the TDP, JD(U) and even the Eknath Shide-led official faction of the Shiv Sena are not going to take any of this going forward. We will know the exact magnitude of this shift when the seat distribution for 2024 and 2025 assembly elections in Maharashtra and Bihar takes place. In macro terms, this amounts to a systemic friction on the BJP’s hegemonic ambitions in politics. In terms of realpolitik, it is going to force a lot of influential local political actors to think beyond the BJP.

End of counter-cyclical macro-economic policy

This is the most provocative prediction in this category. But this author really believes that the election results would have been very different had the interim budget before the 2024 elections been on the line of the 2019 vintage.

Bruised from the election losses in Chhattisgarh, Madhya Pradesh and Rajasthan in 2018 and facing serious rural headwinds on account of a terms of trade reversal against agriculture, the BJP pretty much threw the (fiscal) kitchen sink to boost its chances in the 2019 elections. The results proved that it was the right thing to do.

The BJP did not do any of this in 2024 and might have paid a big cost for this, as has been pointed out in another analysis in these pages. While it received a lot of praise from financial markets for doing this, Modi is not a politician who’d sacrifice political power at the altar of fiscal prudence. The pivot might not happen before the forthcoming assembly elections later this year, but we should expect a more hands-on fiscal approach to elections going forward which could take a different path compared to what markets would like to see.

Here are two things which might or might not change

Modi-Shah’s unquestioned authority within the BJP

This is the most important question in the realm of uncertainty right now. The post-2014 BJP did not just concentrate power in terms of inter-party competition in India. It also led to an almost total concentration of power within the BJP between Narendra Modi and Amit Shah for all practical purposes. To say that this would have led to a lot of heartburn is putting it mildly.

BJP’s poor showing in the Lok Sabha elections with tangible signs of Modi’s popularity too taking a hit – whether it is his own vote share in Varanasi or the fall in vote share premium the BJP enjoyed in national elections compared to state elections – will give the hitherto politically disenfranchised leadership within the BJP an objective basis to question the centralisation of power within the party. But whether this manifests itself in a concrete form of another pole developing within the party immediately remains to be seen.

While most political commentators are talking about veterans within the RSS and BJP encouraging such a coup, what it more likely is a realignment of the post-Modi succession battle dynamics within the party. The simple reason for this is that the veterans do not have the luxury of time to see the end of the inner party churn which 2024 might have triggered. This will make them extremely reluctant to play this game from anywhere but backstage. The appointment of the new BJP president should give a preliminary hint in who has got the head start in this battle.

Growing squeeze on states in fiscal federalism dynamics

This is going to be the most fascinating thing to keep track. While the 15th Finance Commission did not do any change to the devolution of taxes between centre and states, the Modi government has been, slowly but steadily, and, for better or worse, tilting the balance of power away from the states as far as India’s fiscal federalism framework is concerned.

This has manifested itself in centre bringing in a lot of conditionalities for capex grants and loans to states and insisting on political attribution and straightjacketing in how states spend welfare grants from the centre to which they are perfectly entitled.

The current government is critically dependent on the support of JD (U) and the TDP which come from resource-starved states. Nitish Kumar and Chandrababu Naidu are also politicians who share a rapport with leaders of other regional political parties outside the NDA camp.

Will they, along with Eknath Shinde of the Shiv Sen, open a parallel front with other regional parties to push for greater freedom to states in matters or fiscal federalism or try and cut out a deal for their own states in terms of a fiscal package without worrying about the fate of the larger cause of fiscal federalism?

What is more likely is a carrot and stick policy where the larger cause will be brandished to seek partisan benefits for their own states.

One thing which will not change…

…is Hindutva as the political core of the BJP. Anybody who thinks otherwise is mistaken about the political project that the BJP is and the politician that Modi is. What a lot of people like to call the BJP’s broad-minded approach during the Vajpayee years was more a reflection of capability than intent. The BJP is down from its 2019 tally, but it is much closer to political power even after the 2024 losses than it used to be in the Vajpayee years.

The marriage of Hindutva with a more pro-capital approach than what the Congress can offer is the raison d'etre of the BJP in today’s India. Its current leadership knows better than throwing the baby with the bathwater of required tweaks in the caste and economic framework of the government’s politics to regain the political capital it has lost in these elections. The fate of this central contradiction which the BJP has brought in Indian politics will depend on how the BJP handles the other contradictions described above.

Roshan Kishore, HT's Data and Political Economy Editor, writes a weekly column on the state of the country's economy and its political fall out, and vice-versa