Terms of Trade | Is ‘Bharat’ the new Davos? - Hindustan Times

Terms of Trade | Is ‘Bharat’ the new Davos?

Feb 09, 2024 06:57 PM IST

BJP's ability to celebrate economic austerity in a country with millions of poor voters is a political economy chutzpah worth examining in detail

The last budget (technically a vote-on-account) of the second Narendra Modi government and now a White Paper on the state of the economy strike a very unusual political economy note.

New Delhi, Feb 7 (ANI): Prime Minister Narendra Modi replies to the debate on the motion of thanks to the President's address in the Rajya Sabha during the Interim Budget Session of Parliament, in New Delhi on Wednesday. (ANI Photo/SansadTV)(ANI) PREMIUM
New Delhi, Feb 7 (ANI): Prime Minister Narendra Modi replies to the debate on the motion of thanks to the President's address in the Rajya Sabha during the Interim Budget Session of Parliament, in New Delhi on Wednesday. (ANI Photo/SansadTV)(ANI)

With just about a month to go before the announcement of the general elections, here is a government that — and there is no other way to put it — is celebrating austerity. It has announced a sharper-than-expected fiscal consolidation plan in the interim budget. Even within this overall consolidation trajectory, it has put the entire squeeze on revenue spending rather than capital spending.

In fact, the former, once interest payments are excluded, has seen a fall even in nominal terms. In tangible terms, a reduction in revenue spending entails a fall in consumption spending (direct and indirect) of the government and is bound to put a squeeze on the people who were benefiting from it.

The White Paper goes even further, almost bordering on provoking people by celebrating this reduction in spending not just in the interim budget but in the entire 10 years of the Modi government and criticising its predecessor for such spending. “The (UPA) government's prioritisation of unproductive spending meant that significant funds were allocated towards consumption rather than productive investment” the working paper says picking up the United Progressive Alliance’s farm loan debt waiver and the Sixth Pay Commission’s payouts to Central government (and by extension state government) employees, as examples. The Modi government has shunned such fiscal profligacy, the White Paper claims.

For whom the bell tolls

All this is bound to be music to the ears of international financial institutions and foreign and domestic capital, which has already been praising the counter-cyclical fiscal stance of the government. But these constituencies, notwithstanding their financial clout, cannot even sway the results of an assembly segment in India.

What about the sentiments of voters at large in the country? Is the BJP not worried about a potential backlash from them because of its fiscal austerity? At least its rhetoric does not seem to suggest this. BJP’s rank and file has been asked to start a campaign on the White Paper across the length and breadth of the country.

What makes the BJP so confident about aggressively selling such fiscal austerity politically? Why is the opposition not being able to hurt the BJP on this issue?

The BJP’s political fortunes enjoy the proverbial Teflon coating of Hindutva where religious polarisation can mute some of the economic pain.

But Hindutva is not something the BJP invested in yesterday. Even five years ago, the BJP adopted a very different economic strategy for the national elections. It announced a direct income transfer programme with a retrospective effect in order to contain the rural anger which had cost its governments in the 2018 Rajasthan, Madhya Pradesh and Chhattisgarh elections and brought it to the brink of losing its citadel of Gujarat in 2017.

What has changed?

A few cyclical factors have helped the Modi government. Global commodity prices, especially that of crude oil have been under control, keeping inflation in check. Tepid private investment has not overheated the economy despite the government’s fiscal deficit being much higher than what it normally is, easing pressures on core inflation. Food inflation, especially for key cereals, has been high enough to allow the government to offer relatively low hikes in Minimum Support Prices without a squeeze on terms of trade for farmers.

But the political confidence of the government and the sheer scale of the integration of fiscal conservatism in the government's wider political pitch calls for an analysis which goes beyond these favourable cyclical factors. A bit of background is useful to take this discussion forward.

India’s trajectory towards a neoliberal economy which is programmatically wedded to the idea of fiscal conservatism and unregulated markets has been completed while negotiating political roadblocks on the way.

The first was a periodic backlash against fiscal austerity, on which governments have had to give way. Rolling back of the targeted public distribution programme (PDS) into the National Food Security Act which covers two-thirds of India’s population, roll-out of the rural employment guarantee programme, widespread mid-day meal schemes for children etc. are some such examples.

The second was a quest (still ongoing) to centralise fiscal policy towards the centre and away from the states. This has manifested itself in things such as stricter fiscal rules for spending and borrowing by state governments and significantly curtailing their taxation autonomy with the roll-out of the Goods and Services Tax (GST).

While the first can create a direct political backlash for a government in power, the second is more likely to manifest itself in Centre-state negotiations or coalition governments. Are both these roadblocks redundant in India’s political economy landscape now?

As far as the first is concerned, the Modi government has redefined political expectations of the economic underclass. It is assured of a life free of starvation and offered periodic asset transfers and a government-driven inclusion in formal networks such as banking or LPG connections which carried a perception of being elite enclaves earlier and therefore built a sense of at least notional empowerment.

Anything else, especially which entails a regular income enhancement, is portrayed as a bad policy against national interest and only deployed when political fortunes are under great risk.

The second roadblock has been made redundant by the success of the first. Because the BJP has managed a parliamentary majority of its own, it does not have to depend on allies for political survival. Tightening of screws on the fiscal powers of non-BJP state governments is creating political anger in some states, but the BJP, as of now, does not stand to lose much from these regions in terms of its parliamentary strength. In fact, it is these state governments which are feeling the pressure because of the alignment of fiscal transfers to states with the BJP's political objectives of making the prime minister the masthead of all welfare schemes.

Can the Opposition oppose this?

To be sure, these explanations are more of an ex-post than an ex-ante nature. The fact that they have worked for the BJP so far, especially vis-à-vis the first, is no guarantee that they will continue to work. So why can’t the opposition rebuild the roadblocks to the Modi government’s newfound neoliberal zeal?

Answering this question with authority is best left to serious political economy researchers. In fact, this ought to be the central political economy question in India. But here are some plausible explanations for what might be happening.

The usual state giveaways which sought to alleviate distress by regularly supplementing the incomes of the poor appeal to a constituency which does not have much agency in India’s realpolitik. While it was happy to receive such benefits under previous governments, it is not exactly unhappy with the replacement of additional meagre income transfers (none of the old ones have been discontinued) with asset transfers by the Modi government.

The rest of the electorate — this includes the middle classes which play an important role in narrative building — because they have made their peace with the rollback of the state from the field of employment creation, are sold on the government’s macroeconomic stability narrative because they believe that this will brighten their prospects of landing up jobs in the white-collar private sector. While some of them have lost out in the ongoing formalisation push in the Indian economy, the next generations were anyway looking out to diversify out of their family businesses or farms in the formal sector.

Last, but not least, is the attitude of capital, which has been undergoing a process of more and more consolidation with large pan-India business groups becoming more and more important compared to the kind of regional enclaves of capitalist influence which existed in pre-reform India but continued in the first couple of decades of the post-reform period as well.

Many traditional business houses foraying into the financial sector have also increased the premium for fiscal austerity-driven macroeconomic stability for their business interests.

These three factors, when read together, make it difficult for the opposition to attack the Modi government’s fiscal conservatism from any possible flank — poor, middle class or local rich — to cultivate a dedicated class loyalty at the moment.

Will this comfort zone last forever?

There are two possible ways in which this consensus could be weakened.

The first is a large macroeconomic disruption which causes large-scale pain to the electorate. To its credit, India’s deep state has steered clear of any policy moves which could invite such a crisis. A bipartisan consensus to not make India’s capital account convertible is one such example.

Even the Modi government did not pursue its ideas of sovereign borrowing and it has been pretty steadfast against going overboard to get India included in global bond indices. Ill-thought-out financial liberalisation has been the typical route through which emerging economies have sleepwalked into financial crisis and widespread economic pain. India, so far, has done well to guard against this threat.

The second could be chaos in the economy because of growing conflicts between big businesses operating in India to expand their area of influence. This is more likely in an economy where a lot of the current growth is a result of the formalisation of informal parts rather than an organic growth in the incomes of those at the bottom of the pyramid. India is not very far from this kind of description.

Whether or not this will happen will depend on the political authority of the government in power to keep capital under ‘discipline’. Modi has performed this task in an excellent manner so far.

The third works on the premise that the fruits of macroeconomic stability will only materialise for a handful of people and do not promise anything but austerity-driven pain for an overwhelming majority of the masses. This kind of a political narrative, crudely speaking, will prioritise class interest over class-agnostic national interest. For this kind of campaign to gain political credibility, however, the opposition will have to turn leftwards in its economic outlook and stop celebrating its own success stories by deploying the same free-market playbook.

In 2001, a bunch of global activists started the World Social Forum to popularise the idea of an alternative world order compared to the Washington Consensus-inspired orthodoxy represented by the World Economic Forum in Davos. The former was actually held almost at the same time as the latter.

The economic policy challenge facing India’s opposition is, in a way, similar.

Unless it decouples itself from the larger globalisation project, its criticism of the Modi government’s economic policy will not hold credibility, and Bharat, the proverbial description of the have-nots in post-reform India will continue to subscribe to the celebration of economic orthodoxy which comes straight from Davos.

Modi's political genius, or the opposition's incapability, lies in the fact that he has managed to sell the Davos story to not just the richest of the rich but hundreds of millions of poor voters in the country.

Every Friday, HT’s data and political economy editor, Roshan Kishore, combines his commitment to data and passion for qualitative analysis in a column for HT Premium, Terms of Trade. With a focus on one big number and one big issue, he will go behind the headlines to ask a question and address political economy issues and social puzzles facing contemporary India.

The views expressed are personal

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    Roshan Kishore is the Data and Political Economy Editor at Hindustan Times. His weekly column for HT Premium Terms of Trade appears every Friday.

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