Terms of Trade | The X factor in 2024 - Hindustan Times
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Terms of Trade | The X factor in 2024

Jun 19, 2023 09:39 PM IST

Oil, not Mandal, will be the biggest factor shaping the 2024 outcome. The international economic climate will have profound consequences on domestic politics

The political realignment in Bihar has reignited talks about the all-in-unity opposition strategy against the Bharatiya Janata Party (BJP) in 2024. Will this create trouble for Narendra Modi’s third consecutive bid for the prime minister’s post? Hypotheticals can be constructed both ways.

Will oil prices stay above or below the $100 mark between now and the 2024 elections? (Reuters)
Will oil prices stay above or below the $100 mark between now and the 2024 elections? (Reuters)

The 2019 elections have shown us that the BJP has a remarkable ability to bounce back from electoral defeats in state elections or minimise the damage against formidable regional alliances (such as the Samajwadi Party-Bahujan Samaj Party alliance in Uttar Pradesh in 2019) in national elections. Many, including this author, believe that, this is a reflection of Modi’s candidature making India’s parliamentary political contest almost presidential in nature to the advantage of the BJP. There is nothing to show that Narendra Modi’s popularity and vote-gathering abilities have fallen significantly compared to the past two national elections.

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Unless the opposition decides on a prime ministerial face and then invests the kind of energy and aggression the BJP displayed in the 2014 elections – it was willing to alienate its senior most leader Lal Krishna Advani and part ways with one of its oldest allies, Nitish Kumar – it will be advantage Narendra Modi in the 2024 contest.

This kind of consolidation behind one leader, Congress or non-Congress, is unlikely if not completely impossible. However, a credible alliance, even if it cannot get all opposition parties together, could lead to a significant consolidation of anti-BJP votes in the 2024 elections.

Sharpening the caste fault line

It is also likely that the opposition could try and forge this unity by raising an issue rather than promoting a face. If the Rashtriya Janata Dal (RJD) and the Janata Dal (United) or JD(U) alliance government kicks off a caste census in Bihar, manages to publish the results before the 2024 elections, and builds a strong movement with other opposition parties demanding an increase in the existing 27% cap on reservations for Other Backward Classes (OBCs), there can be large-scale social polarisation on this issue.

Given the fact that OBCs have a share of more than 40% in the electorate, the BJP will find it difficult to summarily reject such a demand. To be sure, making the caste census or expanding the quota of OBC reservations the central issue in an election will also mean that the opposition has decided to completely forgo the upper caste vote. For parties such as the Congress, this is not going to be an easy decision.

To be sure, the BJP has an insurance of sorts against this kind of demand. The report of Justice Rohini Commission, which was given the task of re-stratifying OBC reservations, has not been released yet. Multiple news leaks at various points of time suggest that the Commission might make sub-stratum within the existing OBC quota and reserve a bigger share of the benefits for what are often referred to as non-dominant OBCs. While this can potentially nullify the opposition’s plan to develop a pan-OBC consolidation — most Mandal parties are led by dominant OBC groups — to post a strong challenge to the BJP, any such move can also trigger large-scale social unrest.

Elections, however, are not fought on social coalitions alone. Other factors matter as well. The Pulwama terror attack and Balakot air strikes had a big role in shaping the 2019 outcome. It will be far-fetched to say that either the ruling party or the opposition can strategise in advance for these kinds of scenarios.

The economic fault line

This brings up the only other important factor which will shape the 2019 contest — the economy. Will the economy’s performance generate headwinds or tailwinds for the BJP? The answer is slightly complicated than what appears to be the case.

As far as GDP growth is concerned, the worst is over for India. Not only is India not going to face a contraction like it had in 2020-21, it is unlikely that growth rates will go down to levels as low as what prevailed in the pre-pandemic year.

However, this is no guarantee that India will regain a high growth trajectory which it enjoyed in the run-up to the 2008 global financial crisis. Reserve Bank of India (RBI)’s projections already see the growth rate going down in the second half of the fiscal year. The slowdown in developed economies will add to the economic pain via headwinds to export earnings.

What will be more important than the headline growth number will be its distributive effects. Most independent analysts agree that the Indian economy has had a K-shaped recovery after the pandemic. While the formal economy seems to be doing extremely well, its informal part — this employs far more people than the formal sector — has been lagging. In fact, it can be argued that some of the dynamism in the formal sector is a result of it usurping business and income of the informal sector. The biggest political economy implication of this is going to be that even if the Indian economy manages to clock 6% plus growth rates, there is unlikely to be a feel-good effect for the masses.

Will the K-shaped recovery lead to political anger against the BJP government? Not necessarily.

Its economic pain notwithstanding, the opposition has been unable to politicise this issue in terms of a concrete political demand. The farmers’ movement against the three farm laws continues to be the only exception to this. To be fair, it is not easy to come up with exact political demands to oppose the policy of forced formalisation and the collateral damage it has unleashed on the informal sector. In fact, the BJP is likely to portray such attempts as pro-corruption demands. The political polemics on demonetisation are the biggest example of this.

The X factors

Having said all this, there are two X-factors, completely out of the government’s control, which could be potential game-changers in 2024.

The first is the monsoon performance in 2023. The current government has been extremely lucky on this count as it has not faced a deficient monsoon since 2015. Statistically speaking, the government will have to be extremely lucky to enjoy this run in 2023 as well. Unless rains pick up really well in the eastern belt this year, there is likely to be a drought-like situation in eastern Uttar Pradesh, Bihar, Jharkhand and parts of West Bengal this year too. A drought year will mean significant economic pain for the poorest sections of the Indian economy and force the government to offer large fiscal support, which, given the tricky macroeconomic situation, could create major problems.

The other unknown, and Narendra Modi has been extremely lucky on this count since he has had power, is the international commodity price cycle. Crude oil prices had been above the $100 mark for three consecutive years before the 2014 general elections. This played havoc on the inflation and macroeconomic stability front, generating considerable anger against the Congress among both common people (who were angry about inflation) and the big business (which was extremely worried about a possible macroeconomic meltdown).

Energy prices eased significantly within a year of the Modi government assuming office and continued to be at comfortable levels. This helped control overall inflation scenario in the domestic economy. Given the fact that India imports more than 80% of its energy requirements, international crude prices are the biggest driving force as far as domestic inflation is concerned.

It can be argued with a fair degree of certainty that when it comes to politics, inflation is a far more important factor than growth in India. The majority of the workers in the informal sector experience little or almost zero dynamism when growth rates move even a couple of percentage points in either direction for short periods. But a bump in inflation can be a cause for major pain, given the fact that informal sector incomes are not indexed to inflation. This is one area where the current government has been facing a rough patch in the last year or so.

The rise in international energy prices has been a major cause for the inflationary spike. The government presented its budget with an assumption of crude oil being priced at $75 per barrel for the current fiscal year. RBI now assumes that this figure is likely to be $105 per barrel. Crude prices have come below the psychological threshold of $100 this month. Will oil prices stay above or below the $100 mark between now and the 2024 elections?

There are too many unknowns in the international economy which could shape the eventual outcome going forward. A rise in energy demand along with persistence of supply shortage from Russia during winter could reignite the oil price fires. Whether or not the Chinese economy gathers momentum once again will be another major factor shaping energy prices. A recession in advanced economies could take some pressure off the commodity price cycle.

If oil prices come down significantly, the government is unlikely to face significant headwinds on the economic front during the elections. It remains to be seen whether Narendra Modi is as lucky with the international commodity price cycle as he had been when he made his second bid for the prime minister’s post in 2019. If he is not and inflation emerges as a big pain, the opposition might find the political glue which has eluded it since the 2014 elections.

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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  • ABOUT THE AUTHOR
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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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