Much has been made of the Congress party’s new-found affection for urban India. The party’s conclave—chintan shivir—in Jaipur earlier this month witnessed happy noises to woo citizens living in urban areas. Concern was expressed at the disaffection against politicians in cities and towns. All this comes after close to a decade of clear, rurally biased policymaking by the party. The Congress is now deliberating a “pivot” in favour of middle-class India. This is interesting as the party won almost half its parliamentary seats from urban areas in 2009.
The economics of this bias is clear and has played out for some years now. Money-intensive welfare schemes and benefits of government largesse have translated into massive increases in autonomous consumption—consumption independent of income. Citizens who have benefited from this are largely poor. This spending has largely been on primary food items such as grains and cereals, and marginally on manufactured goods. As a result, the multiplier effect associated with more balanced consumption has been missing. If agriculture production processes were identical or even similar to those in manufacturing, India could have spent its way all the way to heaven. This did not happen and it could not have, even in theory. Instead, growth petered out due to high policy rates maintained by the central bank. This killed investment.
The other, non-macroeconomic, aspect of this bias was visible elsewhere in the policy space. Being pro-poor translated into halting “dispossession” of resources such as land, blocking infrastructure creation and declaring forests as no-go areas. Seen together, the adverse effects of these actions on growth are obvious.
To an extent, the Congress party brass realize the limits of this sort of strategy. It could be sustained only for so long. But beyond the sustainability issue lie demographic realities. Between 2010 and 2020 India will witness the single largest increase in entrants to its labour market. A large fraction will be poorly skilled and a smaller one equipped with the education and the skills needed to be successful. The skilled citizens live in cities and the unskilled ones largely in rural areas. This may still sound like a situation where the rural predominates the urban. But when one examines the number of citizens living in urban areas and the so-called census towns, the situation is no longer clear. While the Congress was chasing rural dreams, India was getting urbanized at a rapid pace. Much has changed in the past five years alone.
The party’s strategic dilemma is largely the product of these realities. It would like to continue to focus on rural areas where sustained increases in autonomous consumption translate in a near one-to-one fashion into votes. Today, however, it cannot ignore the urban mass any more. But that’s where its electoral-cum-policy strategy is likely to run aground. To get the urban vote, it has to promote investment, especially the job-creating private variety, very hard; to maintain its rural vote share, it has to continue spending and sustain consumption delinked from income generation. Spending has virtually crowded out private investment and getting investment back on the rails will entail serious costs in rural areas. There is no “in-between” equilibrium here: any such attempt will only lead to poor electoral, and certainly economic, outcomes both in urban and rural areas. One should not hazard a guess as to what the Congress will do but it is unlikely it will effect a dramatic shift, either way. Investment takes time to deliver results and in urban areas, there are other dampening effects that come between the creation of jobs and its translation into votes. Then, there is a serious opportunity cost in effecting such a change. Usually, massaging by what Marxists call the “ideological state apparatus” does the balancing trick by creating a fog of acceptance. In the United Progressive Alliance’s (UPA) case, this phalanx is solidly anti-urban and has not worked. The Congress will remain inspired by rural dreams, if somewhat uneasily than before.
This is, of course, a bird’s eye view of such matters. In reality, Indian elections are decided on local issues. It is easy to dismiss crystal ball gazing as irrelevant and claim that local factors make all the difference. But do they? In the past six years, the Congress-led UPA government has systematically rigged economic policies to electoral ends. So the interplay between local and national factors is real.
At the moment, it is hard to discern which way the party is headed, notwithstanding the brave words emanating from the chintan shivir in Jaipur. To be sure, some efforts at fiscal consolidation are being made; these are in the nature of battlefield surgery and do not imply a shift to a more sustainable spending pattern. Here are the things to be watched this year to discern any such changes:
• The Union budget, especially the level of non-Plan expenditure, including subsidies compared with previous years.
• This is the year of elections in around 9 states: what kind of policy steps does the Union government take keeping these elections in mind.
• The supplementary demands for grants presented to Parliament. What can be fudged in the budget will become clear when these demands are made in September.
In all likelihood, it will be more of the same. It is unlikely the Congress will embrace urban India in a meaningful way.
Siddharth Singh is Editor (Views) at Mint. Reluctant Duelist will take stock of matters economic, political and strategic—in India and elsewhere—every fortnight. Comments are welcome at email@example.com. To read Siddharth Singh’s previous columns, go to www.livemint.com/reluctantduelist