The 2014 election results could well turn out to be a watershed for Indian capitalism. Indian capital, which benefited greatly from liberalization, had been sorely troubled in recent years by the United Progressive Alliance (UPA) government as it trod the populist path.
There had been a sharp leftward shift, seen in the numerous welfare schemes and subsidies, in the land acquisition policy and in the nod, albeit a token one, to people’s rights. That this had gone hand in hand with “reforms”, such as the opening up of the retail sector to foreign companies, underlines the schizophrenic character of the Congress.
The inability of the Indian state to raise resources to fund the welfare schemes as well as to fund investment inevitably led to supply bottlenecks and to rampant inflation. Cornered, it attempted to arm-twist business to cough up more taxes. Naturally, these policies caused alarm among businessmen. The upshot was a consolidation of corporate support for Narendra Modi, the champion of the political Right. Behind all the talk about a stable government and a decisive mandate is the hope that, now that we finally have a political right-wing government and the Bharatiya Janata Party (BJP) has a majority on its own, policies too will be decidedly business-friendly.
India has been made safe for capitalism.
It would be silly to believe that corporate India would have got the result they wanted without the active support of the masses. The story is much bigger than just a rightward shift in Indian politics.
The election has been fought and won, not on the basis of welfare for the people or for communities, nor on the basis of caste and communal identities, but on promise of development. Faced with a slowing economy, the lack of jobs, and fading of the temporary spike in rural real wages, the masses seem to have realized that economic growth is the mantra for jobs and a better life, and capitalist development is the only game in town.
Margaret Thatcher’s famous TINA (There is no Alternative) dictum may be working. Undoubtedly, this also reflects the transformation taking place in the rural India as it changes from a predominantly peasant society to more modern capitalist one, with all the associated revolution in attitudes. It is a fundamental change and gives rise to the hope that democracy, even in a desperately poor country, need not necessarily imply populism.
Sure, nobody expects Modi to dismantle the welfare measures. But it is possible to not allocate the additional resources to them, as indeed was already being slyly done. It should also be possible to find innovative ways to tweak the new land acquisition laws and labour laws, making them less hostile to business. And building up business confidence, and cutting red tape should be easy.
Animal spirits have already revived, if the stock market reaction is any guide.
If the new government is able to kick off the fetters imposed on accumulation by the UPA, admittedly not an easy task, there is no reason why growth will not revive.
The triumph of the political right will be viewed very favourably by international capital, which is eager for new investment opportunities. This is particularly so given the changes taking place in the Chinese economy, which is unlikely to absorb the same level of investment as before.
India could fill the gap. There should be no dearth of funds willing to bet on a new, reformist India, as is already seen by the surge in foreign portfolio inflows. It should not be too difficult for the new government to give a much-needed push to infrastructure development by funds raised by the government through disinvestment, on the one hand and international capital on the other. And increased investment, perhaps together with higher exports to an improving global economy, can break the current logjam and start virtuous circle of growth.
Conflicts about land, water, the environment and labour will remain, and are likely to even grow sharper, because the struggle to appropriate the fruits of development will always remain and because development comes with “creative destruction”.
But the big difference will be that the might of the state will now be squarely with the business lobby. And if the new government is able to implement structural reforms to raise productivity, capital on its part will be willing to give it a very long rope. Once the new government is able to kickstart growth, it will have the resources to paper over the contradictions—as has been done so successfully in China. At least in the next three years, before preparations start for the next elections, Modi will have a a free hand.
Many factors—the economic slowdown, the political ineptitude of the Congress, the social changes in rural India, corporate disenchantment, high inflation and unemployment, ample global liquidity—have all come together at this juncture to present a long-awaited opening to set India more firmly on the path to a modern capitalist economy.
All that is needed is to seize the opportunity.