Support for the Narendra Modi government is not what it used to be. The Reserve Bank of India’s (RBI’s) survey of consumer confidence found that in December 2017, 50.7% of those surveyed expected their incomes to increase a year ahead; in September 2014, 63.9% had said they expected their incomes to go up a year later. There are other straws in the wind—farmers and Dalits are restive, while the middle-class mood is reflected in the profusion of jokes about the Prime Minister on WhatsApp messages, a marked change from earlier.
Public memory of the corruption, weakness and the dithering on policy of UPA-II, so reminiscent of the Weimar Republic, seems to be dimming.
And yet, the Modi government has set the stage for ushering in a mature capitalism in the country. The initiatives taken in the last four years will change the face of the Indian economy. Modi’s demonetisation gambit, together with the introduction of the goods and services tax (GST), has dealt a huge blow to petty commodity production and paved the way for an expansion of the formal sector, as gleeful brokerage reports never tire of pointing out. The Insolvency and Bankruptcy Code will lead to a rapid turnaround of stranded assets. The Real Estate (Regulation and Development) Act, or RERA, besides cleaning the Augean stables in the sector, will eliminate the smaller and shadier operators. Extending contract labour to all sectors of the economy will increase “labour flexibility". Environment restrictions and regulations have been whittled down and there has been a massive programme of building infrastructure.
Consider the changes on the macro front, such as the decision to bring in an inflation targeting regime at RBI, bringing down inflation, keeping the fiscal deficit in check, laying down the red carpet for foreign direct investment (FDI).
In politics, Modi has taken steps to transform India into a hard state, emulating the East Asian model. Not all his policies are working, of course, but it isn’t for want of trying. No wonder foreign investors are all praise for him.
All this is underpinned by the ruling party’s ideology, which aims to restore the lost glories of Hindu India, but is, at the same time, a modernizing rather than a conservative movement. Their use of religion and chauvinism has been a potent weapon of mass mobilization. It’s a way of papering over the cracks in a society riven by the fissures of caste, class, language and culture. It’s a great way to sell capitalism to the masses.
Why then the recent doubts? One, the party has had to make several populist concessions, such as loan waivers. The uneasiness is underlined by utterances such as those of RSS chief Mohan Bhagwat, who last year made the mystifying statement that only India could rescue the world from the clutches of capitalism. But this is rhetoric—governments today have little choice but to put in place the policies that will make them attractive to global capital. A strong economy is, after all, essential for Bhagwat’s vision of a strong Hindu Rashtra.
The recent sops have been doled out solely on electoral considerations. Recall that Modi used to have nothing but ridicule for the national employment guarantee programme. Experts say his promise of higher minimum support prices for farms may not translate into major gains for farmers. And note that his ambitious Modicare scheme has private sector participation.
The main problem is the reforms being undertaken have a short-term cost. GST, for instance, has caused a lot of disruption. Cleaning up the banks is proving to be a Herculean task and it could lead to more caution on lending, affecting smaller businesses. The spate of scams in banks hasn’t helped. The bankruptcy code, like GST, is a messy work-in-progress. The informal economy has been badly hit.
True, finding decent jobs for people moving away from unviable farming is a huge challenge, but it’s one common to Third World countries and has led to what Mike Davis calls a “Planet of Slums". The global landscape is fraught with risk, with rumblings of trade wars and lower liquidity in the markets.
On the other hand, the economy has turned the corner, investment demand is picking up and company bottom lines are growing fatter, which should encourage job growth.
But these are transient issues. It is far more important to realize that the Modi government is a fundamental break with the past. Its aim is a radical right-wing revolution—in the economy, in society, in culture. The current disruptions are a symptom of that revolution.
Manas Chakravarty looks at trends and issues in the financial markets. Respond to this column at firstname.lastname@example.org