2018: Will politics dictate economics?
On the face of it, India’s ruling Bharatiya Janata Party (BJP) scored a facile win in the just concluded elections to the assemblies of Gujarat and Himachal Pradesh states.
A closer scrutiny of the verdict, especially in contrast to the build-up which forecast a comfortable win for the BJP, shows the contest in Gujarat was close.
Less charitable critics would dub it a great escape for the BJP, given that the western Indian state is the home turf of Prime Minister Narendra Modi and party president Amit Shah. This may or may not be the case.
The bigger take-away from a post-mortem of the verdict in Gujarat is that one of the key reasons why the BJP struggled was widespread rural distress.
In fact, a report by two colleagues based on their interactions on the ground with locals in the run-up to the poll (http://bit.ly/2A6uEhk) captured the discontent among rural voters.
With 92 of the 182 seats up for grabs, it is a no-brainer that the BJP, the otherwise relentless electoral juggernaut, was nearly stopped in its tracks.
Not surprisingly then, since 18 December, the day the verdict was declared by the Election Commission of India, rural distress has come to occupy centre stage in the lexicon of both politicians (across the aisle) and policy planners.
Not without reason. The agrarian distress (building up since 2009) has only worsened in the backdrop of a less than satisfactory monsoon (with parts of India experiencing drought) and a crash in the prices of some commodities such as pulses and potatoes. The close verdict has put the spotlight on a problem that had been conveniently ignored by politicians of all hues.
Consequently, this circumstance in rural India segue perfectly into the electoral calendar for the next 18 months.
Not only has the countdown begun in earnest for the 17th general election, due in the first half of 2019, political parties are readying for a bruising electoral 2018 in which eight states go to polls.
In four of these states, Rajasthan, Madhya Pradesh, Karnataka and Chhattisgarh, angst over rural distress could potentially tilt the scales.
There is no gainsaying that economic policy, over the next year, will be influenced by the metric of politics.
This is not to suggest that the next Union budget—also the last full-fledged budget of the Modi government; the next, due in February 2019, will be a vote-on-account—will end up as a populist wish-list for the BJP-led National Democratic Alliance (NDA).
Yes, in all likelihood, the focus of the NDA will be on expenditure. But, instead of an across-the-board increase in spending, the emphasis will be on the quality of expenditure.
Given the backdrop of rural distress, spending will focus on addressing the growing woes of rural India—and achieving ongoing big-ticket projects such as ‘electricity for all’.
Very unlikely that this rural stimulus will come at the expense of a fiscal slippage—something this government, to its credit, has assiduously guarded against and been rightfully rewarded by both international rating agencies and foreign portfolio investors. Indeed, finance minister Arun Jaitley will strive for a fine balance.
As Himanshu, a development economist, pointed out in a piece published on 2 January (http://bit.ly/2CDckzk), the rural crisis is actually worsening and measures to address it can no longer be put off.
“Recent estimates of crop sowing released by the agriculture ministry suggest that even rabi (winter crop) sowing may be less than the previous year. As on 29 December, wheat sowing is 1.7 million hectares lower than corresponding estimates for the previous year, which is a decline of 6%. (Similarly) sowing of coarse cereals is lower by 1.1% and of oilseeds is lower by 6.7%,” he wrote.
A tough ask by any measure and particularly in an election year.
To its credit so far, the Modi-led NDA has not shirked tough decisions, regardless of the electoral consequences.
While one can quarrel about the virtues of demonetisation of high-value currencies undertaken in 2016, there is no discounting the political downside risks such a disruptive move entailed (another matter that Modi was able to turn it into a wave for the BJP in the assembly polls of Uttar Pradesh); similarly, the roll-out of the goods and services tax (GST) has contributed to the disquiet, particularly among traders used to dealing in cash and resistant to the idea of switching to a rules-based regime.
Addressing the annual Hindustan Times Leadership summit in November, Modi tacitly admitted to the political risks.
“I know I will have to pay a political price for the steps I have taken. I am ready for it,” he said in the middle of the election campaign.
It will be interesting to see whether, going forward, Modi will hold his nerve as the date for re-election moves closer and the opposition starts getting shriller.
Especially since ‘Candidate Modi’, unlike last time, will be fighting as an incumbent and the opposition will be the un-encumbered challenger.