Shortly after becoming India’s Prime Minister in 2014, Narendra Modi had declared that his dream was to make India a $20 trillion economy. Economists lauded his ambition then even as they pointed out that the task would be daunting.

Five years later, fresh from a resounding victory at the hustings, Modi came up with a much more modest target: a $5 trillion economy by 2024 (only slightly higher than where the IMF expected India to be at that point). And yet, the reaction from economists was very different, with most expressing scepticism that this target could be achieved.

The tale of the two targets and the reactions to them show the extent to which expectations from the Modi-led administration have been revised since Modi first appeared on India’s political horizon, promising a growth-and-jobs boom unlike one that the country had ever witnessed. Since then, investments have collapsed even as the country’s financial mess has turned into a ceaseless quagmire, taming economic activity and denting job creation. Even the official growth estimates have been on a downward slide for the past five quarters, and economists reckon that the slide continued in the September-ended quarter.

What does the future hold? The ability of Modi and the Bharatiya Janata Party (BJP)-led government to lift growth and create good jobs will depend on the ability of Team Modi to manage a key contradiction in its governance model. The contradiction lies in the two conflicting goals of the ruling party: the desire for fast and sustained economic growth, which is often overwhelmed by the BJP’s desire for fast and sustained political growth.

The spectacular rise of the Bharatiya Janata Party (BJP) over the past few years has been possible because of an extensive broadening of its social base. Shedding the ‘Brahman-Bania’ party tag of yore, the party has successfully wooed voters across the caste and class divide. If the 2014 elections saw the party increase its vote share among poor and marginalized caste groups, the 2019 elections saw a much greater consolidation among these sections. The party raised its vote share across rich and poor constituencies but the gains were higher in the poorer constituencies, the data shows.

Data from successive voter surveys conducted by Lokniti-CSDS also suggest that barring religious minorities, such as Sikhs and Muslims, the BJP has managed to increase its vote-share across social groups.

The widening of the social base has, however, not been without cost. Though the BJP rode to power in 2014 promising ‘minimum government, maximum governance’, once in power, they continued with the welfare schemes of the earlier era even while adding some of their own. There was hardly any attempt at slashing subsidies. Instead, the party put a laser-like focus on mobilizing resources, ostensibly to correct a ‘low’ tax-GDP ratio.

In reality, India does not compare unfavourably with countries at a similar stage of development, as these pages have pointed out earlier.

Yet, the idea that Indians don’t pay enough taxes was widely promoted to lend legitimacy to the Centre’s efforts at appropriating more taxes. The dependence on cesses and surcharges — which aren’t shared with states — went up for the same reason.

It isn’t a coincidence that several major policy initiatives of the Modi administration had one common objective: greater tax mobilisation. Both demonetisation and GST were justified on such grounds. The former failed to boost revenues sustainably while the latter has suffered from design and implementation glitches.

The failures of the revenue-raising ‘reforms’ would have manifested itself in a fiscal hole were it not for the ‘creative’ accounting which the government used to keep the headline fiscal deficit (or net borrowing) figures at a respectable level. Once such adjustments are taken into account, it appears that India has had an unstated fiscal expansion since at least fiscal 2017.

Faced with electoral setbacks in key states ahead of the 2019 Lok Sabha elections, the scale of fiscal expansion only went up, with payments delayed and tax claims jacked up to fill the fiscal hole. The Indian economy is still reeling from the after-effects.

The government seems to have realized, rather belatedly, that antagonizing its key financiers — the top 5 percent of India’s corporate and individual tax-payers who contribute the lion's share of direct taxes — can prove to be counter-productive. After all, the tax-paying elites hold the key to successfully financing the welfare programs on which the BJP’s political expansion is premised. However, despite several years in power, the party still seems to be struggling to find the right balance in its management of the economy. Hence, the incoherence in its policy pronouncements, berating rich tax-payers and investors one day while raising tax rates for them, and appeasing them another day with promises of tax cuts. Such incoherence is in stark contrast to the government's decisiveness on other (political and cultural) matters, as the political scientist Milan Vaishnav notes in a recent Foreign Affairs essay.

The contradiction between the party’s political and economic ambitions may also explain why India’s credit crisis has dragged on for so long, pulling down investments and growth. Around the time Modi first became Prime Minister, a blue-print for banking reforms was prepared by a committee headed by P J Nayak. Implementing the Nayak committee recommendations would have removed banks from ministerial control while allowing bankers to lend more freely, without having to worry about multiple layers of oversight. Yet, undertaking that reform and freeing up banks from ministerial control may have jeopardized the Jan Dhan Yojana (JDY), a key flagship scheme of the Modi administration that aimed to bank the unbanked, and which relied heavily on state-run banks.

It is quite possible that a favourable base effect and the effects of monetary easing lifts India’s economic indicators in the coming quarters. But a sustained boom is unlikely unless the BJP learns to manage the fundamental contradiction between the party’s and the country’s growth.

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