For 2019, the BJP is in an unenviable position
After the assembly 2018 results, the party is in a situation where neither voters nor markets are very pleased with it
That rural distress would be a big headwind for the Bharatiya Janata Party’s (BJP) political fortunes was evident in the 2017 assembly elections in Gujarat. The Congress actually won a majority (67 out of 126) of rural seats in the state. The results of Rajasthan, Madhya Pradesh and Chhattisgarh in 2018 have further strengthened this narrative. These three states are predominantly agrarian, with the share of agriculture in GDP and total workforce in agriculture being higher than the allIndia average.
The Congress has won back Rajasthan in keeping with the state’s trend of alternating between the Congress and the BJP. It has got an unprecedented (almost three-fourths) majority in Chhattisgarh and has edged out the BJP in Madhya Pradesh. Once again, the Congress has outperformed the BJP in rural seats. An analysis by Ashoka University’s Neelanjan Sircar in these pages shows that the BJP’S strike rate in the three Hindi belt states actually goes down as the share of cultivators and agricultural labourers increases.
There is not much the Narendra Modi government can do to counter rural anger before the 2019 elections. It did announce significant, although not unprecedented, hikes in Minimum Support Prices (MSPS). But these have failed to boost farm prices and hence incomes. The GDP data for the September quarter showed that nominal growth in the agriculture sector was lower than the real growth. This suggests that farm prices have actually gone down. Recent reports of a crash in prices of crops such as onions and garlic suggest that this trend is continuing.
These are not fluke developments. India adopted inflation targeting as the anchor of its monetary policy under the present government. Demonetisation and the implementation of the Goods and Services Tax (GST) were a big disruption for the informal sector including agriculture. The government expected a fiscal windfall from demonetisation, which could have allowed it to significantly increase welfare expenditure or investments. This did not happen. The benefits of GST were anyway expected to accrue in the long-term. Its costs however have manifested themselves in the short run.
The short point is that the Modi government placed its economic bets outside agriculture. Promises of generating 20 million jobs per year, pitching Make in India as the flagship initiative of the government etc all point to this. While there are no conclusive numbers on job-creation under this government, it can be said with a reasonable degree of confidence that employment-generation has been anything but extraordinary.
The 7%-plus growth rate of the GDP has prevented a massive anger against the BJP in urban India, but the government is unlikely to push a convincing economic narrative as part of its re-election pitch in 2019 even in urban India.
There is another factor which could add to the BJP’S problems. In its eagerness to provide some sort of a last-minute stimulus to the economy before the Lok Sabha polls, the government seems to have triggered a crisis at the Reserve Bank of India (RBI). The government has been demanding that RBI transfer an additional amount of its corpus funds to it and does not impose restrictions on lending of public sector banks with stressed balance sheets. Governor Urjit Patel’s resignation is a strong indication that there was no amicable resolution to this debate. Given the fact that the government has appointed one of its former bureaucrats in the finance ministry as the new RBI governor, it is likely to push its agenda in the forthcoming board meeting. Such an attempt is bound to spook financial investors both in India and abroad. This could trigger a potential crisis in the currency and capital markets. Any such development will damage the pro-reform credentials of the present government, which it had sought to champion through the slogan of Minimum Government, Maximum Governance.
As it prepares for 2019, the BJP is in an unenviable position where neither voters nor markets are very pleased with it.