FOR ECONOMIC STABILITY, MORE DRAVID, LESS SEHWAG
Over the last couple of years, the NDA government has adopted a break and rebuild approach to the Indian economy. Its favourite tools have been a wrecking ball and hammer. At no point has it shied away from inflicting serious near-term pain if it came in the way of radical overhaul of existing economic constructs. The merits and demerits of such an approach can be debated, but what is clear is that there have been consequences.
Large sections of the population have struggled under the weight of policies such as demonetisation, the real estate regulation act (RERA) and the initial GST format. While this has not triggered any adverse electoral fall out yet, there are murmurs of discontent. The prime minister’s recent conciliatory, even defensive tone, suggests he is aware of these murmurs. Politically savvy as he is, he would also know that this simmering unrest comes at an inopportune time — right at the onset of an election season. Over the next 15 months, a series of important state elections lead up to the Lok Sabha polls of 2019, and political realities are now forcing a change of tack. The people of India need to feel good again.
First, came the farm loan waivers in Uttar Pradesh, Maharashtra and Rajasthan. Then, under mounting pressure on soaring fuel prices, the excise cuts on petrol and diesel. A substantial increase of 7% in the Minimum Support Price (MSP) of wheat — the highest in six years, is on its way. A mammoth bailout package of over Rs 2 lakh-crore has been announced for ailing public sector banks, with the aim of lowering stress for the struggling SME and agricultural sectors. On the GST, after being in denial, the recent move to reduce rates on 178 items is a clear attempt to placate irate traders and businessmen before the Gujarat polls. These are all crucial electoral constituencies that cannot be further alienated, even for the sake of potential long-term gains. After demonetisation the BJP may have won UP, but there is a tipping point to the patience of ordinary voters which the prime minister would not want to put to test.
This could, thus, be the blueprint of economic policy-making for the next year or so. Good, old-fashioned populism is back in vogue. Why tamper with a time-tested election trick, after all? The government’s focus will now turn to reviving near-term growth and pushing economic benefits down to the less affluent sections of the population. The NREGA disbursals may go up, more farm loan waivers may follow and steps taken to mollify the aggrieved small business community. The grand last gesture could be a Universal Basic Income project, sometime in 2018.
Having failed in its mission to generate enough jobs through economic growth, to buy time, the government will now have to turn to welfare economics. And while it does that, it will also want to be seen as the champion of the poor and not the wealthy. It would not be surprising to see a few anti-rich taxes next year, which in reality would only fund the gaps left in the government’s coffers by these populist moves, yet portrayed as further evidence of the government’s good intentions.
While this could justifiably lead to cynicism about how the government, having publicly denounced such populist strategies when it swept into power, is reverting to the very same — it may be a good thing for the economy. We cannot afford any more adventurism at this juncture. Our best course lies in letting the economy stabilise and slip into sync with the pronounced cyclical upturn that the global economy is witnessing. To borrow a cricketing metaphor — more Rahul Dravid, less Virender Sehwag.
HAVING FAILED IN ITS MISSION TO GENERATE ENOUGH JOBS THROUGH ECONOMIC GROWTH, THE GOVERNMENT WILL NOW HAVE TO TURN TO WELFARE ECONOMICS