Surrounded By Sycophants
It’s high time for BJP leaders to speak against cartel around Modi because this coterie is not allowing Prime Minsiter to know grass root report of his schemes and initiatives
Of late, the Bharatiya Janata Party’s top financial minds have begun speaking out in strong words about the precarious state of the Indian economy. They are highly critical of the Narendra Modi government’s failure to act in time to arrest a major economic slowdown despite early warning signals, certain unwarranted economic moves that only worsened the pain and about the government’s reluctance to accept past mistakes and work on concrete remedies. The latest such caution has come from BJP leader and former union finance minister, Yashwant Sinha.
In an op-ed for leading English daily, Sinha minced no words while accusing Union Finance Minister Arun Jaitley for the current mess built up in the economy. Sinha feels “it is his national duty” to speak up now and said that many in the BJP know the state of affairs in the economy but are afraid to speak up “out of fear”.
CRITIC VERSUS BAITERS
Sinha did not elaborate on what are the reasons for the fear though. He has criticized Jaitley for ‘wasting’ the oil bonanza and letting the legacy problems (stalled projects, bank NPAs) persist and even turn worse. He listed certain economic ills such as absence of private investments, return of the “raid raj” and distress in “sector after sector” in the economy. Of course, Sinha isn’t the lone economic critic of the government from the BJP’s own camp. It wasn’t long before BJP MP Subamanian Swamy, also a known academician and an economist, hit out against the government’s economic policies and cautioned that the economy is on a tailspin and corrective measures are in order to avoid a depression.
Similarly, former union minister Arun Shourie too came down heavily on the Modi government saying it is only managing headlines and not the economy. Shourie called ‘demonetization’ — Modi’s biggest economic move — as the greatest blunder in 70 years.
Empirical evidence suggests that all these critics aren’t far off the mark in
their allegations and something must have really pushed them to initiate friendly fire. Multiple economic indicators and trends emerging from different sectors point out a serious economic problem that is difficult to ignore even for hardcore Modi fans. Private investments are lowest in many years, GDP has been falling quarter after quarter and hit 5.7 percent in the June quarter, bank non-performing assets (NPAs) are too high and hence credit growth to industries at multi-year lows, industrial production has plummeted, inflation is inching up limiting room for the Reserve Bank of India (RBI) to cut rates and unemployment is rising posing a big question mark to millions of new entrants to the job market.
The government’s twin back-to-back disruptions — demonetization and rollout of goods and services tax (GST) — have acted adversely to economic recovery. It will take a while before GST revenue streams stabilize and the consequences of demonetization become a distant memory. Even the most optimistic of economists agree that a significant revival in the present economic scenario is unlikely in the near future even if the much-hyped bail-out package is rolled out now.
CAUSE OF WORRY
The government is in a tight spot since any economic stimulus will compromise the hard-won gains of the improvement in fiscal deficit. But, with no pick up in private investment on the horizon, there is no option for the government but to loosen its purse strings. There is no easy way out of the current scenario.
But the biggest cause of worry at this point is that the Modi government continues to be in denial mode of the actual state of the economy and often opts for diversionary tactics to turn attention from the real problems. It was only recently that BJP President Amit Shah said the decline in gross domestic product (GDP) is only “technical” (read here). Shah must remember that technical reasons have only helped to show GDP growth rate in a better shape. As Yashwant Sinha points out in his article, had it been the old methodology of GDP calculation, the growth rate would have shown even lower (by at least 200 bps). Jaitley too makes frequent statements to establish that critics are wrong. This denial is even more dangerous since the first step to solving a problem is to acknowledge it exists.
Even more worrying is Sinha’s comment that many in the ruling party are afraid to speak up openly on the state of the economy, despite knowing the facts. If that is true, this is the most unfortunate thing to happen in a democratically elected government. It reduces the whole affair to the work of a closed group, denying scope for discussions and gaining from collective intelligence. A room for discussions, criticism and dissent is crucial to generate consensus in a democratic set-up. If fear is preventing BJP leaders from speaking up and pinpointing important economic issues, it will be difficult to find newer solutions. Sinha’s caution should be an eye-opener for PM Modi. His government, particularly Arun Jaitley, would do well to stop pretending all is well in the economy and pay attention to informed criticism to seek solutions.
So what, precisely, has been Prime Minister Narendra Modi’s response to
the fact that his mismanagement of the economy has caused growth to slow to alarming proportions? He’s announced a push towards rural electrification, as well as a new economic policy council. What does this reaction say about his politics going forward?
Remember, India has just endured six quarters of slowing growth. Public sector banks are in crisis — a crisis that the Modi government has done too little to fix — and bank lending growth, which sustains investment and overall growth, hit historic lows recently. For a man who spoke at length in 2014 about his ability as a manager, citing Gujarat’s economy as proof, this should have been a wakeup call. No amount of jibes about ‘hard work better than Harvard’ helps disguise the numbers.
Both in the 2014 election campaign and in the years since, Modi has had to balance two narratives. The first is that he is an economic modernizer and reformer. This brought him some members of the middle class and several influential intellectuals. The second is that he is a man of the people, and will provide benefits like 50% returns for farmers. This allowed him to spread his appeal to those sections of the electorate who have not traditionally been BJP voters. It was essential to keep these narratives distinct - the “liberalizers” should be able to look away from promises made to the “populists” and vice versa. Modi was able to do this pretty effectively till Rahul Gandhi’s “suit-boot sarkar” line that had an outsize influence on policy choices thereafter, which tilted decisively towards the “populist” side of thinking, culminating in the populist absurdity that was demonetization.
Now that growth has naturally slowed, as was inevitable, given the policy choices that Modi made, how will he balance these narratives? Can he afford to lose those middle-class voters who might actually conclude that he has done a bad job with the economy?
The government’s actions since the last, worrying set of GDP numbers came out reveal Modi’s thinking. He thinks he can keep his middle-class vote with a few simple gestures; it’s the populist vote that still worries him.
That’s why the big policy push after the growth failure has been the new rural electrification scheme — or perhaps I should say “new” rural electrification scheme, since many are puzzled as to how it differs from the various other optimistic pronouncements that the government has made about electricity since coming to power. Tens of thousands of crores have been promised to this new scheme, though we will have to wait to see for sure if this is actually new spending. But it’s clear that rather than using this opportunity to declare a new push towards the kind of economic changes that would placate his middle-class supporters — who are currently incensed by his high petrol taxes — he has continued to focus, laser-like, on ensuring that rural India stays on his side.
Hasn’t anyone in the middle class noticed that this is not the supposedly city-focused economic moderniser they claimed they were electing? That Modi has governed essentially like the National Advisory Council, except with fewer new ideas and better Power Points?
Apparently not. This is why the PM feels he can satisfy the middle class simply by announcing the formation of an economic advisory council to be headed by Bibek Debroy of the NITI Aayog. This new advisory council has some excellent members — full disclosure, I know and respect many of them — and if the PM actually listens to them, it will be good news. But on the strength of the first immediate signs, there’s no reason to be optimistic. Weigh the announcement of another new scheme for the populists versus a simple council for the liberalizers. It does not look like the liberalizers have suddenly gotten the upper hand, or even that it is now a more equal fight.
The truth is that, as with petrol prices, the Prime Minister is simply unconcerned about the middle class. He does not believe that they have anywhere else to go, any other political home, anyone else to vote for. You cannot trust India’s poor if you’re a politician; they are not as easily conned as the middle class into voting for a party that does not directly speak to their economic interests. Of course, if you’re as gifted a politician as Modi or Amit Shah, you can convince them that something like demonetization is in their economic interests - but in the absence of actual results, you have to keep that sort of sleight-of-hand going at all times. Hence the constant announcements of new schemes and targets and visions: “New India”, announced on August 15, already feels somehow old, and I guarantee it will be replaced by some other platform envisioning a future India in a few months.
But the middle class is a far easier group to deal with. They won’t even need to be conned; just throw a few words, a few phrases, half-promises, even a new and powerless council at them, and they will be happy. You don’t have to convince them; they will convince themselves. Minimum government is just around the corner, surely. Yes, the government is focused on nothing so much as raising more taxes from the middle class in order to fund expenditure, but surely that is so that they can announce Lee Kuan Yew-style policies in their second term? Or the third, or the fourth, or whenever New Vikas Purush Yogi Adityanath takes over in Delhi?
As Yashwant Sinha points out in his article, had it been the old methodology of GDP calculation, the growth rate would have shown even lower (by at least 200 bps). Jaitley too makes frequent statements to establish that critics are wrong. This denial is even more dangerous since the first step to solving a problem is to acknowledge it exists
MAN IN QUESTION: BJP leader Subramanian Swamy and Finance Minister Arun Jaitley ouside Parliament House
FRIEND CUM FOES: Arun Shourie with Senior BJP leader Yashwant Sinha addressing a meeting in New Delhi