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”.


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.


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

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