Parsa Venkateshwar Rao Jr is a Delhi-based journalist, who’s worked with Indian Express in multiple editions, and with DNA in Delhi. He has also written for Deccan Herald, Times of India, Gulf News (Dubai), Daily Star (Beirut) and Today (Singapore). He is now Senior Editor with Parliamentarian
It would be nice to say clearly as to who the winner in the ongoing Lok Sabha election would be. But the excitement lies in the uncertainty. Even an expansive Prime Minister Narendra Modi held himself back from saying the first thing he would do if he wins the election. He was, of course, certain that he would win but he felt that it was not right to declare beforehand his victory. The anti-Modi side is busy fighting the election and they cannot say what they would do if Lady Fortune smiles on them.
The new government would not, however, be thinking of facing the challenges confronting the country – economic and political. Not immediately. Even not at all. The challenges can wait. The politicians would want to make the most of the victory. They want to celebrate the victory. They want to trumpet that they are the victors.
We have to consider two scenarios, one a victory of Prime Minister Modi for a second time and how he would celebrate; the second the victory of the anti-Modi/anti-BJP parties who would go into a huddle to choose the prime minister, and who would then claim victory over the right-wing BJP as the victory of good or evil.
In May 2014, Mr Modi took everyone by surprise by inviting all the heads of state and government to his swearing-in ceremony on May 26, 2014. Mr Modi and the BJP were feeling expansive in their moment of victory. So he reached out to the South Asian Association of Regional Cooperation (Saarc) neighbourhood. It is unlikely that Mr Modi will repeat that gesture. But he would be planning something grandiose for his second swearing-in ceremony this May.
But what about the economic challenges? Even in 2014, he did not sit down to look at the state of the economy and finding relevant responses. The euphoria of his victory was such that it spread to the markets as well, and the BJP leaders proclaimed in the first six months after victory that the Indian economy has bounced back from the market lows of 2013 because the coming to power of Mr Modi and the BJP has restored the confidence of the markets. Two other developments took place. The international crude oil prices nosedived, and there was an increase in foreign funds flows into the Indian market. Modi government had used these two initial advantages to bolster its image and nothing more. The focus of the government was in bringing about ‘big changes’ and not be confined to smaller matters like quarterly and annual growth rates. But the big plans were quite vague and they did not become the stimulus factors that they were expected to be.
In 2019, Mr Modi and his government will not be in a hurry to attend to the pressing problems of the economy. He will spend more time on working out some big announcements for the economy as he did in the first six months after he took over as prime minister for the first time. It will be interesting to see whether PM Modi would press forward the big ticket social and economic changes that he had begun in first term in office like the Swachh Bharat Mission, Start Up India, Skill India and Make in India, or he would announce many more new schemes based on his own vision of a powerful and prosperous India.
The first decision that Mr Modi’s cabinet took in May 2014 was to set up a Special Investigation Team (SIT) to probe the foreign bank accounts of Indians, much of which was considered to be a tax-evasion tactic. Mr Modi had declared war on black money by setting up the SIT. So, what is the dramatic thing that PM Modi would want to do at the beginning of his second term? He may want to transfer the Rs 6000 that he had promised to the farmers into their accounts. He would ask all the public sector banks to work out the modality. He is most likely to harp on his dream of New India by 2022, the 75th year of India’s independence. Dramatic policy and welfare package announcements should be expected from Mr Modi this time too, and he may keep the best part of the announcements to his Independence Day speech on August 15. It would be quite different in case of the anti-Modi and anti-BJP coalition coming to power. Apart from a long drawn out haggling for the post of the prime minister, and ministerial berths, time would be spent on hammering out a common minimum programme among the disparate parties arrayed against Mr Modi and the BJP. In the first few months, the anti-Modi, anti-BJP coalition would announce a huge relief package for distressed farmers across the country.
It is indeed the case that the real problems of the economy are not a point of reference to the political leaders. They bring in their own rhetorical and utopian vision and pursue it because the day-to-day workings of the economy would continue because the systemic momentum sustains it. But the best economic policies will be affected by the state of the economy in general. That is why, it becomes crucial to pay attention to what economy’s watchdogs are saying.
But whichever political coalition that will take over office in the last week of May will face this paradoxical situation: India economy will remain the fastest growing economy despite scaling down the rate from 7.2 per cent to 7 per cent according to the second advance estimates released by the Central Statistics Office (CSO) in February, even as the global growth rate will be 3.7 per cent in 2019 and 3.5 per cent in 2020. The relatively slow growth rate in China compared to that of India is because of the slowdown in the global economy, and this, in turn, will affect the global growth rate. India’s faster growth rate remains a local phenomenon and it is unlikely to give a push to the global economy. This is indeed a complicated situation, and no party has time to pay attention in the hustle-bustle and the heat and dust of election. But once the election is done and the results are announced, the irritating reality comes back to haunt political leaders, especially those who are in government. So, the victors in this election have a tough task ahead of them and the euphoria of victory may not be enough to formulate the responses to the economic challenge that awaits the new prime minister and the new finance minister.
The performance of the economy in Quarter 2 and 3 of 2018-19 is not too bright, but it need not be a dampener because the situation in Quarter 1 of 2020-21 might be different. There are some alarm signals in the second and third quarters as indicated in the Reserve Bank of India’s monthly report of April 2019 released on April 11. It says, “Domestic economic activity decelerated for the third consecutive quarter in Q3: 2018-19 due to a slowdown in consumption, both public and private.”
Meanwhile, the International Monetary Fund (IMF) has in its World Economic Outlook April 2019 is trying to show things as they are. In the foreword, Gita Gopinath, who is the IMF’s Economic Counsellor, states the case in plain terms. The world economic growth peaked at 4 per cent in 2017, fell to 3.6 per cent in 2018 and it is expected to fall to 3.3 per cent in 2019. The second half of 2019 could improve and the world growth rate could return to 3.6 per cent in 2020.
Gopinath points out that there are economic challenges which could dampen long-term prospects. She has identified rising inequality, weakening investment and rising protectionism in the trade as the main challenge to continued growth. There is an indication that Mr Modi is not really concerned about the issue of inequality because many right-wing Indian economists argue that removal of poverty is more important than reducing inequality. Mr Modi would want to attack poverty. There is confusion among the liberal and leftist economists about the issue of inequality. They believe there is a linkage between inequality and poverty, and that it is necessary to reduce inequality as a way of removing poverty. So, the non-Modi coalition’s prime minister will do many things to remove poverty while raging against growing inequality.
What Mr Modi or his rivals cannot handle is weakening investment because rhetoric is not of much help in this matter. Mr Modi and the BJP are thrilled that India attracts foreign investments though in the last five years, the impact of foreign investments on growth rates has not been established. The anti-Modi, non-Modi prime minister would want more foreign investments without realizing that the climate of investments itself has not been good. So, it is an issue that falls beyond their ken.
The issue of protectionism in trade is both an economic and political challenge. Mr Modi, like many right-wing politicians, is caught in a cleft of his own making. He would want a free trade arrangement as long as India enjoys the trade advantage. But it is not a popular issue when other countries are benefiting at the price of India. Mr Modi wants to expand India’s exports but he maintains strategic silence over the issue of rising imports. His Make in India project encourages exports, which is good, but it discourages imports which would mean that the Indian consumer will not have access to goods of his choice. This is indeed a tricky business.
The non-BJP, non-Modi prime minister would want to increase exports, minimize imports and maintain surplus trade balance, something that China has done over the last 40 years. But she would not how to do the rope trick of raising exports and keeping down imports.
These are economic challenges. But there are political challenges as well. It is argued that even if Mr Modi manages to return as prime minister for a second term, he would have to pay greater attention to political allies and smaller parties. The expectation is that the BJP would lose at least 100 seats compared to 2014 tally of 283 though it would remain the single largest party. That makes political management a difficult affair which requires diplomatic skills which Mr Modi does not possess, even according to his admirers.
Then there is the other issue about reservations in jobs, both for the Scheduled Castes, Scheduled Tribes, Other Backward Classes (OBCs), and now the economically weaker sections. There is the issue of the status of religious minorities, and the BJP and Mr Modi have not been much too comfortable with the idea of entertaining the identity claims of these religious minorities. Social harmony is a prerequisite for economic development and growth. So, Mr Modi has to come to terms with the reality of religious minorities.
The non-Modi prime minister might appear to be in the comfort zone in the matter of social harmony. But here too, the prime minister of a non-Modi hue has to deal with the challenge of settling competing claims.
The economic, political and social challenges that a newly-elected government would face post-May 23 may not be unique because they recur time and again because of India’s uneven development story. But the test of leadership lies in the quality of the response made by politicians.