Alam Srinivas is a business journalist with nearly three decades behind him, working for The Times of India, India Today, Outlook, Financial Express and Business Today. He is the author of “Cricket Czars: Two Men who Changed the Gentleman’s Game”
May 2014: It seemed the end of politics for the next four years. Narendra Modi single-handedly got the BJP a majority in the Lok Sabha. There was a saffron wave that would gain momentum and enable the party to capture more state assemblies in the near future. Apart from a few states, the signs of BJP resurgence were there on most political walls across the country. It was an opportune time to focus on economics, including social welfare.
January 2019: It never happened. It turned out to be a nightmare. The more Modi focussed on economics, the more politics dragged him away. Like the several crises in the economy, there seemed to be un-surmountable ones on the political front. The politics of Modi, and his never-ending and ever-stretching political goals, impacted the economy. The report card is dismal, and there are red marks across the page, against several subjects.
The five-year term began earnestly. The economy seemed derailed, growth had stuttered, unemployment was on the rise, and central finances were in disarray. But there was a bright sky on the horizon.
Inflation was low, prices of commodities, especially crude oil, were at the lowest, and there was visible excitement within the different classes, including the business community. It was a time to march, and the pot of economic gold was around the corner.
Sadly, the blunders began within a month – with the first Budget that Finance Minister Arun Jaitley presented in June 2014. That set a trend of economic mistakes, which were only bolstered by the looming political disasters, as politics dominated economics. By 2016, even earlier, in 2015, it was clear that the timing was out, the cylinders and bores were not aligned. Ultimately, as was the case in 2013-14, politics triumphed over economics. Economic policy was dictated by political objectives. Even when it wasn’t, it seemed so because of the political fallouts. The action-reaction mechanism went into a loop, a kind of feedback mechanism. The cause-and-effect was out of sync; the cause became the effect, and vice versa. As the saying goes, when the finger pointed at the moon, Modi and Jaitley, along with the BJP loyalists and sympathisers, looked intently at the finger. There were many good policies that seemed necessary. The problem lay with the changing politics, both at the central and states levels, which influenced their contours and implementation. The Benami Transaction Act was used more for political vendetta against opposition leaders. So were IT and the GST to target business supporters of political parties.
Together, they proved that several decisions were not thought through, along with a realisation that they frightened the honest, and didn’t matter to the dishonest.
The more the government tried to change things, the more they remained the same. In some cases, both the trends showed. They led to criticism, as well as frequent changes, which undermined the credibility of the policymakers. In other cases, perfectly-sensible policies were used for personal vendetta as revenge against political enemies, either to scuttle them or force them to fall in line to support the BJP or work against its other foes.
The end result was chaos, confusion, frustration, and even anger. The economy faltered. This was reflected in the relationship between politics and Budgets.
Political euphoria after an unexpected and grand victory ensured that Jaitley’s first Budget was a washout. Arrogance and extreme self-confidence within, along with the pressures from the quarters that helped, forced the finance minister to deliver a part of the promised booties to vested interests. Hence, there was something for every section that voted for the BJP. It was neither here nor there, although a few policies were announced. Before the government could present its second Budget, there was a political shock. Despite personal campaigning by Modi, who announced that if he was a ‘lucky’ prime minister, the voters should elect his party, the BJP was swamped in the Delhi assembly election. Arvind Kejriwal, the new political star got over 95 per cent of the seats.
There was a tornado within the BJP. From then on, one of the priorities was to decimate Kejriwal, by hook or by crook. More importantly, the BJP realised that its juggernaut won’t necessarily hurtle through the states. And this was crucial because while the party had a majority in the Lower House, it was way short of the half-way figure in the Rajya Sabha. The ‘Congress-mukt’ philosophy became essential if the numbers had to swell up in the Upper House to push through the critical legislation. Hence, Kejriwal’s win forced the BJP to focus more on the states.
The scenario became scarier with the Mahagathbandhan. When several opposition parties joined hands in the Bihar assembly elections in late 2015, the BJP lost. Nitish came back to power, after he ditched the central ruling regime.
Politics became even more important for Modi. Now, he and his loyalists had to ensure that there was no political ganging-up against them. They had to make sure that the opposition stayed disunited.
From then on, politics became more important than economics. The year 2016 only concretised this realisation when Mamata Banerjee and Jayalalithaa retained powers in West Bengal and Tamil Nadu, respectively. Politics was now the top priority for the prime minister. Hence, economic decisions were dictated by their political implications. This was reflected in the announcements made in the subsequent Budgets.
Beginning 2016, the Budgets were geared towards the creation of new vote banks, and consolidation of the old ones. Welfare schemes too were aimed to broad-base BJP’s voters’ base. The party’s and the government’s overriding focus was on how to win the forthcoming assembly elections, with an eye clearly on 2019, the year of the national election.
Economics became a means to achieve electoral victories, not for growth, not for development, and not to reduce corruption, the three most important election promises in 2014.
Sure enough, the same was true for Budget decisions. Two of the most crucial ones were demonetisation, and the Goods and Services Tax (GST). Whatever the government claimed, and it changed its narrative several times, the ban on the older Rs 1,000 and Rs 500 notes wasn’t for economic and security reasons. It was neither to curb the expanse of black money, nor to dry up the cash funds with terror organisations. Subsequent events proved this.
Almost all the cash in circulation via the old high denomination notes was deposited with the banks. It seemed as if there was no black money around. Similarly, terror activities continued as usual. In fact, the government possibly fuelled the black economy by introduction of even higher denomination, the Rs 2,000 note.
The cash in circulation, according to the RBI, has reached, and even surpassed, the pre-demonetisation level. In retrospect, the only objective behind the move was to squeeze the money bags of some of the regional political parties with an eye on the Uttar Pradesh (UP) assembly elections.
Demonetisation was announced in November 2016. The UP results were announced in March 2017. The BJP rightly assumed that some of its fiercest competitors in the state had access to huge money bags. Those purses had to disappear as Modi badly wanted to win UP.
They did. The BJP won majestically. Demonetisation proved to be the key to dismantle the dominance of Samajwadi Party and Bahujan Samaj Party. In the run-up to the assembly election, the BSP was predicted to sweep initially, and later the SP was believed to romp back to power. In the end, the BJP won an unbelievable over 300 seats. It convinced Modi that economics, apart from usual politics, could result in unexpected electoral victories.
Growth was hit because of demonetisation. The unorganised and unregulated sectors felt the heaviest blows. In a bid to revive the economy, and make it more transparent, the government pushed through the GST. Here too, the main objective was to gain political brownie points, i.e. to woo the voters in the upcoming elections. Hence, GST, which was introduced in June 2017, turned out to be an immediate disaster.
Implemented in a hurry, GST’s initial proposals hurt the small and medium enterprises. The only segment it benefitted was the large industries and prominent business empires. The traders were hit the worst, as a single tax was now levied on consumption, and not on production.
The concept of a single tax went for a six due to several different rates. There was a virtual revolt among the self-employed and poor traders. Over the next year, the government had to change the policy several times, including the levied taxation rates. But it neither stopped corruption, nor even curtailed it. After the initial hiccups, it was business as usual for the dishonest businessmen. However, thanks to the frequent changes, the BJP won the Gujarat assembly in late 2017. It convinced Modi that the criticism against GST will not harm the party’s electoral successes.
Since the policies were used to reap political benefits, they were not implemented properly. This was true of several welfare schemes. In the case of the construction of toilets, and opening bank accounts for the poor, statistics were the key. Numbers were important, not whether the toilets and accounts were used. Targets were everything, although there was little activity in the new accounts, and toilets went unused because of lack of water.
Crop insurance for farmers was an ideal policy. But the money hardly reached the needy. Suicides among the agriculturalists remained high. The doubling of the minimum support prices (MSPs) for several crops was laudable. This was to double farm incomes in a few years. Alas, the farmers never received the MSPs, as they generally couldn’t wait to sell to the government, or the government wouldn’t buy beyond certain limits.
To woo rural women voters, the government gave them subsidised gas stoves and LPG cylinders. It was highlighted as a great boon to the women, who used wood and charcoal as fuel. But this too wasn’t thought through. Suddenly, the rural households, now used to LPG, realised that they had to buy non-subsidised cylinders at the expensive market prices. Most couldn’t afford them. The families found themselves in a lurch.
Modi couldn’t have done a lot in terms of economics at this late stage. The reason was that the economic tide had turned against him. Luck gave away to misfortune as global commodity prices, including crude oil, rose ominously. Growth sputtered back to normal levels but wasn’t as high as in the pre-Modi era. Businessmen were cagey to invest; the banks were apprehensive to lend given the ever-growing bad loans, and banking scandals.
By 2018, after a tough victory in Gujarat, politics was paramount, and economics took the seat at the extreme back. The reason: BJP desperately wanted to win the three important assemblies in Rajasthan, Madhya Pradesh, and Chhattisgarh. Unfortunately, by then, for the voters, the economics became more important than Modi’s politics. They were tired of low growth, higher fuel prices and growing unemployment.
The BJP lost all the three states to the Congress, whose revival in north India was written off a couple of years earlier. Politics then triumphed over economics, with the national election just a few months away.
It’s now back to full-time politics for the BJP and its government.