How is India's economy shaping its politics?

Atul Ranjan

The abysmal rate of growth during the last years of the United Progressive Alliance (UPA) government’s decade-long rule was key in bringing the curtains down on its regime and propelling the NDA (National Democratic Alliance) to power. The promise of 'achhe din' was too lucrative a deal for a young and aspiring India to not fall for. Positivity and optimism rode high in the initial years. Seven years on, with another victory jewel gracing NDA's crown, the high hopes surrounding the economy have not only been humbled but decimated. On the government’s part, 'the worst is over’ (for the Indian economy) has been an incredibly consistent response over the years even though this very consistency reflects harshly on the unimproved state of affairs. For a majority of Indians, sustaining their livelihood has propped up as the biggest challenge.

A woman in UP receives free ration under PMGKAY Credits: PTI

Consider the highly marketed Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) under which the Government of India (GoI) has been distributing food grains for free to 80 crore people, for over a year now and will be doing so until March of next year. The very fact that 80 crore constituents out of 1.3 billion are apparently dependent upon free ration is a telling-tale of the prevailing scenario in which they languish. Take this sample from two 'model' states, in which 15 out of 23 crore people in the poverty-stricken Uttar Pradesh are receiving free ration. Almost 3.5 Cr Gujaratis (i.e, 50%) of a total of seven crore are looking to their nearest Public Distribution System (PDS) outlet to avail these benefits. Notably, this is in addition to the usually subsidized ration sold under National Food Security Act (NFSA). This state of affairs is a striking reminder of the 1960s era when the country was seen as a helpless 'ship-to-mouth' state relying greatly upon imports to feed its hungry, but burgeoning, population. (One obvious difference is that these are no more scarcity, but surplus days.)

A pertinent question arising is, was barely securing survival through a 'hand-to-mouth' food programme what an aspirational India voted for, or was there much more to it?

How did we reach here?
Though contested, India recorded an impressive growth rate of 8.3% in FY 2017-18. The July-September quarter that year (as per the overhauled GDP assessment parameters) clocked a growth rate of 9.7% before the disastrous demonetization was imposed. Reeling under the catastrophe of the cash crunch, Micro, Small and Medium Enterprises (MSMEs) found themselves pushed into an unsustainable situation when an ill-designed and ill-implemented Goods and Services Tax (GST) was thrust upon the market just months after the previous shocker.

Overnight banning of 86% of currency rocked the market Credits: Quartz

Since then, the economy has been struggling to overcome the double whammy and was finally pierced by a death knell in the form of the Covid-19 induced lockdowns in two consecutive years. Though there's a clear attempt from the ruling dispensation to deflect the entire blame on the pandemic, facts don’t absolve the government of its share of the blame. Economic parameters like unemployment, manufacturing, consumer data etc. all counter the attempts of painting a rosy picture which 'eventually was ravaged by Covid'.

A scoop by Somesh Jha of Business Standard, months prior to parliamentary polls of 2019, revealed that consumer spending had fallen for the first time in four decades. The National Sample Survey (NSS) conducted the survey in 2017-18. In the same year, the country also recorded its ugliest unemployment numbers of the last 45 years. All this corroborated the build-up to the depressing final GDP numbers of the FY 2019-20 ( a 4.0 %).

Lack of demand for goods and joblessness erected a vicious cycle that had already gripped the economy much before the lockdowns came into the picture and further exacerbated things.

Where do things stand today?
Hit hard by the onslaught of the pandemic, India's GDP shrank in the concluded financial year. An absolute loss of 7.3% of existing Gross Domestic Product in the Financial Year 2020-21. A near to absolute shutdown in the economic activities owing to the lockdown put the financial health of the country on the ventilator.

According to a study by the Azim Premji University, at least 230 million Indians were pushed to the brink of poverty, and thereby, not being able to earn even a meagre sum of rupees 375/day. This has resulted in the reversal of the hard-earned trend of a gradual reduction in poverty. Had the pandemic not hit the deck, India was set to lift 5 crore individuals out of the clutches of poverty. On the contrary, extreme poverty in rural India increased by 15 percentage points whereas that in urban areas shot up by an upsetting 20%, the study reveals.

Unemployment numbers, though wiggling, stands at a whopping 8% in a 30-day moving average (MVG) as per the latest released numbers by the Centre for Monitoring Indian Economy (CMIE). In fact, the month of August saw a mind-boggling loss of employment of 1.9 million jobs, as per the CMIE.

Countrywide lockdown brought the economy to a grinding halt Credits: India Today

Stung by job losses and salary cuts, millennials are latching on to any kind of menial job irrespective of it being incommensurate to their professional acumen. The larger downfall has also pushed family finances into the doldrums. The ratio of household bank deposits has been on a continuous downward spiral. At the same time, the household debt-to-GDP ratio has been spurring superficially since the closure of FY 2018-19 and 'rose sharply' to 37.9% in the December of 2020, as per the latest available data from RBI.

Clearly, the odds are stacked up against any immediate fate reversal for the Indian economy. Amidst this mess, the response of the ruling regime to aid the economy has been inadequate.

In the face of crisis
In the face of this mammoth crisis brewing for the last few years, the government's approach has been conservative and inward-looking to a considerable extent.

The union government has avoided addressing the nemesis of the problem which happens to be the dying demand in the consumer market (as elaborated earlier). Instead, the government's intervention has heralded around smoothing the supply side (read corporates) while doing little to stimulate the demand. The opposition, mainly Rahul Gandhi, and experts have maintained for a while that giving direct cash handouts to the needy can fetch instant results.

To its credit, with the economy being tamed comprehensively by the Covid onslaught, the government was seen in action last year. A slew of mini-budgets (which more or less nullified the annual budget) attempted to ease things on the regulatory side. However, what really mattered was a massive financial boost to the struggling sectors. Rather the government chose to beat around the bush and focussed mainly on easing credit accessibility. Announced in May last year, a 20 lakh crore package euphoria when decluttered relegates to nothing more than a loan-mela, which in colloquial terms amounts to asking one to take another loan to repay the loan he/she has been defaulting on.

Commentators understand that the Modi government’s inhibition is largely driven by a potential situation where fiscal deficit spirals, leading to credit rating agencies reflecting harshly on India and probably hampering future investments. This has held back the government from loosening its purse. However, experts are firm that the need of the hour is to spend more and more rather than being worried about ratings. "The government's actions in controlling expenses during a crisis and imposing austerity measures remain inexplicable", comments CMIE.

While the government's decision to slash corporate taxes attracted praise from almost all quarters, the one anticipated fear has more or less come true. In the face of subdued demand, the incentive for corporates to enthuse more capital into the existing, or say a new venture, is little. Resultantly, while the masses have lost livelihoods, the big corporations have clinched high profits even while embattling the unsparing tide of Covid-19 and its collateral consequences. This outrageous development smacks of a 'K' - shaped recovery of the Indian economy where the rich are growing richer and poor even poorer.

When the economic scenario worsens, collective experience suggests anti-globalisation and populism takes the lead. Something as recent as the 2008 global financial crisis brought several populist leaders to power in the following years. India, too, as its response to the ongoing global crisis, appears to be flirting with economic conservatism.

First, it disassociated itself with RCEP (Regional Comprehensive Economic Partnership) - a comprehensive Free Trade Agreement idea floated by ASEAN and other nations including India - citing 'unaddressed concerns'. In August this year, the trade deal with the United States too was put on the back burner after a prolonged discussion among the two parties failed to build consensus.

On the other hand, a 70s-like license-permit raj rebranded as ‘Aatmanirbhar Bharat’ is the self-chartered way forward for the Modi dispensation. Calling for 'self-reliance' isn't a new concept even to India's own political-economic history. However, the lesson of such populist tactics falling flat seems to have been overridden by political compulsions.

The quota genie
The fallout of a dilapidated economy is many. And the obvious fallouts are in return playing a role in shaping the Indian political economy itself. The obvious resource crunch the country is staring at has exposed it to growing clamours of different communities asking for reservations to secure their share of the pie.

Pointedly, politically dominant communities are the ones taking to the streets. Marathas in Maharashtra, Jats of Haryana (2016), Patidars or Patels in Gujarat (2015) have time and again steered protests to voice their demands. The powerful Vokkaliga community in the state of Karnataka, too, has joined the chorus along with other smaller castes and subcastes to increase the percentage of reservations meant for them.

Jat reservation stir took a violent turn in 2016 Credits: Indian Express

At times these protests have undermined the law and order too, hinting at the depth of resentment. Over 30 people were killed apart from damages to public property worth crores in the 'jat andolan' of 2016. Fearing electoral wrath, few state governments have lately surrendered themselves to such demands. However, faring loosely on the test of constitutionality, these (amendments/introduction to/of laws) have collapsed in the court of law. Recently, on May 5 2021, the Supreme court scrapped a separate quota in jobs and education for Marathas.

Judicial oversight, though, needn't reflect the growing sentiments of the people to support such demands. A similar manifestation of the job crisis is the soaring consensus among the masses pertaining to ‘safeguarding’ opportunities for the 'sons-of-the-soil'. A survey by CSDS-Lokniti in 2017 revealed that almost two-thirds of youth agree with the idea of a job quota for locals.

In desperate attempts to tap on these growing populist impulses, several state governments have lately stamped laws mandating domicile based preferential treatment in an already shrinking job market. Over the years, the likes of Haryana, Andhra Pradesh, Maharashtra, Rajasthan and Madhya Pradesh have come up with new laws mandating private employers to reserve a big percentage of their total hiring for locals. Karnataka too has passed several similar provisions though not adequately strong to ensure compliance. The most recent addition to the list is the industrial state of Jharkhand. To make it clear and simple, almost all of these laws seek to secure jobs (varying from 65-80%) having a remunerating pay of rupees 30-50K per month. As I write this, Delhi centric Aam Aadmi Party (AAP) has also joined the bandwagon by promising an 80% job quota to locals in Uttarakhand, if voted to power.

Clearly, economic sub-nationalism is emerging as the most sought after tool to quell dissatisfaction and also 'address' the aspirations of youth.

Writings on the wall
In the light of the above, anti-immigrant sentiments are bound to rise, thereby putting to test the spirit of cooperative federalism in the constitutionally envisaged Union of India. This is on top of the already-stretched relationship between the Union government and various (opposition ruled) states. Apart from usual political contentions, tensions surrounding state finances as well as never-ending GST dues has stretched the ties between states and the Union. Also, the demands concerning the extension of the provision of compensation to the states in this newly introduced (2018) tax law has ruffled many feathers and has been apparently visible in the GST panel meetings. To put it into the right perspective, this GST council was, until now, more or less an apolitical body.

While the resounding victory in the 2019 Lok Sabha elections fixates the fact that Hindutva is the flavour of the season, the road for the BJP in states hasn't been equivalently bump-free. And the challenges are set to mount for the saffron party. The shift from 'aspiration' to 'security' in the public discourse induced by the downhill economic trajectory threatens to fragment the cross-caste coalition that the BJP seeks to stitch in (assembly) elections. When resources are perceived to be scarce, communities tempt to find patronage in caste or class-based parties. To negotiate more efficiently, the loyalty of caste/community is likely to be back with regional players offering them a better deal. For instance, Rashtriya Lok Dal, a party relegated to irrelevance in the 2017 assembly elections, is confident of a comeback piggybacking on Jat dominated farm protests in western UP - its traditional bastion.

Basically, in such a flailing financial scenario, the top to bottom narrative settings approach from Delhi to the hinterlands should brace for hiccups. The importance of caste, clans and other connections will not only be the way forward for economic mobility but is also capable of creating completely different socio-political dynamics in the elections at local (constituency) levels. Consequently, Bahubalis and strongmen may see their stocks rising.

A delegation led by Nitish Kumar with other Bihar NDA partners and opposition leader Tejashwi Yadav called upon the PM a few months back in a bid to push for caste census. This has been followed by explicit demands (RJD's Tejashwi) to expand the quota, in an ominous sign of reconfiguring political battle lines. Samajwadi Party and its head, Akhilesh Yadav too, has been pushing strongly to make this a big issue in the upcoming Uttar Pradesh Assembly polls. And, as explained earlier, it won't be easy to brush aside this as cheap caste politics.

(Post-Script: Elucidating on the pessimism and hopelessness surrounding the economic future for the people, C-Voter's director Yashwant Deshmukh wrote for ThePrint: "I have been gauging public opinion for the last 25 years. Never have I ever seen a phase when the country wasn't harbouring a sense of hope. I see depression and despair everywhere. When we ask people about the coming six months or years, they turn silent. This end of all hope is frightening.")

More and more people are losing hope of economic recovery anytime soon. Credit: Mood of the Nation Survey, India Today