In the run-up to the general elections of 2014, economy was central to Prime Minister Narendra Modi’s political agenda. In fact, it was his focus on government policies and jobs that led to his landslide victory in the election. Economy has always been his pet subject ever since. Using an array of schemes ornamented with catchy slogans and some unconventional but popular economic moves (like demonetisation, for instance), Modi later carried forward the discussion on economy to places where, until then, it was an alien subject. The Bharatiya Janata Party (BJP) enjoyed the note ban dividend in the 2017 Uttar Pradesh polls. It showed that the unprecedented move banning about 86 percent of the currency in circulation to root out black money and corruption helped Modi pit the honest against the crooks.
But, at the end of three-and-half years of his rule, economy — once his strong point — is proving to be Modi’s greatest foe on the ground that could potentially weaken his 2019 poll prospects. A range of indicators is pointing in that direction. Consumer confidence on economic revival is falling (read a report in The Indian Express on Reserve Bank of India (RBI) surveys here). As the RBI surveys point out, less number of people (34.6 percent) are now saying that things have improved on the ground, compared with a previous survey in September 2016, when 44.6 percent said that. This could do more harm for the economy in the future. In such a scenario, consumers will hold back their spending plans and save money. Remember, India is largely a consumption-driven recovery. Investment-led recovery is still away.
The signals are already visible. Most experts forecast that in the July-September quarter, corporate earnings are likely to be muted except in certain segments. Bank lending to industries continues to be in contraction mode for years now. Bank lending to MSMEs contracted 3.4 percent until August this fiscal year compared with a contraction of 4.6 percent in the year-ago period. For medium-sized companies, the contraction in credit growth has been 5.7 percent while for large companies, it was 2.3 percent this fiscal year until August. The banking system, dominated by government-owned banks, continues to be in pain with high amount of stressed loans and lack of adequate fresh capital.
One big worry probably is the absence of revival in private investments, which puts the onus on the government to spend and support growth. However, this task is made difficult given the tight fiscal deficit target of 3.2 percent set for this year. The demonetisation of Rs 500, Rs 1,000 notes around a year ago, came as a jolt to industries, especially small units operating in cash intensive sectors, breaking the supply chain and paralysing the businesses for a prolonged period. The goods and services tax (GST) added to the worries of small traders, as they grappled with uncertainty surrounding the new rules and unexpected changes in the cost of certain products. Even the RBI cautioned about the new tax regime's impact on growth. Recent changes in GST rules will hopefully ease the burden on the small-scale sectors. Economic growth has been falling over several quarters and fell to 5.7 percent in the June quarter.
Right now Modi is confronted with heavy criticism on his economic moves both within his party cadres and outside. The recent public outburst from Yashwant Sinha, a former union finance minister and senior BJP leader, who said the economy is in a mes has brought the economic debate back to the table. Sinha is joined by the likes of economist-turned-politician Subramanian Swamy and former union minister, Arun Shourie, both from the BJP camp. This sharpened criticism has forced Modi to launch a rebuttal at a recent function not in his by now well-known style, but with a data-packed speech. The rebuttal has sparked further debates and the government is struggling to find a way out of the economic mess.
While the debate on the economy is largely centred around the urban middle class, one aspect of it --lack of new jobs -- is being felt even among villages and semi-urban areas. Even during its high-growth years, Indian economy had faced flak for a ‘jobless growth phase’. Now, when growth has taken a beating, the problem has turned worse. As this report in the Mint, quoting a study conducted by research group Lokniti at the New Delhi-based Centre for Developing Societies (CSDS), says, “Negative perception about jobs could become the Achilles heel of the Narendra Modi-led Union government.” According to this study, nearly a quarter of those surveyed identified unemployment as the biggest problem facing the country today.
Unfortunately, there isn’t detailed data available on employment trends in India unlike in the west. But whatever is on the table does not offer a promising picture. According to government data, the unemployment rate in the country was 4.9 percent in 2013, 4.7 percent in 2012 and 3.8 percent in 2011. For scheduled castes, the unemployment rate was 3.1 percent in 2011, which has now risen to 5 percent. That means, while there has been a steady increase in the number of jobless people since 2011, there has been a worrying, almost double, jump in the figures pertaining to the unemployment figures among the scheduled castes.
Millions entering the workforce need to be accommodated in the job market.To generate jobs, Modi will need to unleash the animal spirits in the economy. Structural reforms such as GST will show results in the long-term but to release the immediate potential, Modi needs to urgently work on plans to get private investments back, clear obstacles in acquiring land and labour by working with state governments. Now that most states are ruled by the BJP, a dialogue with them wouldn’t be too difficult. But, there are politically powerful labour unions which won’t relent easily. The banking sector needs to be lifted out of the current mess by injecting capital and improving efficiency. For this, the government must get out of doing business and bring in the private sector in a big way. All these require clear planning, beyond merely responding to problems.
In the 2019 elections, the economy can be Modi's closest friend only if he manages to address the problems, especially of jobs. Else, it will become his biggest enemy. Rhetoric and jugaad can go a only small distance.
Published Date: Oct 09, 2017 12:53 PM | Updated Date: Oct 09, 2017 13:29 PM