Narendra Modi's spirited defence of a 'collapsing economy': 5 reasons why PM addressed this narrative
It was unusual to witness Narendra Modi so spiritedly defend the government's handling of the economy, doing so with a mixture of hard data, rhetorical aggression, and optimism. Rarely does the prime minister respond to the everyday cut and thrust of politics, much less issue a counter. He sets the narrative through his speeches, retains control over it by avoiding the media, ignores the noise, and withdraws into his stratosphere — leaving his generals and foot soldiers to do the heavy defending.
This plan has worked well for Modi. The strategic silence has elevated him above the daily humdrum, created a distance between him and his rivals, and added to his aura. It's not as if his rivals and critics do not recognise this strategy or haven't tried to counter it. But their concerted efforts at targeting him have proven to be counterproductive.
This is because while Modi has made himself inaccessible to journalists, he is by no means inaccessible to voters. He maintains an intensely personal communicative strategy with the electorate, and thus enjoys a greater degree of political immunity. More than three years into his premiership, Modi has managed to retain his personal popularity despite implementing some risky policies.
What, then, could have prompted him to break the routine this time? Why did he feel compelled to address the latest narrative of India "tottering on the brink" of an economic disaster? He could have let the finance minister, a very capable and articulate man, to take on the critics. Why did he spend more than an hour (one of his longest ever speeches) refuting critics, defending his government's economic track record and policies through multiple slides and presentations?
Such a detailed rebuttal implies that the criticisms this time have hit home, and the prime minister was left with no choice but to respond. Apart from the fact that this narrative was backed by data instead of "impression", there are five reasons why Modi took up the challenge.
Tackling the enemy within
By referring to 'Shalya', Karna's charioteer in Mahabharata who represented the Kauravas during the battle of Kurukshetra despite being related more closely to the Pandavas, Modi was taking an aim at the enemies within.
"Just before Arjuna emerged as the winner to qualify as the groom for Draupadi, Shalya was also present there as an aspirant," writes AK Bhattacharya about Shalya in Business Standard. "But he failed to hit the target and lost Draupadi. Peeved by this defeat, Shalya joined hands with other kings and fought Arjuna, but was defeated in that battle, with Bhima coming to Arjuna's rescue. The brother of Madri, one of King Pandu's wives, Shalya was eventually killed by Yudhishthira."
"There are many Shalyas today. They spread Shalya-vrutti (pessimism) and get a good night's sleep only after spreading gloom and hopelessness. A one-quarter dip in growth was fodder to them," Modi said on Wednesday, in an apparent reference to sidelined veterans Yashwant Sinha and Arun Shourie, whose attacks against the NDA over its handling of the economy have been way more ferocious than any criticism that even the Opposition could muster.
While Sinha, a former finance minister in the Atal Bihari Vajpayee Cabinet, kept Arun Jaitley in his line of fire and only hit obliquely at Modi, Shourie took direct aim at the prime minister and blamed him for creating a "mess of the economy".
Modi's reference to Shalya was the clearest indication that Shourie and Sinha's barbs have broken through his shield of cultivated indifference. By invoking a mythological character closely associated with betrayal, Modi was showing Sinha and Shourie their places in BJP's pantheon.
Seizing the narrative
Quoting Jawaharlal Nehru, Brookings Institution fellow, and director of India Project Tanvi Madan spoke of how there is a "long tradition" of Indian prime ministers getting touchy about criticisms of their handling of the economy.
There's a long tradition of Indian PMs getting upset about pessimistic reports about the state of the country.
— Tanvi Madan (@tanvi_madan) October 4, 2017
Modi likes to be in control of the narrative. Since the criticism this time was backed by hard data — with India clocking its slowest ever growth in three years and RBI revising GVA growth estimates to 6.7 percent from an earlier projection of 7.3 percent in August — Modi decided to counter the narrative before it spirals out of control.
Interestingly, he chose UPA II as the benchmark to compare his performance. This was a clever thing to do because UPA in its second term had made such a royal mess of the economy that even modest gains are likely to appear positive in comparison.
The prime minister said 5.7 percent growth, while low, isn't exactly "doomsday" because GDP growth was 5.7 percent or less than that on eight occasions during the UPA regime. He pointed out that critics were ignoring the fact that the BJP government had brought down inflation from 10 percent in the UPA regime to 2.5 percent, shrunk Current Account Deficit to near 1 percent from 4 percent and brought down fiscal deficit to 3.5 percent from 4.5 percent.
"Such falls were more harmful for the economy, because, in those years, India had higher inflation, higher fiscal deficit," he said.
Modi's implication is that a 5.7 percent growth, while low, sits on top of stronger macroeconomic fundamentals, and hence there is less cause for worry.
Countering pessimism with hope
Financial markets run on hope. The stock market has been on an upward curve since Modi's ascension to the top office, and the extended bull run has added substantially to investors' wealth despite the economy suffering deep jolts.
As Udayan Mukherjee reminds us in The Indian Express, "Between February 2014 and now, the NSE Nifty index has moved up from around 6,000 to 10,000, a sharp spike of 66 percent. So, the stock market must be mirroring a massive turnaround in the profits of most large Indian companies, right? Wrong. In April 2014, the earning per share (EPS) of the Nifty, comprising India's top 50 companies, was 410. In April 2017, it was 420. A gain of a mere 2 percent in the same period that the stock market rose 66 percent. What explains this conundrum? Hope. Hope that the elusive good times are just around the corner. But hope isn't infinite and it is beginning to wear a bit thin now."
Modi would have felt it necessary to counter the narrative of pessimism before it seeps into the market. While staying within the constraints of data, he used it rather selectively to dish out a message that growth has not derailed, the government is active and responsive, and macroeconomic fundamentals are strong.
"In the last three years, India has seen 7.5 percent average growth. This time, the last quarter's growth is less, we agree. But the government is working to reverse this. We are ready to take decisions and we have the capability to do it. The nation's financial stability too has to be maintained and we will keep taking steps to improve the economy," said Modi, adding that even the RBI has predicted 7.7 percent growth in the coming quarters.
Modi perhaps deliberately omitted the fact that RBI's projection of 7.7 percent is only for the fourth quarter, not an annual growth estimate. According the RBI, economic growth, which had slipped to 5.7 percent in the first quarter, is likely to improve to 6.4 percent in second, 7.1 percent in third, and 7.7 percent in the last quarter.
His intention was pretty clear: "We don't believe that everything the critics say are wrong, but one should refrain from creating an environment of panic in the nation."
Highlight turnaround in indices
Modi used no less than 29 slides and a spate of data points to buttress his claim that the economy is already staging a turnaround. He listed the uptick in exports, automobile sales figures, demand for home loans, increased air travel, stronger FDI inflow, greater renewable energy capacity, etc. all in a bid to argue that the bigger picture of the economy remains positive overall. He also stressed on the lesser-known revamps undertaken during his tenure which cumulatively amounted to 87 reforms in 21 sectors.
It was evident that finance ministry officials have been burning the midnight oil to present the prime minister with huge amounts of data that the government feels have been deliberately ignored during the spreading "doom narrative". This was Modi at his combative best, trying to counter and then own the narrative. It gives us a glimpse into his politics, where not a single battle is small or insignificant and they're all fought with the all the energy at command.
Reassuring the middle class and traders
This was perhaps the most important reason. BJP's cadre network and the RSS functionaries would have informed the government about the deep resentment and fear psychosis that have set in among the middle class and traders — two of BJP's core constituencies — after the twin shocks of demonetisation and GST.
These two sectors have not only been the worst affected, but the traders in particular continue to suffer from the inadequacies of a messy GST rollout, and the deep-seated apprehension that getting their businesses formalised would invite the state's wrath for avoiding taxes for so long.
Modi's assurance was sharp, clear and unequivocal. "Businessmen and traders now returning to mainstream may be worried that old records will be checked. We will not allow that to happen... I welcome you now, leave the old things behind and do not be worried. I am with you in the future," he said.
While he stressed on the new moral framework in the economy by saying "honesty will command a premium" and the government will protect the interest of honest persons, he was quick to add that people coming to mainstream (from the informal economy) fear that their old records may be reopened. "We will not let that happen because earlier, their old way of business was necessitated by prevailing circumstances. Nothing is more sinful than blocking those who want to come to mainstream. Let bygones be bygones," he said.
This is just the kind of assurance that the trader community needed to willingly engage with the new GST framework. At the end of the day, fear and intimidation cannot force compliance from the populace, especially when it involves a massive behavioral change. Modi would know it.