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Why despite falling rupee and declining Sensex, Narendra Modi govt is not in a panic mode yet

The NDA government is under incessant political fire over rising fuel prices and the falling rupee. The ongoing Sensex fall has added fuel to the fire. Markets fell for the fifth day on Monday - Sensex closed 536 points lower, Nifty ended below 11,000 after more than two months.

The Prime Minister, under pressure from the Opposition, especially Congress President Rahul Gandhi over alleged silence on rupee fall, convened a meeting earlier this month to stem the rupee fall. The results are yet to show.

There is no panic yet in the government, convinced as it is of India having strong economic fundamentals. The policy mandarins have been busy citing the latest core economic data (GDP, fiscal deficit, CAD, forex reserves and inflation) to claim there is no need to worry at all.
But the Opposition has sensed a clear opportunity and wants to milk it politically as much as possible. The falling rupee and the rising fuel prices have come to define (rightly or wrongly) the political narrative today.

There isn’t a day when the currency slide does not make screaming headlines. The Congress-led Opposition saw value in forcing a nation-wide bandh earlier this month against fuel price hike and sliding rupee.

Why blame the Opposition? The ruling alliance led by BJP raised a shindy over fuel price hike during UPA-2 rule. Many comments made by its leaders then have actually come back to haunt the government in service.

Pin pricks apart, the NDA government does not seem to be unduly worried about the political fallout. At least for now. Of course, ruling party spokespersons are finding the fire little hard to manage during prime time debates but the top leadership is busy elsewhere.

Representational image. Reuters.

Representational image. Reuters.

Narendra Modi came to power as a middle class icon but almost at the end of his current term serving the bottom of the pyramid defines his core politics. We have witnessed a paradigm shift in the way he and his government is keen to proclaim itself as a messiah of the poor and the downtrodden.

Therefore, Ujjwala (women empowerment), PMAY (affordable housing), Jan Dhan (JAM) and now the postal banking pitch define the core economic perspective of the government. Ayushman Bharat (+ Anganwadi workers salary hike) scheme promise aims to complete the last mile empowerment promise of the government. Digital India lends the veneer of modernity leveraging technology to drive change down the line.

It is interesting to note that the government led by the Prime Minister has now almost shunned any mention of individual wealth-making though he keeps promoting MUDRA as a game changer for bottoms-up entrepreneurship. It is fair to conclude that the Prime Minister wants achhe din first for the poor. This change of order has already set the 2019 election narrative.

While the phenomenal rise of equities during the last four and half years has surprised many, there is little doubt over the fact that the northward movement has made the durable investing class richer. Indeed, all those who have put their faith in the markets during the Modi era, have had a decent bout with achhe din.

But why would Modi government not proclaim the Sensex ride as its major economic accomplishment? Sensex, sure, is not the perfect barometer of the economy but is an able reflection of the economic sentiment.

Sensex' historic rise this year has made global headlines but the rally has been given a complete miss by both the ruling alliance and the Opposition. Last week global brokerage Morgan Stanley raised BSE target for September 2019 to 42,000 citing earning cycle was at the cusp of turning around.

“India is coming out of deepest earnings recession that extended for seven years and corporate are looking confident on business growth over the next 12 months,” said Morgan Stanley.

There is more proof of India’s stock market preoccupying global market leadership. Goldman Sachs, which has been bullish on Indian stocks since March 2014 (the market has nearly doubled since then returning more than twice of the global equities), on 17 September called time on the worldbeating surge in Indian stocks.

But the bigger truth lurking around the horizon is that Sensex historic rise isn’t a key talking point for the BJP. Ironically, the reticence to embrace the equities politically shows how much India has traveled southwards during the last four years in terms of building a composite economic narrative. There are several reasons to explain this syndrome (all primarily driven by the election season that has set in a bit early this time).

Having learnt its 2004 lesson, NDA is extremely cautious. It does not want in any way to articulate its election pitch as being shiny or flashy. The latest election slogan (Ajeya Bharat, Atal BJP) marks the marathon distance from ‘Shining India’ sentiment.

Second, Modi’s pitch right through his tenure has been about poverty alleviation and rebooting the rural economy. Sensex (booming) does not fit the script.

Third, there is a view (right or wrong) that the middle class is ideologically wedded to the Modi doctrine and hence there is no need to allude to its perceived growth via the equities (rising mutual fund investments bear testimony).

Fourth, given that the focus is excessively on the rural voter, any talk of stock market is seen as being counterproductive.

The PM’s Independence Day speeches have often showcased the government’s efforts to reduce poverty and promote last mile inclusion. The electoral math suggests that the government is keen to woo rural voters, who represent about two-thirds of the Indian population.

Fifth, there is established evidence from past elections about the rural constituencies outvoting the urban constituencies. The voter turnout in 2014 achieved buoyancy across constituencies yet the percentage gap in voting patterns in select rural – urban constituencies persisted.

Lastly, the government isn’t averse to talking to the middle class for a repeat performance in its favour.

But Sensex isn’t the preferred tool. The government pitch for the middle class is: We gave you GST, Udaan, Highways, scaled-up infrastructure, password to a robust digital economy and just now hiked bread and butter saving rates (PPF, NSC and Senior citizen saving schemes). You, therefore, return us to power.

Interestingly, even the Congress is keen to give the Sensex northward journey in Modi-era, a total miss. In contrast to the then Finance minister (Manmohan Singh who once famously said in 1992 that he did not lose sleep over Sensex), Congress President Rahul Gandhi on 2 February this year took a dig at the Prime Minister over the Budget, saying the stock market has given a "no confidence motion" against it after the Sensex fell by over 800 points.

"In Parliamentary language, the Sensex just placed a solid 800 point 'No Confidence Motion' against Modi's budget," Gandhi tweeted.

It is another matter that Sensex perked up later this year on 23 July when Narendra Modi passed the Opposition moved no-confidence motion.

The vote against Sensex shows that in the run-up to elections, politics will further divide India economically. India should resist pro-poverty politics and do whatever is possible to raise the last mile quality of life. But not at the cost of the middle class and the invested India that truly wants Sabka Sath Sabka Vikas. Pro-poor doesn’t necessarily mean being either anti-middle class or business class. Remember, real growth will happen with jobs and jobs will happen when overall investment climate is ripe.


Updated Date: Sep 25, 2018 13:26 PM

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