Almost as an afterthought, the Bhartiya Janata Party (BJP) released its manifesto for the elections for the seventeenth Lok Sabha on Monday.
On page 17 of the manifesto, the party says: “When compared to all governments post-1991, this government has…maintained the lowest rate of average consumer inflation (4.6 percent). The consumer inflation is presently at 2.6 percent.” (I sincerely wonder how did they manage to compare inflation during the Modi era with inflation from all other eras post-1991, given that the current consumer price inflation data is available only from 2012-13 onwards. Okay, I know I am nit-picking here, but then why not!).
Low inflation is one of the big achievements of the BJP government. The question is how was this achieved. It was achieved primarily through lower food prices. Take a look at Figure 1. It plots the annual consumer price inflation between 2012-13 and 2018-19 (April 2018 to February 2019). It also plots the food inflation during the period.
Food items form nearly two-fifths of the inflation basket. As can be seen from Figure 1, food inflation has fallen from a high of 12.09 percent in 2013-14 to 0.13 percent in 2018-19. This is the main reason behind the fall in inflation as measured through the consumer price index. (And is also the main reason behind the agricultural distress that prevails in the country).
Dear reader, please hold on to the food inflation thought, we will get back to it later in the piece.
Now back to the BJP manifesto. On page 13 of the manifesto, the party says: “At the very beginning of our current term, Prime Minister Modi embarked on a mission to double farmers’ income. We will make all efforts to achieve this goal by 2022.”
In fact, the prime minister Narendra Modi, had first talked about doubling the income of farmers by 2022, in February 2016. If we were to consider, financial years, this would mean doubling the income from the end of 2015-2016 to the end of 2021-2022, a period of six years. Also, let’s assume that the doubling of the income of farmers is supposed to happen in nominal terms (not adjusted for inflation). This would require an average growth of 12.25 percent per year in the income of farmers.
We are now in the financial year 2019-20. It has been three years since the promise was first made by the BJP. Let’s see how well the farmers have done since then. Take a look at Figure 2, which plots the growth in agriculture, forestry and fishing, since 2005-06. It is a good indicator of growth in the income of farmers.
It is clear from Figure 2, the growth in income of farmers has seen a declining trend in the Modi era. And this isn’t surprising, given that food inflation has come down dramatically.
As Prannoy Roy and Dorab Sopariwala write in The Verdict—Decoding India’s Elections: “The farmer’s income goes up when the price of foodgrains rises. It is a simple contradiction of output versus input. Much of the output of rural areas is input in the budgets of urban voters and vice versa: products, the output of factories in urban constituencies, are inputs in the budgets of rural voters’ households.”
The point is that an increase in the income of farmers is directly proportional to food inflation. And there is nothing that makes a government more unpopular in urban areas than food inflation. Elections have been fought and lost in India on the high-price of onion.
If we look at Figure 2, the income of farmers has gone up by around 24 percent (not adjusted for inflation) between the end of 2015-16 and the end of 2018-19.
For the income of farmers to double by 2021-2022, it needs to go up by 17.4 percent per year on an average between now and then. Anything like this would only be possible if food prices go up at a dramatic rate. Take the case of 2013-14. The income of farmers went up by 15 percent, when the food inflation was greater than 12 percent.
Is the BJP ready for something like that? As it points out in the manifesto: “In the last five years, we re-imposed macro-economic stability while building lasting frameworks for economic governance. These frameworks include the Insolvency & Bankruptcy Code, inflation-targeting, nationwide Goods & Services Tax, and the banking sector clean-up. These efforts have not only changed the business culture of the country and anchored inflation at 4 percent.” What happens to low inflation which it is currently trying to market as one of its economic successes?
Of course, this manifesto has followed the grand tradition of political manifestos in India, which are just released for the sake of being released. If things had been thought through, such a fundamental mistake wouldn’t have been made and the manifesto wouldn’t have been released two days before the election starts.
(Vivek Kaul is an economist and the author of the Easy Money trilogy)
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Updated Date: Apr 09, 2019 12:47:32 IST