BJP’S TWO YEARS: MORE POSITIVES THAN NEGATIVES

The latest GDP growth data released by the Central Statistics Office (CSO) show that India’s economy expanded by 7.9 per cent in the three months ended March, a sharp acceleration from the marginally downsized 7.2 per cent achieved in the preceding quarter. The result of the strong fiscal fourth-quarter performance is that growth for the full year was lifted to 7.6 per cent, from 7.2 per cent in 2014-15. One of the main reason for this is the robust private consumption expenditure, which increased 7.4 per cent last fiscal compared with 6.2 per cent the year earlier. India, given its demographic profile, will remain a consumption story for a long time given that consumption demand accounts for 54 per cent of the GDP.

But, the other data released by the CSO paint a more modest picture of the economy. Gross Value Added at basic prices provisionally grew 7.2 per cent for the full year, barely nudging up from the 7.1 per cent pace posted in 2014-15, and slower than the Reserve Bank of India’s projection for 7.4 per cent growth. The GVA figure is significant because it strips the impact that taxes and subsidies have on the overall GDP number. Thus a substantial 5.6 per cent contraction in the amount the government spent on subsidies helped inflate GDP, and by extension the pace of growth.

Analysts also note the role of persistent low inflation in helping raise India’s ‘real’ GDP growth rate closer to the 8% threshold. It is important to distinguish between nominal GDP and real GDP. ‘Nominal’ GDP is calculated at current prices and does not factor in inflation, while real GDP is GDP adjusted for inflation. India’s nominal or actual GDP grew at 8.7% in 2015-16, significantly lower than the previous years’ 13-15% growth, which can be an indicator of worrying symptoms of weak investment and consumer spending. Low nominal GDP growth could also mean that if the inflation rate starts rising, it could potentially pull down the ‘real’ or ‘inflation-adjusted’ GDP growth rate.

In addition, merchandise exports, which have plunged for the past 17 successive months, remain a key concern. Regardless of the causes, the effect has been a drag on growth. Gross fixed capital formation (GFCF) — a marker for new capacity additions by firms — grew at 3.9% in 2015-16 compared to 4.9% in 2014-15, while it contracted by 1.9% in January-March, mirroring subdued investment activity.

That said, eight infrastructure sectors — collectively called the ‘core sector’ — surged to a four-year high of 8.5% in April. Commercial vehicle sales also appear to be gathering speed, and the prospects of summer rains look bright as of now. All told, these could be the first early signs of an economy-wide revival.

The outlook for the current quarter and the rest of this year may then hinge a lot on this year’s monsoon: firstly, in terms of the volume of rainfall, and then critically in its geographical and seasonal distribution. And with the CSO data revealing private sector investment having slowed and showing barely any signs of revival, the onus of providing some investment stimulus may rest squarely with the government — through increased public expenditure outlays.

The latest data comes at a time when the government is celebrating two years in office. It allows the government to underpin the argument that a quick turnaround in the economy has primarily been possible because of the string of reforms it has rolled out.

India is the fastest growing major economy today, average inflation has been capped below 5 per cent, industrial growth is at 7.3 per cent based on advance estimates for 2015-16, and the farm sector has reported a 1.1 per cent growth in spite of two consecutive drought years. It has not wilted under the fiscal challenge, sticking to a fiscal deficit target of 3.9 per cent in 2015-16 with the hope of bringing it down to 3.5 per cent for this fiscal. Foreign exchange reserves have swelled to $361 billion, the trade deficit has shrunk by 20 per cent to $48.8 billion, and foreign direct investment has risen 29 per cent to $40 billion.

But, cautions the Telegraph, “the numbers mask some uncomfortable facts. Over 41 per cent of the government’s non-plan expenditure arises from committed spending: the amount spent on paying back past debts and pensions…… The Make in India programme, which aims to create 100 million jobs in manufacturing by 2022, has not really gained traction. The Modi government has been unable to address two key concerns of domestic and overseas investors: land acquisition and labour reforms”. And the goods and services tax is still stick in parliament.

Reforms are not yet transforming India

Despite the fact that since the beginning of 2016, there has been much energy, direction and purpose to this government than before, Mihir S Sharma of Business Standard says the government is not yet transforming India.

Mihir S Sharma elaborates and takes the government’s claims of reforms at face value. First, most public sectors like Air India, MTNL and BSNL, though serving a national development objective, remain a drain on resources. Promises of them being sold are mere promises.

Second, the objective to create a flexible labour market is not making progress. “The PM dismissed “hire and fire” as a “Western concept”, not in keeping with our culture – which is, of course, under an RSS-leaning government, the kiss of death”.

Third, genuine administrative reform, the biggest thing holding back the Indian economy is the incapacity and inefficiency of the Indian state, is missing. Ministries need to become policy-making centres, not rule-making centres; independent agencies and regulators need to be empowered to make the rules instead; judicial and regulatory capacity needs be created through massive investment etc. Not only are these and other similar reforms not being carried out, they are not even being imagined.

Two years in, says Sharma “Mr Modi is certainly working on improving India – but transforming India is not even on the horizon yet”.

Government proceeding in the right direction

Harshavardhan Neotia, president, FICCI takes a positive view of the two years of Prime Minister Modi’s government. The Narendra Modi government’s two years in office he says “have proved to be steady and solid. The exuberance that was generated when the government assumed office in May 2014 continues. The consistency on the reform front has held despite a very difficult environment — infusing a strong hope that this momentum will only carry forward.

“Amidst the whole agenda of putting India on a higher growth path, one of most important constituents has been strengthening the manufacturing sector, to create meaningful livelihood opportunities. Some of the key campaigns announced over the course of last two years — Make in India, Digital India, Skill India, Startup India, Standup India — have this as the central objective.

“The measures taken towards improving the operating environment for businesses have been reassuring. The bureaucratic overhaul, simplification of procedures, setting up of the e-Biz portal and digitisation will improve the competitiveness of Indian industry. Besides the government has provided a stable, predictable and an investor-friendly tax regime”.

Moreover, Neotia says the government has not shied away from treading into the zone of more difficult reforms. The passage of the Mines and Minerals (Development and Regulation) Amendment Bill, 2015 and the Coal Mines (Special Provisions) Bill, 2015 was a very crucial move and will foster fair play and transparency in allocation of natural resources. The passage of the Bankruptcy Code and the Black Money Bill in Parliament are also landmark achievements.

Neotia is of the opinion that all is well with Modi’s policies – the liberalisation of the FDI policy continues; development of roads and the railway sector has been a priority. A seamless road and rail network remains much desirable to put in place a robust supply chain system. According to a World Bank study, ‘simply halving the delays due to road blocks, tolls and other stoppages in India could cut freight time by about 20-30 percent and logistics costs by around 30-40 per cent. This would result in a gain in competitiveness of some 3-4 percent of net sales for key manufacturing sectors’.

However, “owing to a challenging global and domestic environment, a broad-based consolidation is still to take shape. The reforms agenda thus needs to continue, with focus on some specific areas”.

Modi has introduced renewed confidence and vigour in the economy

Rana Kapoor, MD and CEO Yes bank is of the opinion that India’s growth is not due to a natural progression of the previous government’s efforts. This is a direct effect of Modi’s policies. The Modi government has introduced a “certain renewed confidence and vigour in the economy as it forges ahead to become part of the global supply chain”.

Kapoor “prefer to view the past two years through a lens of “balanced growth”, of ensuring “sustainable economic development”. The PM’s various schemes and missions — the 175 GW solar mission, the Swachh Bharat (clean India) campaign, Jan-Dhan, Aadhar (financial inclusion for the underprivileged) , Mobile (JAM) trinity, farmer insurance, Make in India, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Digital India, Smart Cities Mission (SCM) etc — have collectively set the tone from a perspective of balanced growth.

“However, the execution of these plans requires a fully functioning parliament, and certain highly important bills, such as the GST and an equitable Land Acquisition bill, to be passed. To achieve all the objectives above, the Digital India campaign needs to be accelerated. A connected India will be an informed India, a financially-included India, and most importantly, an empowered India…….

Much talk only of change and development

According to the Asian Age “in the two years of Modi raj (rule), there has been much talk of change and development, but nearer the bone the truth is that employment has not looked up, prices of essentials have kept inordinately high, private investment in the economy doggedly refuses to move up, manufacturing and exports are down, and the common man faces no less corruption in his day-to-day life than he did before. In sum, there is not much to excite him. If the BJP won the Assam election, it was fundamentally because the Congress government it succeeds had been in office for 15 long years.

True the Congress and the Opposition has made it difficult for far reaching reforms, “but lacking any skill for political negotiation, the government refused to budge and the important measure(s), which had first been sought to be brought by the UPA, still lies on the shelf”.

Modi needs implementers, not ideologues

Anil Dharker, senior journalist makes a rather relevant point. there is no doubt that Modi is displaying spirit and dynamism. What Modi needs, he says “are implementers, not ideologues. He has, instead, got implementers who are ideologues first, so each wants to implement his or her version of an inchoate ideology”.

He points to Dr Swamy, Smrity Irani (the HRD minister) and Mahesh Sharma, the minister of state (independent charge) for culture and tourism. Dr Swamy is described as a maverick and a loose cannon that can go after anyone – the Gandhis as well as BJP’s own ministers like Arubn Jaitley whose job he craves. And now he criticizing the universally admired Reserve Bank governor, Raghuram Rajan. This has caused so much embarrassment to the party, that its president Amit Shah has gone on public record to say that Dr Swamy’s views are his own, and not the BJP’s.

Smriri Irani falls, according to Dharkar, in the same category. The HRD ministry recently rejected all three names suggested by the search committee for the next chairman of the Indian Institute of Management, Ahmedabad. The three names suggested are stalwarts in their respective fields – Deepak Parekh, chairman HDFC; Pawan Munjal, CMD Hero Moto Corp; and R. Seshasayee, chairman Infosys. Dharkar says there could not possibly be a better panel of names. Calling this unprecedented and incomprehensible, Dharkar says this is consistent with “Ms Irani’s two years in the job: she seems to have alienated almost everyone who is touched by her ministry. Could that possibly serve Mr Modi’s objective?”

He then considers the the record of Mahesh Sharma, the minister of state (independent charge) for culture and tourism. “In his two years on the job, has there been a single announcement of his on the cultural front, which has not greeted with either derision or has evoked strong criticism?”

He states that “the problem that bedevils the party is that most intellectuals like to occupy the liberal space, and the BJP therefore finds it difficult to get the right men or women who are one with its ideology. This is possibly so, because a strictly Hindutva-RSS outlook on life is not quite compatible with the modern world. The question to ask is why should ideology be paramount in selection of individuals? Shouldn’t merit and competence be the only required qualifications? Another way of looking at this is by considering the kind of ideology that would benefit the country the most. Our 60-plus years of experience after Independence have clearly shown that an ideology that gives free rein to Indians’ spirit of enterprise is the only one that’s needed…..”

Long on promises, but short on delivery

Arun Kumar, retired professor of JNU writes: “Of course, the negatives of the UPA have disappeared. Some concede that two years are not enough to judge a government, but they also despondently ask when will things change? Doubt has crept in even among the supporters of the BJP. This is especially so, given that the agenda seems to have changed from development to social engineering. The NDA’s promise of bringing back black money hoarded abroad within hundred days has been seen to be a ‘chunavi jumla’ (election promise) and the suspicion is that many other promises may also be just that.

“In statistical terms, the rate of inflation has come down, but food prices still badly hurt the common man’s budget. The price of all services, like school fee, medical expenses and transportation have risen, but they are not reflected in the inflation index. So, while the government claims that prices are going down, the public does not accept that. The government has been lucky that commodity prices (like petroleum goods) have globally declined due to slowdown in the global economy. This has reduced the pressure on prices. But it also signifies that India’s exports that have been declining for the last 15 months are unlikely to start rising. It has also meant that steel industry, etc. have suffered. All this makes it that much difficult to raise the rate of growth of the economy.

“The government claims that growth rate is more than 7 per cent but the public feels the pinch with agriculture suffering two years of drought and industry barely growing in the last two years. The services sector that has been the driver of India’s growth for the last three decades has slowed down. Real estate and finance sectors have faced a deepening crisis. Small traders are affected by the rise of e-commerce. Decline in trade, slowdown in industry and agriculture has led to a slowdown in the transportation and storage sectors. Capacity utilisation is down everywhere, leading to a further slowdown in all sectors…..

“Investment is the driver of growth in the economy, but that has slumped from a peak of 38 per cent in 2007 to the present level of around 30 per cent. This is the principle cause of the slowdown in the economy. The government is harping on foreign investment, but that is only 10 per cent of the total investment and not a solution to the investment problem…….The private sector is not investing adequately because of low capacity utilisation and over investment in the infrastructure sector. Due to the rising NPAs, the banks are wary of giving out loans and this is captured in one of the slowest rise in money supply in the last decade and more…..”

The government, he says is seen to be long on promises, but short on delivery.

BJP’s victories are endorsement of Centre’s policies and not of its popularity in states

Sanjay Kumar, Professor and currently director of the Centre for the Study of Developing Societies makes an interesting point. He agrees that there is hardly any doubt that the BJP’s popularity has increased in the past few years. The party’s triumph in Assam and the outcome of the Assembly polls in West Bengal, Tamil Nadu and Kerala were seen as an endorsement of the Centre’s work.

Therefore, while there is no doubt that that the BJP is more popular than other parties, it may not be entirely correct to jump to the conclusion that the BJP’s victories are an endorsement of the Centre’s policies and not of its popularity in states. In some states, it emerged victorious due to the division of the anti-BJP vote, in others it won due to a strong anti-incumbency factor. Local issues and local leaderships also contributed to the victory in some states.

Kumar compares the BJP’s popular vote in 2014 Lok Sabha elections and the Assembly polls in 10 big states — Maharashtra, Haryana, Jharkhand, J&K, Delhi, Bihar, West Bengal, Assam, Kerala and Tamil Nadu — the BJP’s popular vote declined in eight out of 10 states by two to 20 per cent.

Only in two states — Assam and Kerala — did the vote share increase. The vote for the BJP in Assam can hardly be seen as an endorsement of the Centre’s policies, it was a vote against 15 years of Congress rule. Also, not only were the elections mainly fought over state and local issues.

A survey by the Centre for Study of Developing Societies indicates that a huge majority (60 per cent) was satisfied with the Central government’s work, but it is not clear what bearing this had on the minds of voters while casting their ballots. In Delhi and Bihar, where the BJP was badly defeated, a large majority (Delhi 66 per cent; Bihar 72 per cent) also expressed satisfaction with the Central government’s work, but this didn’t help the BJP electorally. In Kerala, a slightly lesser number (55 per cent) was satisfied with the Centre’s work, but the BJP’s voteshare rose from 12 to 16 per cent. People clearly expressed their desire for the third alternative, but this was not any endorsement for the Centre’s functioning.

In Haryana, where it managed to form the government on its own, 66 per cent felt satisfied with the Centre’s work. But the party’s vote share actually declined from 44 per cent (per seat in 2014 Lok Sabha polls) to 33 per cent in the Assembly polls the same year.

In Jharkhand, where a massive 81 per cent felt satisfied with the Centre’s performance, the BJP’s voteshare fell from 40 per cent in the 2014 Lok Sabha polls to 35 per cent in the Assembly elections later that year.

In Maharashtra, where the BJP’s voteshare remained the same (27 per cent in Lok Sabha; 28 per cent in Assembly) in the two elections, 60 per cent felt satisfied with the work of the Central government.

In conclusion, while “there are some differences in the level of people’s satisfaction with the Centre’s work in different states, but overall it is a decent endorsement of work done by any government, an indication of the high level of satisfaction with the government’s performance…..

“There are clear indications that Mr Modi remains popular among large sections of Indian voters, and far more popular compared to many other leaders. But still, there may be some issues that may worry the BJP about its two years of governance”.

Trust deficit with the minorities

One of the biggest deficits in the government’s two years is the polarization of society that has taken place. Mani Shankar Aiyar, senior Congressman and a known critic of Modi seizes this point. “Two years on, we have had love jihad; ghar wapsi; bizarre and highly provocative statements by MPs, MLAs and even ministers of the ruling BJP that evoked only a studied and deliberate silence from the Prime Minister; the assassination of rationalists Govind Pansare and M.M. Kalburgi by probably the same Hindu extremist elements that had been threatening them repeatedly and for long; the horrendous lynching of Mohammad Akhlaque, making diet the touchstone of fidelity to our culture, leading, in turn, to the unprecedented spectacle of intellectuals, artistes and writers by the dozen returning their awards in protest against such intolerance; the packing of the Indian Council of Historical Research with weird pracharaks (RSS volunteers) with even weirder notions of history; the undermining of the Film and Television Institute of India by appointing as Chairman a minor TV actor known principally for his Modimania, and infiltrating into the governing council a former President of the BJP’s student wing with no claim to the visual arts media and a film-maker whose sole claim to fame was a documentary enticingly called Narendra Modi: A Tale of Extraordinary Leadership; suspending the Ambedkar-Periyar Study Circle at IIT, Guindy, Chennai; the suicide of Rohith Vemula and the shenanigans at the University of Hyderabad; then JNU, Kanhaiya Kumar, goonda lawyers and the appropriation of Bharat Mata ki Jai (victory for Mother India) as the litmus test of patriotism; threatening Muslim dissenters, including Shah Rukh Khan, with deportation to Pakistan (!); Amit Shah proclaiming that firecrackers will burst in celebration in Pakistan if the BJP were defeated in Bihar; renaming Akbar Road…and so on and on.”

All of this, Aiyar says has created a huge trust deficit with the minorities.
Jyoti Malhotra, journalist for several years agrees with much of Aiyar’s theses by stating that a small gesture to the Muslims who have been targeted would have done “much more to burnish Modi’s credentials with the Muslim world – indeed, across the entire country – than events like the World Sufi Forum in March in which hundreds of maulvis from several Islamic schools were invited to meet the PM, or his visits to Sunni-dominated Saudi Arabia in April, or even to Shia-majority Iran, recently”.

Malhotra says that the Prime Minister has not fully realized that as Prime Minister, he is no longer the RSS pracharak he once was, even if that was his identity for most of his adult life.

“In these past two years, Modi has never once publicly apologized for the slurs his colleagues have employed against Muslims, like Sadhvi Niranjan Jyoti, nor reined in the Bajrang Dal hordes who recently held a self-defence camp in Ayodhya against skull-cap wearing “terrorists.” In fact, the PM, who otherwise seems as if he is constantly in election campaign mode, has maintained a curiously, stony silence in the face of aggravating social tension”.

This is not to belittle his achievements. Malhotra states that Modi has announced with considerable fanfare these past two years, several of them extremely credit-worthy like the Jan Dhan Yojana (financial inclusion of the underprivileged) and the Beti Padhao (save the daughter) scheme. She also conceded that the first green-shoots in the economy are becoming visible although a recovery in the investment cycle – which is fundamental to sustainable growth – will have to wait, at least for another year.

The Prime Minister is also focused on job creation and also realizes that India lives in its states – and in the villages. One of his most successful achievements has been to cut back about 33 per cent funds at the centre and transfer them to the states.

Modi protected by TINA (There is No Alternative) factor

Despite all the criticism, Rajdeep Sardesai, senior journalist and author says that while “the euphoria maybe fading, but what is looking increasingly likely is that Modi has every chance of repeating his success in 2019.
This is because there is a difference between state and general elections. The BJP won all seven parliamentary Delhi seats in the 2014 general elections but the Aam Aadmi Party (AAP) swept to power in the assembly elections in the city barely eight months later. The BJP-led NDA dominated Bihar in the general elections but it was the Nitish-Lalu-Congress combine that won a two- thirds victory just eighteen months later. Chemistry in a state election is shaped by a strong local connect: Arvind Kejriwal in Delhi and a Nitish Kumar in Bihar were the preferred chief ministerial choices here.

In a general election race though, says Sardesai, Modi remains the front-runner because he is the beneficiary of the TINA (there is no alternative) factor. There is no evidence in the last two years that Rahul Gandhi has the appetite to challenge Modi as a pan-Indian leader. Regional satraps have their limitations too. Bihar chief minister Nitish Kumar wants to lead the Third Front but he has to first take care of the law and order problem in his state before attempting to become a national leader. Kejriwal too has ambitions beyond Delhi – in Punjab and Goa “but scaling up the AAP model will not happen overnight”. West Bengal chief minister Mamata Banerjee too, likes to see herself as a ‘national’ leader but has limited influence beyond her state.

The only hope for a ‘federal’ alternative to Modi is to attempt a United Front-like experiment of the mid-1990s. But this too is easier said than done: The internal contradictions amongst state leaders makes it impossible for them to be seen on a single platform in the near future.

To Modi’s advantage is the changing demographics. “As the country becomes more urbanised, the Modi model of governance has found a well-defined constituency in the ‘neo-middle class’ who are convinced that India’s time has come. For this large social group, especially amongst younger Indians, Modi remains an iconic figure of hope”.

Modi is thus unassailable, but with three caveats according to Sardesai. There is concern that despite all his achievements, “Modi still evokes more fear than respect among political peers. Running an effective government in a fragmented polity needs consensus building not perennial confrontation. If 2019 were to throw up a hung parliament, Modi may not be an automatic choice of his coalition partners….

“The second, and bigger concern remains the economy. The ‘achche din’ (good times) promise of 2014 was ultimately premised on getting the economy back on track: In more basic terms, it promised more jobs for the young and more money in the wallet. Despite relative macro-economic stability, job-driven growth is still to take off and small and medium enterprises are still struggling”. The hope generated by Modi can rapidly turn to disillusionment.

“Finally, there is one factor which even the prime minister cannot micro-manage. Most weather predictions have indicated an above normal monsoon this year. After two consecutive droughts, the Modi government needs bountiful rain to reduce agrarian distress across rural India. Benevolent rain gods will bring much cheer to the people; it will also perhaps further convince Modi that he is truly destiny’s child