Economic Ideology is the new binary in Indian Politics ,Modi is betting on growth and taking big risks on the Economy.
Along with farm laws, the Modi govt has passed labor reforms & promised to privatize major companies. This has led to an economic Right-Left divide, and that’s a good thing.
This budget session of Parliament signals a new turn in our national politics. After decades of fighting over personalities or rival ideologies built on religious and caste identities, India is stepping into an era of clear debate on economic policies.
We have seen this already, with Prime Minister Narendra Modi making an unabashed and unqualified pitch for the private sector, and Rahul Gandhi responding with not just the charge of crony capitalism, as in ‘hum do, humare do’ but also reading in the farm laws an anti-poor hijack of the poor farmer by the private sector. This is change.
And here’s why we welcome it. In military history, there are two kinds of warfare: Static, trench warfare and warfare of mobility. We saw the first in World War I and the second in World War II. We know which ended up being more decisive.
Indian politics, generally since 1947 but particularly since Indira Gandhi’s hard Left-turn in 1969, has been unipolar economically. First, Nehru serendipitously got rid of the Right in his party, and then his daughter carried out a full purge. In the same period, using her brand of social-populism soaked in nationalism, she destroyed the one opposition party of the libertarian Right, Swatantra.
Her most vocal rivals were also various socialists, Lohiaites, and Communists. She was so smart, and the Communist parties tore between Moscow and Beijing, she split them as well. The pro-Moscow CPI backed her fully, even over the Emergency.
There was little scope left for an ideological polarisation in India’s political economy. It was essentially a challenge of which side could be more socialist. This pull became so irresistible even the Jana Sangh, and later BJP walked into the same tent.
For five decades, each side fired at the other from its own socialist trenches. Meanwhile, they all talked of reform. Reform with a human touch, inclusive reform, reform with a socialist flavor. Mostly reform by stealth.
Or, as the late Sitaram Kesri had said to me in an interview why he thought the Chinese Communists were like DTC bus drivers: “They signal left and turn right.” The sad fact is, we were not even turning. We were moving straight, at a crawling pace, straddling multiple lanes, which is typical of driving with Indian characteristics. This also describes Modi’s first six years. If anything, he had put the clock back on even the post-1991 reform. India’s economy had stalled, as did its politics.
That’s now changed. One side has declared itself to be an unabashed backer of private enterprise and the other socialist. Let’s not be confused by whataboutery in terms of who’s coming from where. Let’s pick up the thread from this session.
Second, the prime minister made the most forthright case for the private sector. He said it needed respect and the days when calling entrepreneurs names got you votes are over. He said if the whole world is gratefully buying Indian-made vaccines, it is because of the private sector. He also gave us a view on the public sector hitherto not stated by anybody at top levels in power. Why should IAS officers run businesses, he asked? If they are Indian, so are private entrepreneurs. They also contribute to building the nation. Don’t diss wealth creators, he said. Because, if wealth is not created, what will you distribute?
Now, you might argue with good reason that while saying this he is taking enormous taxes out of the pockets of the middle class by way of petrol-diesel taxes and distributing it to the poor. But that is a secondary argument in the larger debate today.
Others followed in his wake. Rising young BJP star Tejasvi Surya invoked the late Nani Palkhivala and quoted from one of his many famous speeches explaining why India was poor: “Not by chance but choice, not by default but design, by embracing poverty as state policy and with a socialism that didn’t transfer wealth from the rich to the poor, but from the honest rich to the dishonest rich”. Heard this from India’s treasury benches ever?
If this is the strongest defense of wealth creators by an Indian prime minister, and that too in Parliament, Rahul Gandhi’s short but weighty response also repositioned his party well to the left of the central verge where it had meandered for decades.
Rahul said the first farm law was to kill mandis as private buyers would now crowd them out; the second would enable the big private traders to hoard as much grain, fruit and vegetables as they wish with no stock limits, and monopoly of grain silos; and the third would mean that an aggrieved farmer won’t have any access to courts for justice. The super-rich will control the supply and prices. The poor farmer will be at their mercy.
Of course, it was all being done by Modi and Amit Shah (hum do) for their two favorite friends or ‘humare do‘ (Ambani and Adani). He didn’t name them but left nothing to chance. Replay that video and see his description of the four faces in those old family planning advertisements: Cute-se, Sundar–Sundar (pretty) se, “mote–mote” (well-rounded) faces.
Other key and most articulate Congress speakers in both houses stayed with this theme. Former finance minister P. Chidambaram said it was a Budget by the rich, of the rich, for the rich. It was a Budget, he said, addressed to the one percent of Indians who owned 73 percent of national wealth.
Deepender Hooda then suggested what could be done with this one percent. Journalist Harish Damodaran in The Indian Express, he said, had written that a guaranteed MSP for all farmers will cost only a few lakhs of crores. So why not impose a little tax on the super-rich whose wealth had increased by Rs 13 lakh crore in the pandemic year? That’s all it will take. Shashi Tharoor, the MP with by far the most liberal economic view in the Congress, didn’t go that far, but said these laws threatened the very existence of farmers and that the budget was a case of ‘na jawan, na Kisan.’
MP after MP from the rival sides stayed with the same broad line. We know that politicians can be counted upon to promise one thing and do the opposite. But, tracking this debate, it is a reasonable conclusion that new ideological battle lines in Indian politics have been drawn. And these are on economic terrain.
Not all change is good, but this one is. In politics as in war, mobility and maneuver are better than sniping pointlessly from the presumed safety of trenches. Let us see India’s political economy going ahead.
The farm laws have provided the first spark of sizeable opposition to the Modi government’s economic policies. This has grown into its biggest popular challenge yet. Significant labor reform laws have also been passed at the same time. Then, there is the promise of privatizing major and showpiece companies but, most importantly, two PSU banks and a general insurer. Further, the stock market listing of LIC.
All of these have large, unionized workforces. So, expect protests to begin any time now. Of course, the opposition would do its best to give it fuel and also use it as a political vehicle in the hope of returning to power. And why not?
This is how politics is always played in a democracy. No one ever won power by being nice or fair to the other side. What’s new, today is that for the first time in our politics, there is a clear Right-Left divide in the economy. What matters is that henceforth people will go to vote with a clear choice between unabashed backers of the private sector and freshly dyed-in-red socialists.
Prime Minister Narendra Modi’s approach to economic issues has changed, the dividing marker being the 2019 re-election with an improved majority 21 months ago. Having also gained control of the Rajya Sabha, he has become progressively more ambitious about pushing through long-delayed economic reforms, confident enough to change direction if needed, and willing to challenge the conventional wisdom. His government’s bold announcement of a sweeping privatization policy (sell or close all non-strategic government companies) follows the replacing of restrictive labor laws and the opening up of agricultural marketing. Touchy subjects, all of them.
In the process, he has trodden on what states consider their turf. Where once he retreated in the face of Rahul Gandhi’s jibe about a “suit-boot ki sarkar”, he has now embraced the role of private enterprise, launched a well-aimed attack on the permanent civil service, and limited the role of the public sector to four strategic sectors. Amazingly, he has done so in the midst of an ongoing farmers’ agitation that is driven by the fear of corporate interests taking control of agricultural markets. There is no mistaking Modi’s new willingness to stake his position, although some of what he proposes could prove as contentious as the new laws on agricultural marketing, and no easier to implement. There is no hedging of bets here.
Modi has also abandoned his fiscal conservatism and adopted a more expansive stance on both deficits and public debt. And while the lack of faith in inherited free trade agreements was evident even in the first term, and the ratcheting up of tariffs began then, the launch last year of the ‘Atmanirbhar’ campaign showed a more open willingness to disregard the received wisdom in economics while re-thinking the ‘Make in India’ strategy. The prime minister is no longer shy of showing his real hand — as evident also in the aggressive moves to change the status of Jammu and Kashmir and introduce new citizenship laws.
The change of economic stance shows in his re-focusing government expenditure on capital investment, persuaded by the logic that this delivers a bigger growth multiplier. What has been given up, in the bargain, is any real increase in the budgets for his earlier focus area: Universalising a range of goods and services and expanding the safety net. Just when the pandemic has rendered millions jobless, and almost certainly reversed the steady if the slow decline in poverty headcount numbers, this shift in the expenditure pattern is striking. Equally noteworthy is the blunt refusal, in the context of growing inequality, to look for redistribution through taxation policy and fiscal transfers. With every step, Modi is striding out in new directions.
One can but speculate on the reasons for the change in approach. Perhaps it is that the ruling party has control of the Rajya Sabha — which it did not have when the Modi government sought unsuccessfully, in 2015, to change land acquisition laws. Perhaps the faltering economic growth numbers even before the pandemic have led to a re-think on economic strategy. This might also explain the willingness to put aside concerns about the environment, in order to press ahead with building the economy’s physical infrastructure in even ecologically fragile areas like the Himalayas. The privatization thrust could well be born out of frustration with the government’s banks and their endless need for fresh capital, as also by revenue considerations since both tax and non-tax revenues have fallen in relation to GDP. Finally, Modi may think that he is politically strong enough to take a few risks.
And risks there are. Despite the successes achieved and changes engineered after the 1991 reforms, much of India still draws mental comfort from a soft-state omnipresence that cossets even as it constricts and corrupts. Most of the private sector comprises small enterprises; there are only a handful of large business entities capable of putting out the money to buy government-held corporate assets. That makes privatization a fraught enterprise. The new fiscal stance risks inflation — traditionally the economic issue that turns voters against a government. And if the bet is on growth, what if growth disappoints? Modi will have to find his way carefully through this minefield.