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Wednesday, January 19, 2022

No Proof Required: Why no applause for Narendra Modi’s reforms

The important has been replaced by the irrelevant, a consequence of BJP/ RSS distractions on non-policy issues

Written by Surjit S Bhalla |
Updated: December 27, 2014 6:11:04 pm
modi-m The reality is: inflation is down by a third, labour reforms have begun, near approval of the important fiscal GST legislation, and ordinances on economic reforms relating to coal and insurance.

Just look at the myriad irrelevant controversies that the ostensibly popular Narendra Modi-led BJP has allowed itself to be dragged into over the last few months. First it was Teachers’ Day in September, then “love jihad” and non-Hindus as “haramzadas” in October, then Sanskrit requirement in November, and now Good Governance Day in December. Good god, what can we expect in January?

Parliament was held up for several days and no bills passed in opposition-ruled Rajya Sabha because of some of these excursions by the Modi government. It has now come to pass that even when the RSS might controversially not be in the wrong, as on voluntary conversions, the opposition is able to stage it as the inevitable rise of communal discord, communal tension, or worse. (My next article will discuss the conversion controversy in detail).

The BJP has literally no one to blame except itself for the rapid loss of “approval” that it is facing at the hands of the electorate. Of course, it is winning elections, but that is not because people love the BJP more, but because they hate the opposition, especially the Congress, even more.

An analogy from the discussion of economic growth rates, which was a favourite topic of the BJP and Prime Minister Modi, might help. Prior to the election (and even post), Congress leaders thumped their chest and said that India, growing at 5 per cent, was the second fastest growing economy in the world. So look at what a fantastic job we have done, so fantastic that we should be elected for another term.

The BJP retorted (and many of us agreed) that this reasoning was disingenuous at best, and downright stupid at worst. What was relevant was not the absolute growth rate of India, or any other country, but the departure of this growth rate from potential. And given that even the Congress agreed that India’s potential growth rate was around 8.5 per cent, the Congress had achieved the impossible by bringing India’s growth rate to nearly half its potential. The voters agreed and the Congress was sent hurtling towards only 44 seats.

The BJP has done fantastically well in the post-May elections. But is this performance not “equivalent” to India growing at only 5 per cent? Had the distractions with a communal flavour  not been there, the BJP would have done a lot better than “grow at 5 per cent”. The BJP’s potential was to have at least 5-10 per cent more seats in each of the state elections it has contested, including some seats in Kashmir. With these victories, it could now go about achieving and fulfilling the much-promised growth and governance agenda. And it could have honoured Atal Bihari Vajpayee with greater eloquence and tribute than to call December 25 “Good Governance Day”. What are we to expect next — instead of New Year greeting cards, government officers will be required to send a Hallmark card with the inscription, “Wishing you and your family a Good Governance 2015”? What happened to the savvy marketing BJP team — waylaid by the RSS?

Warnings that this was happening, and that it was not in the best interests of Modi the PM, have not been absent. In a prescient article, Ravinder Kaur (‘Emboldened by Modi’, IE, October 31) had warned of the RSS landmines in Modi’s way: “Some who voted for [Modi] had set aside their apprehensions of a hidden Hindutva agenda, hoping that the development plank would remain centrestage… While not making a single misstep on social and secular issues, Modi has maintained a stoic silence on the dangerous pronouncements and actions of BJP ideologues…”

What is problematic is the replacement of the important by the irrelevant. There is a direct effect of these BJP follies — Parliament is held up, and bills are not passed. There is an indirect effect as well, and one that the Modi government does not seem to recognise, or appreciate. It is that the government is not credited with the large amount of economic growth-related reforms it is doing right — and all because of the fringe elements in the party? It does not make any sense.

Let me just take one example of how people’s attention has been distracted, helped no doubt by Congress strategists and experts. Today, inflation is a thirdof what it was last year — from 11 per cent in November 2013 to 4.3 per cent in November 2014; for the WPI, the numbers are 7.6 and 0 per cent, respectively. This is attributed by many to global deflation (the same that has been in process for the last six years when the UPA managed to deliver double-digit inflation). A big lie — in the previous two years (2012 and 2013) the median developing country CPI inflation averaged 4.2 per cent; in India, the average was close to 10 per cent.

But wait, Indian inflation is down because of Modi’s luck with crude prices. The oil price was stable in both 2012 and 2013 at around $100 (WTI) — the same time UPA inflation was raging. But wait, Indian inflation is down because of Modi’s luck with international food prices. But international food prices in November 2014 were only 4 per cent lower than November 2013.

So what has brought Indian inflation to 4.3 per cent? As has been mentioned umpteen times in this column, the primary determinant of inflation in India is not what the RBI does, but what the Central government (ministry of agriculture) does. The last minimum support price (MSP) increase by the UPA government, in March 2014 for the kharif crops, was 8.2 per cent versus 6.1 per cent in March 2013. The sheer audacity of the Sonia Gandhi-led government to increaseMSPs at such a large rate in March 2014 was, of course, only paralleled by its belief that inflation did not matter for votes.

The first MSP of the Modi-led government was in October 2014, and the order of magnitude was (-)0.3 per cent — no typo there, minus 0.3 per cent — the seventh lowest change in 38 years. Of course, the fact that food inflation is down this year is not because of the rabi crop MSP for 2015. This policy will have its lowering effect next year, when inflation is likely to be close to 4 per cent, regardless of what the RBI does. (RBI, are you listening?)

Inflation is declining in 2014 because of “only” a 6.5 per cent aggregate (kharif and rabi) MSP increase in 2013, compared to a 14.4 per cent increase in 2012. In addition, inflation is declining because of several decisions the Modi government has taken regarding the pricing and marketing of food, and especially the release of foodgrains from the excess food “reserves” in the government’s possession.

But the BJP not only does not get any credit for reforms and improving the economic climate, it gets blamed for not doing anything for the economy! The reality is: inflation is down by a third, labour reforms have begun, near approval of the very important fiscal GST legislation, and ordinances on economic reforms relating to coal and insurance. The last two could have been legislation — but both BJP follies and opposition for the sake of opposition intransigence ensured that such was not the case. By the way, while several hugely negative economic policies occurred under the UPA, can any of the Congress naysayer experts point to a single positive policy initiated by the Sonia Gandhi-led UPA in its 10 years in power?

The BJP must feel that it can’t do anything right with respect to economic policy. It must feel like the son for whom the mother bought two shirts for his birthday. The son obediently put on one of the shirts to show and thank his mother. Upon which, the mother snorted and complained “You didn’t like the other shirt?”

The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company

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