Opinion | What the results of the state elections mean for Modi’s Brave New India

Manas Chakravarty

At last, we know why the central government was so keen on trying to get the Reserve Bank of India (RBI) to part with its reserves or to speed up bank lending. It was a bit of a mystery why the government of the fastest-growing large economy on the planet was so concerned about growth. The results of the state elections tell us that huge sections of the population were being left out of that growth and the ruling party knew that and was terribly worried about it.

The signs of disenchantment have been visible for quite some time. As we pointed out a few days ago, the Reserve Bank of India’s consumer confidence survey showed widespread pessimism about the economy, which has now been translated into votes against the government.

Is there reason for concern? These were state elections, where local issues dominate and things may well be different in the national elections. More fundamentally, as some economic commentators point out, do governments really make all that difference? After all, the UPA-1 coalition government had the support of the communists and what could be more like the kiss of death for markets than communist support. And yet we had a booming economy and soaring markets from 2004-08.

Of course, favourable global conditions accounted for much of that boom. And it goes without saying that global conditions will be equally important now.

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But consider the euphoria in the markets five years ago at the prospect of a Modi government. That optimism was based on the hope that this would be a very different government, especially from the one that preceded it. While no Indian government can afford to alienate international investors and therefore has a restricted menu of choices, it’s also true there’s considerable policy leeway, as evident from the policies, or lack of them, of UPA-II.

True, the high hopes from the Modi government have been dashed. But consider what this government has achieved. Its reforms include: an expansion of market share for the formal economy through the introduction of the Goods & Services Tax, allowing contract labour in all industries enabling businesses to hire and fire, increasing the tax to GDP ratio mainly through an increase in indirect taxes, rolling back subsidies, bringing in an inflation-targeting regime at the central bank, keeping the fiscal deficit under control, enacting a bankruptcy law to end the promoter raj, initiating a clean-up of the real estate sector through RERA, ensuring private sector participation in social programmes such as the affordable housing programme and the health insurance scheme and lastly, ensuring that subsidies are well-targeted through the direct transfer of benefits to bank accounts.

Many of these reforms are an attempt to change the structure of the economy. They are all measures that strengthen the foundations of capitalism in the country. To be sure, the government hasn’t satisfied the votaries of privatisation, demonetisation was a disaster and it has also tried to bend institutions to its will, but then it would be silly to think that this government is a liberal one. Rather, its model is the East Asian one of state-directed capitalism rather than a free market one.

Some complain the government has also had to offer sops to the masses, such as farm loan waivers and the promise of higher minimum support prices. But in a poverty-stricken democracy sops for the electorate are inevitable. What is far more important is that it has attempted to transform India into a hard state, emulating the East Asian regimes which saw rapid growth. The prime minister’s admiration for the Chinese model is well-known.

An added advantage of the ruling party is that it has a second string to its electoral strategy — its Hindutva ideology. This ideology is an attempt to use nationalism, tradition and religion to paper over the gross inequalities and myriad fissures of Indian society, so that the all-important work of capital accumulation necessary for development continues unhindered. In a democracy, there are always pressures to redistribute the surplus, thus leaving less capital for growth. The ruling party’s ideology acts as a counter to this tendency, using religion and chauvinism as weapons for mass mobilization, keeping the masses distracted from economic issues.

But development is also a very disruptive process, destroying livelihoods and uprooting communities. The reforms are at a substantial cost and the benefits often come with long lags. New winners are created, but there are also many losers. The state elections have shown that those who have been left behind are striking back.

The capitalism — with Hindutva — characteristics model of the last four years has attempted to take the country down a road very different from the one it had been on since Independence.  Some believe it is the path to prosperity, others that it will lead to disaster. This model has been badly mauled in the state elections. The national elections next year will be its acid test.

Assembly Elections 2018: Read the latest news, views and analysis here