'Modinomics' Fails The Man It's Named For, Can He Recover?

In early 1991, George Bush Sr, President of the United States, seemed unassailable. He had just launched Operation Desert Storm, the world's first TV war. The American public loved it, and they loved him. Bush's approval ratings hit 90%. But then came the recession. Jobs were lost, fortunes wiped out. Within a few months, Bush's approval ratings sank. It was terrible luck, because this was 1992, his re-election year.

On the other side, in Little Rock, Arkansas, in the headquarters of Bush's young challenger, Bill Clinton, campaign manager George Carville was hanging up a sign with three messages to keep the attack on the incumbent on point. One of them, "It's the economy, stupid", became the key phrase that won Clinton the presidency.

Something similar is threatening India's incumbent in his re-election year. One year ago, Narendra Modi seemed invincible. Now, after a 3-0 defeat in the Hindi heartland, analysts are saying he might find it difficult to get even 200 seats in 2019. And, the reason is the same as what it was in America, 27 years ago. It's the economy, stupid.

Since December 2017, seven states where the BJP was a major player have voted in new state governments. In 2014, the party got 52% of the votes in these states. In assembly elections since then, the BJP's vote-share has dropped to just over 40%. That means that nearly a quarter of those who voted for Modi in 2014 have moved away. And ground reports suggest their single-biggest grouse is the economy.

Team Modi might harp on how fast India's GDP is growing, but it has begun to sense that 'Modinomics' needs a mega tweak. For four years, the Modi government's economic policies focused on keeping food prices down, stopping a credit bubble from forming and bringing more parts of the economy under the tax net. To do that, MSPs were kept virtually static, a war was launched on NPAs and easy credit, 86% of the value of currency was demonetised and GST was introduced.

These reforms, cheered on by pink-paper pundits, hit the poor the hardest. Farm incomes didn't keep pace with inflation, small businesses were starved of loans, cash-dependent operations had to shut shop, real estate transactions ran to a standstill, and smaller entrepreneurs lost market-share to bigger, more organised, players. All this, ultimately, meant one thing: a massive jobs crisis.

India's largest private data collector CMIE says over one crore jobs were lost last year alone. Even salaried jobs, the holy grail of the Indian job-seeker, dropped by 36 lakh between early-2016 and mid-2018. However, that doesn't tell the full story. The better educated and those with better technical qualifications did get jobs, but those at the lower end lost many more.

For instance, the number of white-collar salaried jobs increased by 23 lakh between early 2016 and mid-2018. 50 lakh new jobs went to people with non-industrial technical qualifications ranging from sales assistants to drivers, technicians to cooks. The number of industrial workers did drop till April 2017, but then recovered. By mid-2018, even salaried industrial jobs had gone up marginally, by 3 lakh, compared to early-2016. The people who lost out were salaried support staff. Peons, sweepers, janitors, doormen, security guards, drivers disappeared from offices. Their count dropped by 96 lakh in the same period.

The poor, whether they are farmers, small craftsmen, construction workers or salaried support-staff, are understandably angry with the Modi regime. Rahul Gandhi has tapped into this anger. His series of electoral successes has made Rahul look like a viable option for disparate disgruntled groups. And Team Modi is feeling the heat.

Modi has acted quickly. The first move was to send Shaktikanta Das to the RBI. Das executed demonetization which caused a major liquidity squeeze. He is now expected to reverse it by easing lending norms for PSU banks. This will help credit-starved smaller businesses access much needed funds.

Traders, the BJP's long-standing backbone, who have been complaining that Amazons and Flipkarts have eaten into their market share, have got some protection now. E-marketplaces can no longer sell through vendors which they themselves own. This is meant to reduce predatory discounts that e-commerce giants offer, thanks to their deep pockets. The new rules will help the local kirana shop compete better.

The government has also acted on GST, the consistent canker for traders and small entrepreneurs. Earlier this month, the exemption limit for registering for GST was doubled to an annual turnover of Rs 40 lakh. It will benefit an additional 20 lakh small businesses. 

Modi still has to tackle the kisan-sized hole in his 2019 plan. Rahul has stolen a march by writing off farm loans in the states the Congress won recently. Although the PM dismissed it, BJP governments in Assam, Gujarat and Jharkhand have announced various schemes to help farmers ranging from loan waivers to cash support ahead of sowing.

But has Team Modi left it too late? Even the 10% reservation for upper castes, presented as a quota for the economically poor, is unlikely to fetch anything more than goodwill. After all, this government has systematically cut down the number of available government jobs. In fact, each of the moves made by Modi will take time to work on the ground.

So, Modi might need to be like the lazy guest at a wedding, who gives cash because he forgot to buy a gift. Cash transfers in the form of Universal Basic Income might be the easiest and fastest way to provide relief to the poor. And if the BJP's number-crunchers get it right, the UBI could be targeted at those districts where the party is fighting close electoral battles. It might just help bring back some of those who have lost faith in the Modi magic.

(Aunindyo Chakravarty was Senior Managing Editor of NDTV's Hindi and Business news channels. He now anchors Simple Samachar on NDTV India.)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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