PM Modi Needn't Stress About GDP. Here's Why

Even the strongest supporter of Narendra Modi believed that the economic slowdown caused by demonetization and GST would cost the BJP its majority in the 2019 general election. When he returned with an even bigger mandate, the consensus view was that Homo Nationis had trumped Homo Economicus.

The government's economic performance in PM Modi's second innings has frazzled anew his followers. GDP growth was down to 5% in the first three months of this fiscal and economists expect it to drop further when second quarter GDP numbers are announced today.And that's just official data capturing the slowdown that we have all already experienced in full technicolour.

Pundits will say that Mr Modi's over-reliance on emotive issues like 370, NRC and Ram Mandir will lose momentum unless he fixes the economy. That's where they are wrong. PM Modi instinctively knows that mainstream economic data - GDP, IIP, Inflation - gives an accurate picture of only one part of the economy where the market rules. For a huge chunk of India, that part of the economy is entirely irrelevant. And herein lie Team Modi's electoral calculations. 

There are about 90 crore voters in India of which about 60 crore turn up to vote. 20 crore votes will get you a majority; that is all Mr Modi needs to focus on. India has about 89 crore people of 'working age' who are between 15 to 65 years. Of them, 82-83 crore are above 18, which means they can vote. 

Data from the Centre for Monitoring Indian Economy or CMIE tells us that only 40.5 crore have work. Since fewer people between 15-18 look for jobs, we can assume that of this 40.5 crore, 38-39 crore are of voting age. That means more than 50 crore voters in India do not have any work. 

Of them, about two crore are enrolled in higher education and 6-7 crore are too old to work. A large number of women do back-breaking work, raising kids and running their family. But their work is invisible to official data collectors. This still leaves us with at least 20 crore men and women who are either unemployed or have stopped looking for work because they know they won't get any.

How do they survive? Some do odd jobs in snatches, others hang around the homestead or on farms without doing anything useful. For families with able-bodied men who have no work, various kinds of handouts become the route to survival - ration cards, cash support to small and marginal farmers and informal 'doles' from the local village and caste groups. 

Are these poorest people worse off under Modi? If you take broad economic indicators, the answer will be an emphatic "yes". But when you unpack the data, the picture becomes more complex. 

Take the latest consumption expenditure data for instance, which the Modi government has swept under the carpet. These surveys tell us what an average person is spending every month. Since usually you spend according to your income, this consumption expenditure data is used by analysts to gauge whether people have become richer or poorer. 

The latest data tells us that for the first time in four decades, rural consumption expenditure has dropped by 8.8% over six years. Which means if an average person in rural India was spending Rs 1,000 in 2011-12, they spent just Rs 912 in 2017-18. In towns and cities, average spending has gone up, but by just 2%. 

But most of the spending cut has taken place amongst the richest 10%. In villages, the top decile of consumers cut back their consumption by a whopping 17%. The poorest 10%, on the other hand, have seen just a 1% drop in their expenditure. In urban areas, the top 10% reduced their consumption, but the bottom 30% actually increased it by 11-12%.

In both cases, while the richest 10% cut back on their spends on both food and non-food items, the poorest consumers reduced their expenditure on food, but increased it on non-food goods and services. This could be seen as a sign of misplaced priorities caused by increased consumerism: the poor are cutting back on nutrition to spend more on non-food items. It could also mean that increased access to education, health, telecom services has made them reorder their expenses. Again, this is a sign of people trying to make the best of a bad situation. 

But, it is equally possible that the poorest people are better off than what they were six years ago. Most poor people in India's towns and cities have one foot in the village. Most often, these are migrant men, who have a family back home. Many are small and marginal farmers, while some are landless. They go home during key agricultural seasons, and bring back their share of wheat, rice, dal, gur, when they return to the city. When crops fetch good prices, everything gets sold and the poor buy food throughout the year. When prices are down, a larger portion of the crop is retained for self-consumption.

If the bottom 30% of urban India spent 20% more on non-food items in 2017-18 compared to 2011-12, it could be because of the severe drop in crop prices. It is possible they consumed food brought back from the village. It is possible that the drop in retail prices of food resulted in recall errors when surveyors came to ask them about their consumption patterns. Whatever the truth, if analysts believe the drop in consumption expenditure indicates an increase in overall poverty, they must also accept that an increase in consumption expenditure by the bottom 30% shows that their real income must have gone up.

In fact, a closer look at the rural consumption data throws up a similar possibility. The poorest 10% in the villages cut down their spending on food but increased it on everything else. Is it possible that they got a larger proportion of their wages in kind than six years ago, and failed to report accurately their real food consumption? Is it possible that government schemes, targeting the poorest, left more cash in their hands and this allowed them to spend more on non-food items? 

When the richest people stop consuming, it immediately leaves a mark. Cars don't sell, white goods find no takers, the stock of unsold homes rises, shops and restaurants run empty, tele-callers find it difficult to convince anyone to take personal loans. And, all this shows up in official data sets - monthly car sales numbers, housing inventory data, credit flow data, quarterly financial results of listed companies and finally in GDP numbers.

When the poorest people increase their spending on non-food items - like they have in both urban and rural India - it doesn't even show up as a blip in economic data. And when it does show up as increased government spending, the pundits don't like it.

PM Modi instinctively understands that those affected by the domain of GDP don't vote. Many amongst them are traditional BJP voters and will not switch even if they face economic hardships. He also knows that India Inc might grumble, but it can be won over with tax sops and freebies. That will ensure the BJP continues to be India's most funded party.

He appears to be concentrating his economic policies entirely on winning over the poorest sections, whose real conditions have never been captured by any economic data. Most of these are also likely to belong to the most backward castes and non-dominant Dalits, who have not found adequate representation in the Bahujan Samaj Parties and Samajwadi Parties of Indian politics.

That is why GDP and other economic data may embarrass PM Modi, but he knows he doesn't really have to care about them to win elections. 

(Aunindyo Chakravarty was Senior Managing Editor of NDTV's Hindi and Business news channels.)

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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