Economic policy paralysis deepens crisis
Visiting Scholar, Wolfson College, University of Oxford
When former PM Manmohan Singh recently criticised the NDA government for not acknowledging the ‘economic slowdown’, he was, in his usual gentlemanly way, understating the problem of economic policy paralysis prevailing at the Centre. When the BJP led by Narendra Modi came to power in 2014 at the Centre, its winning slogan was two-pronged: Development and Hindutva. The voters who were committed BJP sympathisers voted mainly for the Hindutva agenda. For them, the development part was just an add-on. Many others who voted for Modi then believed that he symbolised a corruption-free development agenda and they were ambiguous about its Hindutva dimension — mostly indifferent to it and some even hostile. The widely held belief that the previous UPA government had many corrupt ministers and officers, despite the then Prime Minister Manmohan Singh being seen as honest, made the promised corruption-free development very attractive to the non-BJP segments of voters who voted for Modi then.
During my visit to the US shortly after Modi’s 2014 victory, a group of my former students from India arranged a get-together. Most of these ex-students worked in the finance and IT sectors and I had known them as being ideologically sympathetic to a secular and progressive political outlook. It was a complete surprise for me when I found all of them praising Modi for taking India into the direction of becoming a global economic power. I did sense that it fitted with my understanding of the Indian diaspora, especially its upper caste segments, in the West, that hearing constant stories in the western media about India’s poverty and backwardness hurt their self-esteem in identifying with India, and so many jump on to stories about India’s advancement as a way of retrieving their own self-esteem. They would feel insulted if they were to be labelled as BJP sympathisers. It is reasonable to infer that their families in India would also be favourable to the projected image of Modi as development aligned. Modi’s development appeal was obviously much wider than the BJP’s Hindutva appeal.
The economic policy regime followed by the Modi regime then was not substantially different from the one followed by the UPA since July 1991, i.e.a neo-liberal opening of the Indian economy to external trade, investment and technology. Undoubtedly, some of the Hindutva-influenced domestic policies, such as cow protection, were contrary to the principle of market governance of livestock and dairy industry. Some other economic initiatives were also problem-ridden. The much-flaunted demonetisation inflicted a severe damage to the large informal economy, which, in fact, dominates the working of the Indian economy, as the research by Professor Barbara Harriss-White of Oxford and the late Arjun Sengupta has so convincingly demonstrated. The full implications of another economic initiative — GST — to the structure of federal finance in particular, but to the federal governance of India in general, are still to fully unravel though some of the states such as Kerala, Punjab, Tamil Nadu and West Bengal have already started expressing deep misgivings.
By the end of the first Modi-led government, the development sheen had vanished. What was left was Hindutva. The 2019 election was focused on anti-Pakistan, by inference, anti-Muslim rhetoric. It proved immensely successful electorally. The BJP improved its parliamentary strength. Though those who in 2014 voted for the development agenda might have been disillusioned and might have voted against the BJP, the party won over new Hindu voters from a range of political parties by whipping up hyper-nationalism.
So, the new Modi government, since 2019, has shed all pretensions of development and economic management. The result is a complete economic policy paralysis.
We are now confronted with two sharply contrasting situations: a deep economic crisis, coexisting with the poverty of economic debate. Though one needs to be wary of obsession with GDP growth rates from an ecological perspective, it is one of the indicators of how the economy is functioning. The GDP growth is slower than ever in the past several decades and the unemployment rate is the highest seen in the past 45 years. Inflation, especially of essential consumer goods, is adversely affecting family budgets, especially of low-income groups where food expenditure forms a relatively bigger part of the total family expenditure. There is no clear indication of where the government stands in terms of choosing the priority between monetary policy and fiscal policy when at the global level, a robust debate is taking place on the limitations of monetary policy and the desirability of a sound fiscal policy to deal with growing economic inequalities and to kick- start sustainable economic growth.
The government has shown ignorance of the massive global ecological crisis and its devastating impact right now on India through extreme weather conditions and massive air and water pollution.
One of the damaging implications of the absence of government steer on economic policy is that it leads to private players seizing upon this as a golden opportunity to push their own agendas and business interests which may be contrary to the needs of the citizens of the country. It creates an overall atmosphere of economic uncertainly and insecurity which can then lead to migration of skilled professionals out of the country. The damaging impact on Nigerian economy of the large-scale migration of skilled professionals out of Nigeria when the state was captured by private interests is one telling example of what can happen in a situation of government policy paralysis.
Perhaps, the worst aspect of the economic policy paralysis is that reports have emerged that attempts have been made to undermine the professional autonomy of the institutions of economic data collection by political interference for the purpose of short-term political messaging on sensitive subjects such as GDP growth rates and unemployment levels. This can lead to distrust nationally and internationally in economic indicators provided by such institutions. This contributes further to compounding the economic policy muddle.
