Amidst euphoria over Narendra Modi’s victory in the Lok Sabha election, his cohorts might take the raising of any uncomfortable questions as arising from mere ill will. But the questions are relevant and will not go away.
What, for instance, would be the influence of the Rashtriya Swayamsevak Sangh on the social fabric of the country? Or whether relations with neighbours such as nuclear-armed Pakistan be expected to improve or deteriorate? These must await another time and columnist.
Looking at purely the economic prospects, they appear far less rosy than the moment of victory would have led us to believe. Mr Modi was elected with great expectations by the country at large, but more particularly by the young whom Mr Modi referred to as those “emerging into the middle class”.
What was of crucial importance was jobs, livelihoods that don’t erode because of inflation, a strong base in infrastructure that is the bedrock of economic growth, developing the skills needed for remunerative employment, better governance through less government, and making the country strong and confident through decisive leadership.
Translated into the economic challenges left behind by the previous United Progressive Alliance government, these would translate into creation of 10 million jobs or employment opportunities every year, keeping inflation in check by lowering the fiscal deficit, better management to keep current account deficit on the foreign account at reasonable levels, a rise in manufacturing from 15 per cent to 25 per cent of gross domestic product, and better governance through faster and better informed decisions on questions that affect the poor such as land transfer, forests, water and the right over them.
One valid criticism of the economic reform story so far has been one of jobless, or near jobless, growth. During the last three years when the economy began to slip, the lack of employment opportunities led to rising disgruntlement among the young. Mr Modi wants to create employment in tourism, construction and revive small and medium enterprises in textiles, footwear and electronic assembly. These are all job-creating fields and don’t require particularly heavy investment. Yet the experience of the Modi government in Gujarat does not inspire confidence.
In a 2011 paper, Labour and Employment under Globalisation, The Case of Gujarat, Indira Hirway and Neha Shah observe that there is a small modern sector (such as the refineries and petrochemicals plants put up by Reliance and Essar) enjoying “highly capital-intensive technology and high incomes and a large traditional sector with low skills, low productivity and low incomes” though this has the highest employment potential, it has been neglected by Mr Modi because of a policy of pushing for fast GDP growth. A major consequence of the “unfair deal to labour in Gujarat is high inequalities of income with the rapidly rising share of profits in the economy”. Not a policy to encourage employment.
Another important goal of the new government is to bring down inflation by reducing the fiscal deficit, and the cost of funds. This it proposes to do by reducing subsidies on fuel, food, making better use of Mahatma Gandhi National Rural Employment Guarantee Act to build capital assets in agriculture such as check dams, wells, roads and tree plantation.
The total subsidy bill is around 2.2 per cent of the GDP or around Rs 2 lakh crore. The problem is that by saving here Mr Modi will be tempted to increase subsidy to his industry friends.
An August 2013 report on India’s financial sector by investment banker Credit Suisse reveals that the “stressed” (bad or restructured) debt that the 10 largest debtors owed the banking sector has gone up six times in the last six years to touch Rs 6.3 trillion in 2012-13. Almost the entire stressed loans are being borne by public sector banks under pressure to lend to political favourites.
These debtors include sterling corporates such as the Adani group, Reliance ADA group, Essar and Vedanta. To save these companies through the banks that have given loans, the banks will have to be recapitalised by at least a half of the stressed debt or by Rs 3 trillion, more than the total subsidy given for fuel, food and fertilisers.
The subsidies will further increase if the Modi government allows Reliance to double its gas price, as was so generously agreed on by the previous Congress government. Most of the gas from the fields operated by Reliance goes to the fertiliser and power industries.
CPI leader Gurudas Dasgupta has estimated that the government will have to bear an additional subsidy of Rs 11,000 crore a year for fertiliser and another Rs 33,000 crore a year on power because of the additional cost of gas paid to Reliance.
Over a five-year period this works out to be Rs 2.2 trillion. Since Mr Modi is unlikely to persuade Reliance to agree to lower gas prices, this additional profit of Rs 2.2 trillion going to Reliance will be borne as additional subsidy by the government.
There are increasing noises being heard from the corporate camp that the new land acquisition law which was passed after much debate last year with the backing of the BJP is making land acquisition very difficult and expensive for them. This is balderdash.
The law is one of the most important laws passed by the UPA-2 government; it tries to ensure that peasants and tribals get a fair deal and share in the prosperity of industry coming up on the land their families have held for generations.
Much has been made of Mr Modi’s remark of “less government and more governance” reminiscent of Margaret Thatcher’s slogan in the 1980s. However, instead of meaning a leaner bureaucracy, Mr Modi means greater concentration of power in his hands.
For instance in Gujarat, Mr Modi retained the important ministries of home, industries, energy, petrochemicals, ports, mines and minerals himself. As columnist Aakar Patel notes, “in short, all the ministries affecting Adani, Ambani, Tata, Essar and Torrent.”
If Mr Modi were to try this at the national level, the sale of this country to big corporate interests would be evident to all. Little wonder he has had their backing throughout his campaign.