New Delhi: As Prime Minister of India, Narendra Modi will have a tough task at hand. Mohan Guruswamy writes about the issues, which need to be addressed by the new government.
The election is a complete rejection of the Congress party's style of functioning. There was resonance of the Mother/Son accusation and this was given much traction by the PMs continued silence and inertness, and people like Sanjaya Baru who fed it by writing insider views on it.
During the past decade the Congress led government presided over an unprecedented growth of the Indian economy. Over 7.8%. It has only dipped in the last two years mostly due to the global slowdown, and the huge shift of capital from investment to subsidies due to a rash of populist policies adopted domestically. Considering that the Indian economy expanded from $700 bn to about $2 trn during this period people were still very clearly dissatisfied. What then happened?
Governments in a democracy are thrown out. People vote on Valence issues and/or Bread and Butter issues. Valence is where basic values are involved. The party was perceived to be corrupt and serving only a few and for considerations other than the common good. 2G, Coalgate, Robert Vadra were seen as some manifestations of the corruption.
Since the economy was booming and incomes rising fast there was a demand side pull on food prices. This is unavoidable. The terms of trade between urban and rural economies cannot remain one sided. If factory goods cost more and people are clearly enjoying higher living standards, food producers and sellers sense higher ability to pay. You cannot have a system where incomes grow and tomato prices remain fixed.
The Indian middle class has long got used to a subsidized existence. LPG, electricity, sugar, water, petrol, diesel, public services etc are hugely subsidized. Even though the subsidies to ostensibly help the poor grew the middle classes felt excluded. India has seen a huge expansion of the middle class in the past decade. Al oct 180 mn moved into its ranks in the past decade.
To sum up, the Congress got caught in a double whammy. People lost trust in terms of its perceived values, and prices hurt.
The new government has huge challenges before it. India needs to create 12 mn jobs a year. This means a huge expansion of the industrial sector. To incentivize investment in industries labor policies, land acquisition and land use policies need to become favorable to investors. This is a tall order.
The RSS controls the biggest trade union in India - the BMS. The BMS is very averse to labor reforms, and change of the status quo which has resulted in low productivity and indiscipline on the shop floor. Like all other trade unions catering to the organized sector.
Industry now accounts for only 23% of GDP, and India's GDP profile looks very post industrial with Services now accounting for about 60% of GDP. How to get Industry a bigger share of GDP and in the process create the millions of new jobs each year is clearly the number one macro challenge.
How does one reform Government? Public Administration now accounts for almost 8% of the GDP. Instead of being the beast of burden to take the country forward it has now become a burdensome beast. The incidence of petty corruption is almost universal. The peoples interface with government is mostly at the lower tiers and at the local government level. This is where corruption is most endemic. This level has mostly become extortionate. You need to pay to get a complaint registered with the police. You need to pay to get a sewer line fixed. Services are tardy.
Clearly people are not served well. Good government means to make government more citizen friendly and service oriented. To initiate reforms that will lead to a more disciplined and responsive government is not at all easy. It calls for skill sets that are not easy to acquire.
With such a huge mandate and a absolute majority for the BJP, it will now come under pressure from the RSS and hardliners to implement the RSS manifesto where the establishment of a Hindu Rashtra with a Uniform Civil Code is implicit, as well as the construction of the Ram Temple at Ayodhya, abrogation of Article 370 covering J&K are all mentioned. The hardliners will constantly insist on their implementation and the BJP will not have the alibi of a coalition government to trot out as an excuse. Already MG Vaidya, a top RSS leader and ideologue, has allied for all these. The end of the Coalitional era in Indian politics has other implications which might permanently affect the notion of India as a benignly tolerant society.
To a government committed to industrial growth environmental issues are always seen as a hinderance. But it is a serious issue . The rebuilding of the existing infrastructure and building of a new one to ensure water conservation and cleaning of rivers will be hugely expensive. Where is the money going to come for this? Modi has sworn to clean up the Ganges. But that implies more that building new ghats are Banaras. the Ganges system gets polluted by every city, town and village in the basin. Sewage and industrial effluents have mostly destroyed it. It will not be easy to save it, but it must be done. Air quality issues are more easily tackled but are equally urgent and expensive. More public transportation systems are needed. Then there is the issue of capital. How do you get the Savings/GDP ratio up? How do you increase the Investment?GDP ratio up without taming subsidies?
India cannot play much of a role in the world sustainable dialog, given as it is dominated by western concerns and NGOs. We need to temper their concerns with our economic concerns. And our economic concerns will always come ahead of their concerns. We need to write our own agenda into this dialog. Clearly this will not be easy.
