SANJAYOVACHA | Will All That Power Lead To Better Performance? | Sanjaya Baru

At the end of twelve years in office Prime Minister Narendra Modi has consolidated more power than any other Prime Minister before him. Even at the height of his political power, Jawaharlal Nehru had to contend with senior colleagues of distinction, with their independent political base, and powerful chief ministers in many states.

Indira Gandhi managed to cut many of her colleagues and chief ministers down to size, but had to deal with other power centres, including a powerful judiciary.

Mr Modi has decimated all opposition within and without. And, if we are to believe defence policy analysts, he has also put Pakistan on notice. Next time, the works.

Mr Modi’s real challenge is now to deal with a difficult United States and an assertive China.

The biggest challenge for the PM, however, remains the economy. With all the political power at his command, Mr Modi has not yet been able to get a grip on economic performance. He has been winning elections not because employment opportunities are rising, incomes are growing, inflation is under control but because the Bharatiya Janata Party’s electoral machinery, aided by supplicant institutions, and the injection of religion into politics has been yielding political dividends.

The question, going forward, is whether these tested strategies will continue to yield political dividends if the economic situation and the living conditions of the people create dissonance. Whatever the future may hold, it’s time the Prime Minister and the large number of BJP governments across the country deliver better results on the economic and well-being front.

This week the Confederation of Indian Industry is hosting a business summit promising that “A new era is unfolding before us. A future defined by growth, resilience, development and shared prosperity.” A lot of celebratory speeches will be delivered both by government representatives and business leaders. I am hoping that at least one courageous business leader will offer an honest answer to the very important question posed by the chief economic adviser to the Government of India, Ananta-Nageswaran.

The chief economic adviser (CEA) is a clever, brave and honest economist. I have great personal regard for his professionalism. He asked a simple question, speaking at a seminar on public policy in New Delhi.

The CEA observed that after the Covid pandemic hit the economy, various market indicators like BSE 500 or NSE 500 showed that companies listed in these indices had declared a combined growth rate in their profits of a whopping 30.8% per year. Yet, he wondered why “the overall capital formation rates from the private sector have been disappointing”.

Perhaps, he wondered, companies and second or third generation entrepreneurs are choosing “to accumulate those cash profits and probably set up family offices elsewhere rather than investing in real assets on the ground”. Claiming that the regulatory environment in India has been improving at the margin, at both the state and national level, the CEA observed: “Much of the nation building in developed countries happened not because of public policy alone, but also because the industry acted in the national interest and found a fusion between their private interest and the national interest.”

These are important observations and questions. Indian industry must respond to them. Will business leaders gathered at CII’s Annual Business Summit this week honestly address these questions? Why is private capital formation sluggish even when profits are rising and corporates have cash? What holds them back. Is the CEA right to claim that the regulatory environment has improved?

Indian business leaders, with the singular exception of the late Rahul Bajaj, have found several alibis to fob off such questions over the past decade. First, they mumbled that demonetisation had disrupted businesses. Second, they claimed Covid had done so even more. Now it is all about war and disruption of supply chains. All these are valid reasons. Yet, while profits go up and cash is accumulated, companies are investing overseas, stashing money in family offices abroad or just paying themselves huge dividends, high salaries and so on.

All this generates demand at the top, with more luxury vehicles being sold than small cars. The growth process has been K-shaped, with the upper classes improving their incomes while unemployment threatens the working class. I cannot think of any Rahul Bajaj-like person today who may have the courage to address these issues at this week’s CII gathering.

The Prime Minister has recently taken an interesting step by replacing Suman Bery with Ashok Lahiri as deputy chairman of the Niti Aayog, the government’s policy think tank. Dr Lahiri has a better grasp over the Indian economy than his predecessor and his stint as a member of the West Bengal State Assembly over the past five years, and chairman of a private bank, should give him better insights into the political economy challenges that the government faces. Hopefully, he would be able to find a way out.

It is true that even with a growth rate of 6.0% India is among the better performing economies. But the fact is that 6.0% is not enough either to address current challenges like unemployment and stagflation or secure future targets like making India “viksit” by 2047. The economy needs to move back to the 8.0% average that the Manmohan Singh government delivered in its first term (2004-09). Dr Lahiri was the CEA at that time.

The slowdown to 6.0% has also meant that the $5 trillion by 2025 target that Mr Modi has set for national income (moving the target date from 2020 to 2022 to 2025) will only be met, at best, by 2027-28. The claim made last year that the Indian economy had earned the distinction of being the world’s third largest economy no longer holds.

Slower growth along with rupee depreciation has meant that India is back to being the sixth largest, falling behind Japan, Britain, Germany. The US and China remain way ahead at first and second place.

Prime Minister Modi has mastered the art of winning elections. He has been able to bend individuals and institutions to make them deliver to his satisfaction on the political and administrative fronts. It is time he focused all his energies on the economic front. Diplomacy and foreign travel will yield little for the country if the economy at home continues to sputter along.

Sanjaya Baru is a Distinguished Fellow, United Service Institution of India and Takshashila Institution