The Indian economy is in the grip of a slowdown. Economic distress runs deep and is alarmingly widespread. Businesses have failed across sectors, from aviation to telecom. Investments are drying up, having fallen to a 14-year low in the October-December quarter of FY19, according to data from the Centre for Monitoring Indian Economy (CMIE). The shadow banking sector, which has easier lending norms and funds a lot of big and small businesses, is in turmoil, such as the collapse of the IL&FS group that financed big infrastructure businesses. Small businesses are still reeling under the compliance burden of the Goods and Services Tax (GST). This widespread economic gloom has become a reccuring leitmotif in the election campaign of the Congress, amid competing narratives of national security and nationalism that the BJP would now have the voter focus on. Of the total 900 million people eligible to vote, around 300 million are distressed voters-a segment that is economically vulnerable, has no job security and is typically the first to feel the brunt of big economic disruptions. The spectre of demonetisation leaps readily to mind. The 300 million figure is a conservative estimate by india today of the number of voters directly and indirectly employed in the distress sectors-220 million in agriculture, 45 million in textiles and 52 million in real estate and construction. Another 4 million each are employed in the telecom and leather sectors, 4.6 million in gems and jewellery, 2 million in rubber and a million in the plastics industry. Will these voters hold the Modi government accountable for the distress that has gripped the economy or will their focus waver from their precarious livelihoods to the BJP’s new poll rhetoric of national security and nationalism?
Hope floats: Aspirants queue up at a job fair in Chinchwad, Maharashtra, in February (Photo: Reuters)
SIGNS OF AGONY
“[Election] 2019 is being fought on three or four axes,” Congress president Rahul Gandhi said in an interview to india today. “One, we are faced with an unemployment crisis. The second is agriculture. Narendra Modi’s policies have destroyed agriculture.”
However, railways and coal minister Piyush Goyal argues that the Modi government inherited a “collapsing economy” from the UPA years. “India was part of the fragile five [economies]. At that time, inflation was in double digits, interest rates were high, fiscal and current account deficits were high and growth was slowing down. It was difficult to encourage private investment. Between 2008 and 2014, there was indiscriminate lending by banks, and all of this led to over-capacity,” Goyal said in an interview to india today. Defending his government’s economic record, Goyal adds: “We pumped money into infrastructure to strengthen the economy. This improved capacity utilisation and subsequently encouraged private money to come in. We have had maximum FDI inflow. This money is coming in because the world has started reposing faith in the government and the leadership.”
Unemployment has been a major issue in this election. While the government maintains that India lacks data to map the real employment numbers, surveys by private agencies too suggest a despairing situation. A report by the Bengaluru-based Azim Premji University states that 5 million men lost jobs between 2016 and 2018. According to Crisil, less than 38 million non-agricultural jobs were created between FY12 and FY19, as against 52 million between FY05 and FY12. With a 7 per cent growth rate, India has been touted as one of the fastest growing economies. But as former Reserve Bank of India governor Raghuram Rajan recently asked: “How can we be growing at 7 per cent and not have jobs?”
Farm incomes and rural wages have either stagnated or declined, flying in the face of the NDA government’s promise of doubling farm incomes by 2022. The informal sector which, as per the International Labour Organization, employs 81 per cent of the total employed is still to recover from the impact of demonetisation. The major sectors generating employment and wealth are in the doldrums-telecom, construction, gems and jewellery and real estate, to name only a few. Agricultural reforms remain elusive and farmer protests continue. State governments have promised loan waivers even though studies show these to be ineffective in alleviating distress.
Goyal says the NDA government is committed to doubling farmers’ income by 2022. “This is work in progress. The MSP (minimum support price) has been enhanced to 1.5 times the production cost. Unlike the UPA regime, when there was import-dependence for various products, we are self-sufficient today,” he says.
If the Modi government was hoping that the economy would give it a push in the polls, it might, in fact, work in the reverse. india today spoke to workers across sectors and sensed despondency. In real estate, some 440,000 housing units remained unsold across seven major cities at the end of 2017. For the first time in a decade, the growth in the number of employees in the sector is in the negative zone, at minus 27 per cent in 2017-18. Sales growth in the textiles sector has fallen to low single digits from over 10 per cent in 2011-12 while staff growth was over 13 per cent in the negative in 2017-18. Reports show that in the past three years, 67 textile units shut down, affecting over 17,600 workers.
Telecom, once considered a sunrise industry, is saddled with a debt of nearly Rs 5 lakh crore and battling falling sales-down from 8 per cent growth in 2014-15 to 4.9 per cent in the negative zone in 2017-18. Sales in the gems and jewellery segment, which was growing at 27 per cent in 2011-12, crashed to minus 1.8 per cent in 2017-18. The leather industry, which employs over four million, is struggling for survival.
Apart from the usual pain points of doing business in India, both the organised and unorganised sectors have borne the brunt of two major policy moves-demonetisation in November 2016 and GST in July 2017. Overnight, demonetisation wiped out nearly 87 per cent of India’s currency. In an economy highly dependent on cash-India’s cash to GDP ratio is one of the highest in the world-the move left big and small businesses paralysed for months. GST was launched with the promise that it would streamline the taxation system, but it added to the compliance costs of small and medium businesses.
There is also the phenomenon of jobless growth. Although the economy grew at over 7 per cent for the past decade and a half, it could not generate enough employment. The annual employment growth rate fell sharply from 2.9 per cent to less than 1 per cent over this period. Now, the economy seems to be growing on the strength of consumption, accounting for 95 per cent of the GDP growth in 2016-17, and public investment. But consumption, too, is petering out. Data from the Society of Indian Automobile Manufacturers shows that passenger vehicle sales were down 17 per cent in April-the sharpest fall in eight years. Two wheeler sales have also slumped. Airline traffic growth and sales of certain consumer durables are down, too.
Meanwhile, private investment has been on a downslide. New investment proposals in 2018-19 stood at barely Rs 9.5 lakh crore, the lowest since 2004-05 and dramatically lower than the average of Rs 25 lakh crore between 2006-07 and 2010-11. Another area of concern is exports. After peaking to $314.9 billion (Rs 22 lakh crore) in 2013-14, it fell to $262.2 billion (Rs 18.3 lakh crore) in 2015-16, before recovering partially to $303.3 billion (Rs 21 lakh crore) in 2017-18. Household savings declined to 17.2 per cent in 2017-18, the lowest since 1997-98.
Graphics by Tanmoy Chakraborty
The promise of creating 20 million jobs a year will come to haunt the Modi government, with leaked National Sample Survey Office (NSSO) data-which the government has refused to make public-showing the unemployment rate at a 45-year high. According to the Labour Bureau, employment growth slowed down drastically from 2012 to 2016, with construction, manufacturing, information technology and business process outsourcing faring the worst. The ‘Make in India’ drive was a non-starter and the share of manufacturing in GDP declined from 17.2 per cent in 2014-15 to 16.7 per cent in 2017-18, the lowest since 2010-2011.
Real rural wages rose at over 6 per cent per annum between 2008 and 2012, but started slowing in November 2013, according to Himanshu, associate professor of economics at the Jawaharlal Nehru University. Real wages of agricultural labourers grew at 0.9 per cent per annum between May 2014 and December 2018. For non-agricultural workers, the growth was only 0.2 per cent per annum. After a reversal in July 2016, real wages again stagnated post May 2017, most likely as a result of demonetisation, he adds.
DEFINING THE DISTRESS
N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy in Delhi, says the whole economy is distressed-financial services, manufacturing as well as the informal sector, which covers 70 per cent of the economy. “In the last two or three general elections, we have not had this level of stress,” explains Bhanumurthy. “In 2009, there was no stress in the economy in terms of jobs, but a perception had built up. ‘India Shining’ had more to do with inequality. People started asking whose India was shining.”
Jayan Thomas, associate professor at the Indian Institute of Technology, Delhi, says unemployment and distress are closely linked to the agri crisis. “Between 2004-05 and 2011-12, when employment in agriculture dropped, the jobless were absorbed by the booming construction sector. Not the case any more as the sector is going through a rough patch,” he says.
Madan Sabnavis, chief economist with Care Ratings, says consumption is driven by the rural sector and most of it comes from agriculture. “If agriculture doesn’t perform, the ancillary sectors don’t either, and purchasing power reduces.” To drive consumption, there should be more employment, or salaries need to go up substantially. “If the GDP growth is 7 per cent, employment should go up at the same rate. However, it is 3-4 per cent,” he adds. Manufacturing and the export-oriented sectors have been struggling too. The capacity utilisation of firms-an indication of their performance-has been stagnant at 70-72 per cent, impacting jobs. The services sector has slumped in tandem with the slowdown in agriculture and industry. The corporate sector has been growing at around 3-4 per cent in the past few years.
A VOTE ON ECONOMY?
While a single factor wouldn’t determine voting behaviour, this Lok Sabha election is being fought with an undercurrent of economic dissatisfaction. Several studies have been done in the past decade to establish how economic growth has a bearing on electoral prospects. Former NITI Aayog vice-chairman Arvind Panagariya and lead economist for India at the World Bank, Poonam Gupta, did a study in 2011 on how growth links to votes in a developing country like India. The study was based on the 2009 general election since this was the first parliamentary poll to be preceded by a shift in the country’s growth rate to the transformational level of 8-9 per cent.
The paper provided the first example of a developing country in which growth had a statistically significant impact on the prospects of the candidates of the incumbent party. The findings were corroborated by some key elections in the states. While the chief ministers of poorer states, such as Bihar and Odisha, returned to office with overwhelming majorities on the back of growth, the Marxist government in West Bengal, which had ruled the state for over three decades, was handed a humiliating defeat as the state continued to underperform as compared with the national average. But the study also noted that growth is correlated to other attributes that voters value, such as good governance, law and order and poverty alleviation.
“Historically, there has been very little correlation between growth rates and electoral performance. But that began to change in the 2000s,” says Milan Vaishnav, director and senior fellow, South Asia program at the Carnegie Endowment for International Peace. The Indian economy went through structural changes since the mid-2000s and several state leaders demonstrated how growth draws votes. PM Modi was a three-time chief minister of Gujarat as was Shivraj Singh Chouhan in his home state of Madhya Pradesh. Nitish Kumar pushed Lalu Prasad Yadav out by promising to replace ‘jungle raj’ with ‘vikas raj’. In 2014, PM Modi campaigned on the promise of ‘sabka saath, sabka vikas’.
But 2019 is different. One of the things the BJP is battling is the poor performance of its state representatives. Party surveys have revealed high anti-incumbency against state office-bearers. Fearing a backlash, the BJP has woven its campaign around PM Modi. “2019 is more of a vote on Modi. People are not judging him on performance,” says Sanjay Kumar, director, Centre for the Study of Developing Societies (CSDS). “There is no narrative of demonetisation on the ground. There is a big wall called Modi standing between what’s known as rural distress and the BJP.”
Thomas disagrees. “Demonetisation and GST have had serious implications for the economy and the labour markets. The adverse effects have hit small units in the informal sector particularly hard,” he says.
MOOD ON THE GROUND
But electoral moods can sometimes be perplexing, going by the poll surveys conducted. According to a pre-poll survey by CSDS about a week before polling began on April 11, nearly 64 per cent respondents said the government should get another chance, even though they viewed its economic performance as ‘average’. Nearly 33 per cent said they were unable to fulfil their needs and faced difficulties. Over half said it had become difficult to find a job in their domain area in the past three to four years, and nearly 46 per cent rated the NDA as worse than the UPA on the jobs front. But even with all this, 67 per cent respondents felt that the Modi government should get another chance.
Indian elections have moved from a system of caste to caste plus. It’s no longer just ‘izzat’ but ‘vikas’ as well. Caste is getting tied to larger economic aspirations. “Caste alone is not enough, it has to be tied to some hope,” says Vaishnav.
Shamika Ravi, senior fellow at the Brookings Institution and a member of the PM’s Economic Advisory Council, observes that the distress narrative is beyond the Centre and PM Modi. “We have to go beyond the broader narrative of distress,” she says. For small and medium enterprises in certain areas around Delhi and Mumbai, there has been an effort to change the business climate. “But we haven’t seen the kind of reforms that were needed in the labour markets. And most businesses are opting for a labour-replacing strategy,” she adds. While joblessness is a critical issue, the extent of the crisis varies from state to state.
THE BIG PROMISES
Both the BJP and the Congress have attempted to address the rural distress and jobs crisis in their election manifestos. The Congress’s Nyuntam Aay Yojana (NYAY) promises a minimum income guarantee of Rs 72,000 to the bottom 20 per cent among the poorest of poor. Congress president Rahul Gandhi claims NYAY will benefit 50 million households or approximately 250 million people. The BJP promises to spend Rs 25 lakh crore in five years in the rural areas, make available zero-interest loans of up to Rs 1 lakh for five years on kisan credit cards and extend the PM Kisan Samman Nidhi scheme to all farmers. Under the PM Kisan scheme, some 120 million families of small and marginal farmers will get an assistance of Rs 6,000 per annum.
Will the doles work? Economic viability depends on the fiscal space available and how the scheme is structured in the broader fiscal context, says D.K. Joshi, chief economist with Crisil. The NDA government has already deferred its fiscal target to accommodate its income-support scheme, and that is just one-twelfth the size of the package announced by the Congress. The fiscal situation of the states, in aggregate, is perhaps worse off, he adds. “For such mammoth schemes to be viable, curtailing non-merit subsidies and welfare schemes will be necessary, or tax collections will have to increase massively-both challenging propositions,” says Joshi.
The BJP’s election strategy of shifting focus from growth to PM Modi himself was made around December last year. “Had this election been about economic fundamentals, the BJP would be in trouble,” feels Vaishnav. “The prime minister has succeeded in making a pitch that he cannot undo the collective failures of 65 years. This is giving him a big advantage. A lot of voters will say I may be dissatisfied and upset, but I think I can give him (Modi) one more shot.”
BJP sources concede that while scores of people benefitted from a host of central schemes-cooking gas connections for the poor, electrification of villages, the scale-up in construction of toilets under the Swachh Bharat Abhiyan-they may not view it as ‘government performance’ but as amenities that should have been rightfully theirs. Driving the message of delivery and performance has required the BJP to set up pan-India call centres, where executives are busy publicising the achievements of the Modi government.
Pollster Pradeep Gupta, chairman and managing director of Axis My India, however, believes that the ruling party’s fortunes would not be severely dented by issues such as demonetisation or the fact that some sectors, including agriculture, face distress. His reason is that demonetisation gave Modi a pro-poor image. On farmers’ distress, Gupta believes that apart from the lump sum payment, the Modi government’s performance on irrigation, fertilisers and supply of power is likely to mitigate adverse feelings caused by the glut and falling incomes.
“The economy is a liability, and one of the clever things Modi has done is to shift people’s expectations to 2022-23,” adds Vaishnav. Others feel that the issue of jobs could singe the BJP. “Economic growth is a good indicator of jobs growth. If the economy is struggling at 7 per cent GDP growth, it means there is no acceleration in jobs,” says Sabnavis. That, in turn, could impact voting, especially among the youth.
Modi has always talked about a 10- to 15-year vision. He still seems to embody hope for many. But at some point, delivery will have to begin. Rahul Gandhi, on the other hand, has highlighted the rural plight and raised questions regarding unemployment and crony capitalism. While it is early to say which narrative has stuck with the voters, and which party will get the upper hand, it is certain that the electorate wants to make itself count in the larger scheme of things-evident from the reasonably good voting turnout so far.
with Anilesh S. Mahajan