Economy and Electorate: The Road to 2024

A long view on what the next two years might signal for the Indian economy and politics—and how the electorate will be groomed for 2024

Founding Fuel

In 2014, as the prime ministerial candidate, Narendra Modi had urged voters to give him an opportunity to transform the country. He had showcased his work in Gujarat then and said he was best placed to bring about this transformation for the entire country.

The Modi government’s 9th budget spelt out an ambition to make the next 25 years a defining one.

Many believers of 2014 are now critics and many critics of 2014 are now believers. The past two years have not been good for anybody. It has complicated many pathways for the public, the government, institutions—everybody.

This session was co-hosted by Founding Fuel and The Signal on Twitter Spaces. It tries to unravel the triple helix of economics, politics and governance.

The panel included

  • Anil Swaroop, Founder Chairman, Nexus of Good, and former secretary, School Education and Coal, Government of India
  • Niranjan Rajadhyaksha, Economist, Columnist, and Senior Fellow, Artha India
  • Neelanjan Sircar, Senior Visiting Fellow, Centre for Policy Research, and Assistant Professor, Ashoka University

The session was anchored by Dinesh Narayanan, Co-founder and Editor, The Signal.


(Edited for brevity and clarity)

How does the economy impact the electorate?

The 1966 rupee devaluation by the Indira Gandhi government; 1991 economic reforms by Narasimha Rao and Manmohan Singh; and in 2016 the Modi government’s decision to demonetise. How did these big economic decisions play out and impact or disrupt the economy? They are roughly 25 years apart—are they bookending some economic cycle?

Niranjan Rajadhyaksha: The longer-term impact [of the 1966 rupee devaluation—which for various reasons led to the Green Revolution and bank nationalisation, which democratised credit] was that over the next decade or so, the empowerment of the middle rung of the peasantry and traditional caste hierarchy led to the rise of new type of politics within the Congress (Chaudhary Charan Singh) and outside it (the Lohiite parties).     

Similarly, the 1991 budget had a deeper impact beyond the immediate lack-of-foreign-exchange event. The relinking with the global economy led to the creation of a new emerging middle class—which 10-15 years later became the political base for the BJP.

The 2016 demonetisation—if we take the medium-term impact of 10 years, we are still half way through that. That also is leading to a push towards formalisation. The question is whether this will lead to structural changes in the economy and therefore the politics built on it.

Neelanjan Sircar: Arguably the larger economic stagnation is a stronger impetus for the public to vote in the way they do, as opposed to a particular decision.

What is different with demonetisation was it was “elective surgery” in a sense. Politically I see two obvious changes: 1. BJP understood that reimagining Modi as someone who fights for the poor [was key]—demonetisation became a key plank in the argument. 2. The extent to which it impacted the political fortunes of other parties because of how they are funded. 

When we see demonetisation in tandem with other changes in terms of financing, we see a major impact in the way BJP does its politics vis-a-vis its competitors.

Anil Swaroop: As a practitioner, I can say that neither are these economic decisions taken on political considerations, nor is there a political fallout of these economic decisions. Both the 1991 and 2016 decisions were pure and simple economic decisions.

I was very happy [with demonetisation]. One of the chief ministers I served as secretary was Mayawati. Given the wealth she had amassed, I was very happy that all the money she had collected would have become zero now. But the manner in which demonetisation was implemented—there could not have been any planning because [no one in the government, no civil servant knew about it.] The intention was good, but the execution was terrible. And it had virtually no impact on the politics of the country. BJP swept the 2017 UP elections despite the inconvenience of demonetisation… 

Economic issues are not issues at all. The whole narrative is political and to some extent social.

[In 2014] the BJP government came in because of the mess of the UPA. Even then the driving feature was not economics—it was what was happening in the previous government. The development agenda was the icing on the cake. 

Look at what happened between 2014 and 2019, and what was said in 2014 during the elections. Take Make in India. Manufacturing was to take place at a rate between 12% and 14%. The actual numbers were 2.8% in 2016; 4.4% (2017), 4.6% (2018) and 4.9% (2019). All before Covid arrived. On employment we stand worse than Pakistan. Despite these shocks in economic parameters, BJP came back to power.

In the coming two years can an economic narrative be set in some ways?

A welfare slant

Neelanjan Sircar: The politics of vishwas. You trust your political leader to do what’s right for you. It is the ability of some political actors to frame issues rather than issues framing politics.

Since 2014, the image we may have had of the Gujarat model. One kind of political economy kind of appeal has come to the fore—that is targeted benefits. We see the extent to which Modi has played up his schemes, the extent to which it has been impactful for his popularity. To the extent that other welfarist chief ministers within the BJP have paid a heavy price. You have also seen places where the BJP has flopped electorally, there’s a certain pattern in parties like AAP and TMC which are not caste-based parties at all, but are welfarist parties in some sense—free electricity, free water, benefits for women, benefits for the poor, etc. I do feel we are morphing into a certain kind of economic appeal which is tied to the ability of a political leader to distribute benefits. 


Neelanjan Sircar: The railway riots are a tip of the iceberg. The one thing that’s noticeable in UP is that everybody—even people who support the BJP—are talking about the lack of jobs. That is a sea change for people in UP, because the first thing they talk about is caste. Whether it will have an impact on the election is something we’ll have to wait and see. But there is no doubt that that is a monster in the waiting. On the ground, the energy you associate with the youth, Modi and BJP is lacking, especially in Western UP… The problem with political leaders is that they seem to be living in another India. They are still trying to figure out which way this small jati group is going to vote. Honestly, the game has changed a lot. And they don't understand the larger economic anxieties in India.


Niranjan Rajadhyaksha: It’s not that economics doesn't affect political choices, but in India it is inflation rather than joblessness that till now was the primary trigger for electoral action. I think it's partly because of the structure of the Indian economy—we have an informal economy where people get absorbed into family farms and family enterprises. Even in the labour migration crisis, people went back to their villages and got “employed” in their family farms. Because people don't have inflation adjusted salaries, inflation is the deadly economic parameter that changes political preferences. 

That could be changing now that India's per capita income has broken through a certain ceiling. More people are educated. More people aspire to move out of farming and into proper jobs.

Is India moving towards a theocratic state that is undermining economic opportunities for large segments of the population?

Neelanjan Sircar: I do agree that Hindu nationalism is on the minds of a significant class of politicians. I do think it is inimical to civil rights… but not necessarily to the economic future. 

Anil Swaroop: The principal language spoken by the top people is not theocracy… All economic decisions being taken now have nothing to do with religion.

The first two years of this NDA government, 2014-16, were amazing. After demonetisation, a tentativeness and insecurity came about. Look at the positives of this state—the digital space and road infrastructure. Despite Covid (road infrastructure) has grown at a compound rate of 17%. This government is decisive—we may disagree with its decisions but it moves fast and once they decide, they deliver it to the ground. What saddens me is that despite this capability things don't seem to be happening. Because sometimes politics dominates economy and economic decisions get impacted.

Budget, state of the economy and the economic future

Niranjan Rajadhyaksha: The economy has just now regained its pre-pandemic level. Net net, we have lost two years of output. This recovery is still uneven and not self-sustaining. The recovery has been led by profits rather than wages. Consumption is still weak. Companies have cut down their debt, but that’s not the only driver of corporate investment. Capacity utilisation is 62-65% and usually the capex cycle takes off only when capacity utilisation is closer to 80%. So, the recovery needs government support—through fiscal policy.

In the next two-three years a lot depends on how to make this recovery sustainable by getting consumption more broad based and closing the output gap or the excess capacity gap.

Post pandemic, the labour force participation ratio has plummeted. Lots of people have given up looking for jobs. Creating jobs has been a tricky task for some time. 

In 30 years of reforms from 1991 to 2021, every economic parameter has changed significantly—per capita income, foreign exchange reserves, savings rates, etc. The one number that has not budged in 30 years is that 90% of Indians are still in informal sector jobs. The jobs issue is much deeper than a question of one budget. 

I don't think 2024 is a long enough period for us to make a stab at this. Reaching pre-pandemic levels is good enough.

Anil Swaroop: Most of the focus is on large industries. But most of the employment gets created in the small and medium scale sector. And the processes, despite ease of doing business, have not been good for them. 

The second area where employment happens is in real estate. It is nowhere near the pre-Covid state.

Unless you create these employment opportunities—the focus has to shift there.

Unemployment does not impact elections in India; inflation does. 

Why is investment not happening in MSMEs? One reason is probably that the government feels the emphasis on MSMEs is not so visible. 

So what ought to be done? Eliminate the interface between MSMEs and officials. Use tech for ease of business. When you announce something, have intensive dialog with the industry.

Neelanjan Sircar: There’s extraordinary growth in income inequality that looks like Russia. This is a major transformation that is taking place in the political economy of the country and the political economy discourse in the country… This is a major aspect the BJP will have to reckon with for 2024.

On farm laws 

Niranjan Rajadhyaksha: The structural transformation that happened across East Asia where people left farms for factories has not happened at the same level in India. But still around 40% of people in India are employed in agriculture. The interesting thing is that the rural economy also has diversified. Not at scale or in a modern way. Most “farming families” earn less than half their income from farming. The diversification of the rural economy has to be taken into account. The Indian farm policy is derived from the Green Revolution where India had a structural food constraint so even one failed monsoon would lead to high inflation and all sorts of problems. Secondly, it used to affect India’s foreign policy autonomy. That structural constraint has been broken. But the policy framework remains. The overall direction of the farm laws was correct. But I find it hard to believe that India can continue with its current structure of farm laws or that India can actually, if not emulate China, then at least move in that direction without moving millions of people away from jobs in farming and into modern industries.

Anil Swaroop: How economic decisions are managed politically—that's where the farm laws went wrong. It was poor political management of a good economic decision because of which it couldn't go through. 

On startups, in government we don't evaluate what we are doing… What we tom-tom is anecdotal evidence of some startups. 

Government should become a facilitator to industry. And it can become one. Understand what has worked in the country in various sectors and replicate that.

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Founding Fuel

Founding Fuel aims to create the new playbook of entrepreneurship. Think of us as a hub for entrepreneurs- the go-to place for ideas, insights, practices and wisdom essential to build the enterprise of tomorrow. It is co-founded by veteran journalists Indrajit Gupta and Charles Assisi, along with CS Swaminathan, the former president of Pearson's online learning venture.

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