This sort of a retreat should not happen beyond this point because the economy is back to where it was in 2003.
When the BJP came to power with a simple majority of just two or three seats in 2014 it inherited an economy in total shambles. Inflation was around 15 percent and foreign exchange reserves were rapidly dwindling. The banks were in crisis and overall economic growth was dipping. India was named as one of the Fragile Five, a dubious club of countries whose economies were going down the tube.
Today, touch wood, the opposite is true. Inflation is below 6 percent (but getting there quite quickly). Forex reserves are plentiful. The banks have been mostly rescued and growth–after the twin shocks of an utterly egregious demonetisation and Covid–is looking up.
The credit for this, whether you like it or not, must go to the prime minister for having given five clear directions in late 2014: keep inflation low, keep the fiscal deficit low, build up forex reserves, reform the tax system and rescue the banks.
He may not have understood the economics of it all, but of the political implications, he was fully aware. His about turn in the farm laws proves that he sees everything in just one dimension: politics. That helps sometimes. But not always.
The basic directions of 2014 have been almost fully, if faultily, implemented. The payoff is round the corner, provided politics doesn’t triumph again.
It would have taken less time if some much-needed reforms–land and labour–hadn’t been blocked by the Congress parliamentary party. But the prime minister was equally culpable–of taking fright and postponing reforms when he could have taken more risks. He has done it again with the repeal of the farm laws.
His credibility as a reformer is in tatters now because of the old albatross, the need to win everywhere: in UP and other states. UP may be important but most other states aren’t.
This sort of retreat should not happen beyond this point because if you pause to think, the economy is back to where it was in 2003. India then was like a plane that’s waiting at the end of the runway to begin the roll for take-off.
It did take off and, indeed, flew well till finance minister Pranab Mukherjee crashed it between 2010-2013. Everything that could go wrong, went wrong.
But all that is history now. The BJP has the same opportunity now as it had in 2003 but which it ended up legating to the Congress in 2004. Put that down to Sonia Gandhi’s bottomless luck which made the BJP wait to complete its term of five years rather than go for an early election six months earlier. That’s very long in politics.
The all-important question, therefore, is whether the BJP will fritter its opportunity again. It could if it gets obsessed with the 16 impending state assembly elections in 2022 and 2023.
That, sadly, is what the repeal of the farm laws shows.
The biggest risk to the government, it’s clear, comes from itself where it’s political ego could make it repeat the Bengal error. It must realise that if it wants to retain power at the Centre in 2024, it must not fritter away the economic momentum that is being generated by trying to pluck every fruit on the tree. A few should be left for the birds.
Keep the focus
There are three ways of ensuring this. Each is the opposite of what the UPA did between 2011 and 2013. There is no rocket science involved.
One, keep inflation low, especially food and energy. Two, keep the fiscal deficit low by avoiding scattershot expenditure. And three, keep exports high by letting the rupee depreciate.
It is not up to me to suggest the details of how exactly these objectives should be achieved. The government today has many more excellent economic managers and they know what to tell the government.
All you need, anyway, is about half a dozen good guys. They are there in all the key economic ministries as also at the very top of the PMO. Very few people know that the principal secretary to the PM is also a very fine economist.
That’s why, in the end, and as always, it’s the political direction that’s going to be crucial. The key decision will be in choosing which battles to fight and which to avoid.
The BJP has already lost a battle that it had nearly won. Now wait for more blackmail as the Opposition sails onward in the wind that the government has just blown into its sails.