The results of the just concluded general election may partly be interpreted as signalling a discontent with economic conditions. The substantial drop in the number of seats won by the Bharatiya Janata Party (BJP) in Uttar Pradesh — which is among India’s poorest and most rural States — aligns with this view. Discontent, its sources Dissatisfaction with governance is bound to be high at a time of unemployment and persistent inflation. Food-price inflation, in particular, has remained elevated for five years. It is highest for cereals and pulses, which are staples. For households at the bottom of the income distribution, food constitutes close to half their household expenditure. Past experience suggests that the price of food can be a determinant of how the electorate votes. For instance, historically high food-price inflation towards the end of its decade-long tenure had preceded the end of the A.B. Vajpayee-led National Democratic Alliance government in 2004. When it comes to jobs, the unemployment rate has mostly been higher since 2014. The Periodic Labour Force Survey also shows a decline in the real earnings of regular employees and the self-employed, being substantial in the case of the latter. These are some of the sources of the economic discontent that may have propelled the shift away from the BJP.
In the spirit of democracy, which he constantly refers to, Prime Minister Narendra Modi must now honour the mandate given by the people. His government must address the sources of their discontent. This would require a change from the economic approach that has been followed for the last decade. We are yet to see indications that the government has this in mind. The Finance Minister has promised ‘reforms’, and some supportive commentators have spoken of how they are essential for growth. Two points spring to mind as reforms are brought to the table. First, Mr. Modi’s much praised reforming zeal has not translated to a higher average growth rate after 2014. Reforms understood as changes in the policy regime are effective only to the extent that they affect the forces of demand or supply. Clearly, this has not happened strongly or widely enough in the economy, whatever the reforms undertaken by the present regime so far. Second, the growth that we have seen since 2014 has not brought along with it the things that Indians aspire to. I have already mentioned the high food inflation. The Food and Agriculture Organization of the United Nations estimates that close to 75% of the Indian population cannot afford a healthy diet. This is not surprising given the extent of increase in food prices in the past five years and the highly unequal distribution of income in the country. Apart from affordable food, Indians aspire to infrastructure, both physical and social. Social infrastructure is constituted mainly by health care and education. Physical infrastructure is almost everything that is necessary both for everyday life and engaging in economic activity. Both are crucial for living.
The economic policy of the past decade has focused on attracting foreign investment, moving to digital payment in all spheres, building a manufacturing sector through subsidy and, in the past three years, unleashing a highway construction spree. Combined with this, there have been a host of transfers, cash for farmers and housewives and free rations for the poorest. This might appear to be a winning formula, but it has not been enough to bring the BJP back with a majority. To continue with this would be to ignore the people’s verdict. To honour it would require going beyond vague pronouncements on reforms or doubling down on welfare transfers, even if there was fiscal capacity for this. Showcasing macroeconomic stability also will not do. Till the COVID-19 pandemic, the central government had had fair success with fiscal consolidation, though not equally with inflation control, but that could not prevent growth from sliding even before COVID-19 had struck. While you certainly do not want macroeconomic instability, we can now see that it does not necessarily bring more growth or deliver the goods citizens aspire to. Continued high growth in India would require a rise in the investment rate. Private investment is guided by anticipation of demand. The private investment rate in India has not budged for a decade. Whether it will rebound at a time when its principal cheerleader, Mr. Modi, has lost his majority in Parliament is to be seen.
Glaring deficits So, if ‘more reforms’ is not the way for economic policy to respond to the electorate, then what is? It would be to undertake specific interventions at the pressure points which currently signal a presence. The first, as already flagged, is the rising price of food. Other than the promotion of millets, agriculture has been a generally neglected aspect of the Modi economic package of the last decade. The relentless rise in prices of staple foods is the sign of an under-developed economy, and sits uncomfortably with the goal of a ‘Viksit Bharat’. While wheat production only experiences shortfalls in certain years, the production of pulses, a major source of protein for workers, has chronically fallen short of demand for decades. Making India self-sufficient in pulses must be taken up in mission mode. The supply of fruits and vegetables, the sources of vitamins and minerals, is hobbled by the absence of cold-storage facilities and poor transportation. A second pressure point in the country is to be found in the Indian Railways. Its leadership appears to have been caught unawares by the rise in long-distance migration for work. Pictures of reserved compartments on long-distance trains swarming with ticketless travellers have sent shock waves across the country. In such a situation, to treat high-end ‘Vande Bharat’ trains as a priority, not to mention the bullet train, is a serious failure of judgment when it is not actually irresponsible. A third pressure point is the strained water supply situation in our mega cities. First Bengaluru and now Delhi have witnessed severe deficits this summer. These are India’s leading agglomerations and water shortage can cripple their economic potential, apart from endangering social harmony. ‘Nal se jal’ must seem a distant dream to many.
The public sector is crucial I have selected only a small set from the many deficits in India today, but this would be sufficient to see the point being made. Expressways and a Digital Stack, which the BJP has championed, have their place for sure, but connecting cities and digitising India are not the most pressing of the country’s needs right now. The country needs infrastructure that supports both everyday life and economic activity. The first is easily understood, but the second perhaps not. Firms, including the self-employed, need producer services ranging from efficient transportation and steady electricity supply to sewerage and waste disposal facilities. When such services are unavailable, production cannot take place, and employment cannot expand. The relatively high growth in India over the past quarter century has not delivered these services sufficiently, and they are unlikely to be supplied by the private sector within any time frame. Only the public sector can supply them at scale. Surely, this must be obvious to Mr. Modi as he travels the world to attend summits held in locations with impressive public infrastructure. His economic approach has banked too much on the private sector to take the lead in developing the country. But this has not materialised in a decade, and it is unlikely to change. The government, however, can undertake course correction now. Instead of promising, or even implementing, liberalising reforms, it should move swiftly to address the pressure points that are so obvious. It has set 2047 as the date to make the country a developed economy. However much it may grow by then, India will remain underdeveloped without the infrastructure to support life. Pulapre Balakrishnan is Honorary Visiting Professor, Centre for Development Studies, Thiruvananthapuram
