Over the last few weeks the national narrative has shifted to the Indian economy—or rather how much better it could do. It is implicitly suggesting that the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) is not delivering on the stunning mandate it got in 2014.
Almost overnight anyone and everyone has morphed into an economic analyst. Several have, while making guesses on the political future, even drawn parallels to the economic situation prevailing in 2002 during the first regime of the NDA led by Atal Bihari Vajpayee. Like in NDA-2 at present led by Narendra Modi, there was macroeconomic stability and yet economic growth was losing momentum, while the bad debt problem spiralled out of control.
15 years ago, a dramatic economic recovery—riding on an export boom—followed after that moment of self doubt. The euphoria generated hubris and the coining of the politically fatal “India Shining” campaign that buried the Vajpayee government in the 2004 general election.
Critics have been quick to claim deja vu. It is difficult to hazard what will or not happen in 18 months from now, when candidate Modi bids for another term in office in the 2019 Lok Sabha elections. But it is safe to say that while the macroeconomic circumstances, on the face of it, may be similar, there is a fundamental difference. This is an India churning as it were.
Over the last three years, we have seen a series of structural reforms. Good or bad is a different issue altogether, but there is no denying that these changes have been structural in nature. To list but a few, we have the introduction of the goods and services tax (GST), dismantling of the price control regime for petroleum products, reordering of the bankruptcy ecosystem, electricity for all, attempt to universalize the use of cooking gas, the campaign for Swachh Bharat, push for use of Aadhaar or the unique identity number, demonetisation of high-value currencies and last but not the least the series of actions targeting corruption and black money.
All of these at a fundamental level are designed to fix the plumbing of the Indian economy by putting in place a rules-based regime. Seven decades of exception-based governance had not just clogged the pipes but had actually eroded the institutions for governance. Being structural in nature these change will not be tangible immediately and worse be disruptive in nature, especially when the exception-based regime unravels (the state of real estate funded by black money is a good example). Even critics can’t deny that in the long term these changes are preconditions of a modern economy based on transparent rules and the metric of efficiency.
Regardless the bevy of armchair economists have come to the conclusion that the economy needs a quick fix: an economic stimulus, and this despite the recent memory of the disastrous consequences of implementing an ill-advised stimulus package in 2008. Initial reactions from finance minister Arun Jaitley suggest that this is off the table for now.
What is most flawed in this unsolicited advice is that it presumes that the centre alone can revive the economy. In the face of flagging exports (trade accounts for a fifth of the economy), disruptive impact of structural change, prolonged rural distress and broad basing of economic governance by making states an equal partner in GST and implementing the recommendations of the 13th Finance Commission, such an assumption is way off the mark.
The new Indian economy is now in a three-legged race with states and the Union government operating as equal stakeholders in economic governance. And in this the Indian economy will be far better off if both the centre and states focused on reviving Bharat—not just alleviating prolonged rural distress, but also working on fixing the infrastructure in the emerging tier-II and tier III towns (new epicentres for economic action).
But for this politics has to be shelved and both sides have to stop operating in their respective echo-chambers; the consensus on GST is conviction that India’s politicians can rise above their partisan positions. The ball is in their court.