Giving speeches comes easy to Indian Prime Minister Narendra Modi. He is forceful and charismatic. Many of his public rallies have been well choreographed over the years to show how much sway he has had over the masses. Since he has come to power he has delivered 775 speeches with many of them going beyond 30 minutes. Over the past few months, though, his appeal seems to be fading, though his output as a speaker remains undiminished. Images of people walking away during Modi’s speeches- before being taken down- have gone viral. What’s gone wrong?
No one in the ruling party will own up, but wrong decisions by the Modi government, including last year’s demonetisation, has eroded his credibility as the person who can be trusted to solve the gargantuan problems of a vast and populous country. Modi’s decision to demonetise large currency notes has extinguished jobs in the informal sector and ravaged the farm sector. A rough estimate by experts monitoring the economy have suggested that about 2-3 million jobs may have been lost. None of them are likely to return even when the money returns. This misery has been deepened by an ill-prepared government decision to bring in the Goods and Services Tax (GST). The net result of these ill-thought out “reforms” is a fall in the growth rate by almost two percent- this decline was predicted by former PM and eminent economist, Manmohan Singh, when he critiqued the demonetisation decision. Now the growth rate has slipped from 7.1 percent to a mellow 5.7 percent.
Narendra Modi, for the first time in three years of his term, is a worried man. He has not countenanced a situation where crowds walk away or he has to give elaborate explanations about why the economy is healthier than made out to be by opposition parties and economists. His explanation did not wash in a recent meeting in his home state of Gujarat, which goes to the polls in two months time. Gujarat’s economy has been devastated by these two decisions. Surat, a diamond and textile center, has been the worst impacted. Its markets, if local newspapers are anything to go by, wear a deserted look. In the early days of the GST decision, the city saw daily demonstrations and strikes. After the traders realized that the central government was not easing off, they began to cut down their businesses and began to lay off workers.
Local media estimates suggest that 2.5 million workers employed in these labour intensive industries have returned to their villages. Modi worries how these people will vote in Gujarat where his party has been in power since 1995. For quite a while he had no fear of losing, but the narrative is changing – quite rapidly.
Congress Vice President Rahul Gandhi who was mocked and ridiculed by the BJP leadership as intellectually inadequate and a non-starter has begun to get big crowds. His sharp one-liners are beginning to bite and there is a growing unanimity that his party, Congress, could pose a serious challenge to the BJP. In the last polls, the two parties were separated by a big margin of 10 percent votes, but there are many political observers that have begun to take a wager in favour of Rahul and the Congress party.
Modi, to his credit, does not really believe in his spin doctors to understand the ground reality. Being a grass root politician he has realized that the wind has begun to blow in a different direction. He also knows why the constituencies that he nourished for 20 years are getting restive. Gujarat, which is a mercantilist society, desperately needs liberal credit supply and cash in the market to kick start the economy. On Tuesday, his finance minister, Arun Jaitley, announced the re-capitalisation of public sector banks by infusing US $ 32.4 billion in their account books. These banks had been wrecked by non-performing assets (NPAs) or the debt of Tatas, Ambani, Adanis etc. Their total debt to the banks is so huge that it makes nonsense of the assertion of the economists in the present dispensation that had lobbied for curbing spending in the social sector.
These suggestions are criminal, but for a while they were given legitimacy by some big names in the world of economics who believed that the turnaround in India’s economic fortunes will happen only when the businessmen get back to business. This did not seem to be happening any time soon. For the better part of the year, the private sector investment was the lowest in the last 50 years. Though there is a contradictory trend of high stock market and Foreign Direct Investment (FDI) - which many economists attribute to foreign firms buying cash strapped Indian companies.
There have been cases of many Chinese funds also bailing out Indian companies, but that trend has come under stress ever since the tensions between India and China spun out of control at the Bhutan border. Media in China has wondered why their companies are investing in the Indian corporate sector when their soldiers have been involved in eyeball-to eyeball confrontation with Indians. Even Hindu extremist organizations in the country have been demanding the snapping of trade ties with China claiming that this move would help in reviving moribund Indian manufacturing. This is a tricky issue as scrapping of trade ties could neutralize the panacea prescribed to ease tensions between the two giant Asian powers.
Modi hopes that recapitalization of the stressed banks will infuse funds in a cash strapped economy. Small and medium enterprises that are starved of credit will be able to access the banks and start the productivity cycle of the economy. This is an official perspective, the flip side is that the bail-out of the banks will also help out the debt ridden companies – which should have been allowed to sink if the former Reserve Bank Governor, Raghuram Rajan’s prescription had been followed. That’s the reason why the opposition parties call this bail out a scam and want to commemorate November 8- the day the demonetisation was announced in 2016- as a black day.