Expect Budget 2018 to be pro-poor, anti-elite: Ambit's Saurabh Mukherjea
More than any other politician of his generation, Narendra Modi seems to understand what the lower middle classes and the masses want.
Saurabh Mukherjea
The same team in different eras:
The 1983 World Cup winning Indian cricket team was drawn largely from the elite of the big Indian cities. Sunil Gavaskar came from a Mumbai-based middle-class family and his uncle was a test cricketer. Mohinder Amarnath was the son of a Delhi-based test cricketing legend, Lala Amarnath. Kirti Azad from Bihar was the son of a prominent politician. Roger Binny came from an Anglo-Indian family in Bangalore. Ravi Shastri was a Mumbai-based doctor’s son. From Chennai, came an electrical engineer-cum-opening batsman, Krishnamachari Srikkanth.
The standout in every way was the captain. Kapil Dev came from what was then a small city, Chandigarh, and from a farming background. As he put it recently, “In those days cricket used to be played by cultured people. My teammates came from culture. I came from agriculture.”
The social origins of the current Indian cricket team are very different. Kuldeep Yadav from Kanpur is the son of a brick kiln owner. Bhuvneshwar Kumar is from Bulandshahr in UP. Yuzvendra Chahal is from Jind in Haryana. Hardik Pandya is from Choryasi in Gujarat. Axar Patel is from Anand in Gujarat. Manish Pandey is from Nainital in Uttarakhand. And of course, MS Dhoni is famously a groundsman’s son from Ranchi.
These changes that have taken place in the Indian cricket team are representative of the changes that are taking place more generally in Indian society.
New groups of people from the smaller towns and cities are pushing the entrenched elites of the big cities out of the way. Whilst this churn in Indian society is not new, its profound effects on India’s politics and its economy are only now becoming fully apparent.
The entrenchment of the old elite:
The Mughals (from around 1500 to around 1750) and the British (from around 1750 to 1947) used broadly similar constructs to rule India. They outsourced much of the real fighting to the Indians (the Rajputs in the case of the Mughals and the Sepoys in the case of the British), the tax collection to feudal lords and zamindars (who were able to keep the profits of farming provided they collected and handed over the taxes to their rulers) and the administration to a class of munims (accountants), dewans (officials), and later on under the British, the Indian Civil Service.
In fact, so extensively did the British outsource all the real work that at no point did Britain have more than 10,000 British people on Indian soil even as they controlled the subcontinent for 200 years.
When India became independent, this class of relatively affluent people – who had served the Mughals and the British – in various capacities over the preceding 500 years became the new rulers of India.
Seventy years on, it is not hard to see why the masses are unhappy with the post-Independence elite. The Indian state has by and large failed to deliver education & jobs, health & sanitation, and law & order to the masses.
This is especially true in northern India where per capita income is lower than in Afghanistan, where female labour force participation is lower than in Pakistan, and where the child gender ratio has deteriorated over the past 10 years from 900 women per 1000 men to 894.
The frustration on the jobs front is particularly acute as lack of employment takes away from people the main medium via which to attain a better life.
Around 12 million Indians enter the labour force each year but over the last three years, the country has created only roughly one million jobs.
The rise of a new society
From the late 1980s onwards, an establishment which has not delivered the fundamentals of life for most of its citizens came under attack from a new generation of leaders who then build their careers on anti-establishment policies.
Through the 1990s and noughties, we saw this happening in specific states like UP (Mulayam Yadav and Mayawati), Bihar (Lalu Prasad and Nitish Kumar) and West Bengal (Mamata Banerjee). To varying degrees, these leaders allowed their followers the bend the law to their benefit. Theirs was anti-establishment politics of a very basic kind.
Over the past five years, Narendra Modi has emerged as the person most capable of skillfully harnessing the discontent of the masses. Until Mr. Modi came along, in almost every decade post-Independence, the largest party in the Lok Sabha (the Congress for the most part and the BJP in some years) has systematically lost vote share.
The percentage of the Lok Sabha seats won by the largest party in Lok Sabha has trended down as follows: 1st Lok Sabha: 74 percent; 5th Lok Sabha: 65 percent; 10th Lok Sabha: 46 percent and 15th Lok Sabha: 38 percent.
The relentless demise of the national parties is arguably driven by the rise of more regional, less privileged, non-Brahmin and non-English-speaking elites.
More than any other politician of his generation Mr Modi seems to understand what the lower middle classes and the masses want. Specifically:
# They want to live in a rule-based society where the elite are not able to bend the system for their (the elites’) benefit. The more aggrieved among them want to see the elite being held accountable for the abuse of power and the misappropriation of the public’s money.
# They want to be told that they (the masses) have a glorious history and great traditions which they can be proud of. The more assertive among them want to see a muscular assertion of this history and these traditions (rather than seeing the glorification of an Anglicized view of the “idea of India”).
# They want to see the state – rather than thuggish local politicians – deliver the basics of life. These men and women want their children to be well-educated and healthy. They want to live in pucca homes and purchase products which signal to the community around them that they are moving up in the world.
# It is worth reiterating that Mr. Modi did not create these notions nor evoke these sentiments. He has simply harnessed long ignored emotions and needs better than any other politician in the land. By implication, therefore, his political future now hangs on delivering on these needs.
Investment implications
This backdrop makes it almost inevitable that the NDA government will have to take a strong anti-elite stance over the next 18 months as it fights 13 assembly elections and then the 2019 General Elections.
So I expect the political rhetoric to be hostile to the interests of the capitalist class and I expect the 2018 budget to be pro-poor (a step up in subsidies which haven’t grown at all under this NDA regime) and anti-rich (new taxes on the rich).
Secondly, I expect to see the Bankruptcy Code, the Benami Transactions Act and the broader crackdown on black money to be used to parade wealthy tax evaders in front of the media.
Thirdly, I reckon that any measure that positions the government as being aligned with the interests of the business class will be shot down. I think this is the reason why we still don’t have a recapitalisation of public sector banks in spite of the obvious need for it.
And finally, while stock market participants like me can carp about the degree of disruption entailed by Mr. Modi’s resets, it is clear that he has broken the grip of the traditional Indian elite on the levers of power.
No longer can people with crisp English, membership of the right clubs and degrees from prestigious universities expect to run the country.
The new elite are those with a strong grip on Hindi, a practical understanding of how small town and rural India functions, an ability to identify with the country’s ancient traditions and, of course, the ability to win the trust of the Prime Minister.
That in itself implies that the country will see a huge churn in its economy and in its elite over the next decade.
Disclaimer: Saurabh Mukherjea is the CEO of Ambit Capital and the author of “The Unusual Billionaires”. The views expressed are personal. The views and investment tips expressed by the expert on moneycontrol.com are his own, and not that of the website or its management.
