At his party’s foundation day rally in Mumbai last week, Bharatiya Janata Party (BJP) president Amit Shah sounded the poll bugle. With the 2019 Lok Sabha elections a year ahead, what is the party’s strategy on the Indian economy? What do people think about the government’s performance on the economic front and how does it plan to improve perceptions?
Current perceptions
Look no further than the Reserve Bank of India’s (RBI’s) surveys carried out last month. Its Consumer Confidence Survey says that 51.6% feel that the general economic situation will either remain the same or worsen a year from now. Further, 50.5% said they expect their employment prospects to either remain the same or worsen a year ahead. And an astonishing 53% believe their incomes will either remain the same or decrease a year from now.
In short, more than half the people surveyed expect no improvement in their incomes, job prospects or the economy a year from now. That is an extraordinary negative perception and does not bode well for the government.
In the RBI’s Industrial Outlook survey of manufacturers, 59.6% said they saw either no increase or a decrease in production in the current quarter. As much as 72.4% said they saw no change or a decrease in capacity utilization in the current quarter. And 82.3% said they either saw no change or a decrease in the employment outlook in the June 2018 quarter.
And, if this is the state of the formal sector, it’s likely that the informal sector is even worse off. It’s not a pretty picture.
What the government plans to do
But the government is not going to idly sit by and commit electoral hara-kiri. Here are some of its plans:
1) A massive road-building programme. The National Highways Authority of India (NHAI) has done ordering of 7,400km of roads in FY18, most of it in the second half. That’s 70% more than it ordered in FY17. Another 3,000km of roads are expected to be ordered in the next few months, says a Kotak Institutional Equities report. That will result in construction jobs for the masses.
2) Bank loans to small industries and businesses. In the three months to end-February, priority sector loans to small industries and services businesses have gone up by Rs11,100 crore each. An additional Rs8,000 crore has gone to micro-credit borrowers. And Rs15,600 crore was the rise in loans to weaker sections.
3) The affordable housing scheme. Apart from the subsidy for prospective house owners, it should see more jobs in the construction sector.
4) The government has announced a mammoth recruitment programme in the railways. BJP state governments in Uttar Pradesh, Rajasthan and Madhya Pradesh have all announced openings for lakhs of government jobs.
5) The promise to hike minimum support prices (MSP) to 150% of the cost of production and extend MSP scheme to more crops.
6) In order to fund these programmes, the government has strayed off its fiscal road map for the 2018-19 budget. The final deficit could be higher than projected. RBI believes there could be fiscal slippages by states, too.
7) The government has back-ended its borrowing programme to comfort the bond markets and lower yields. RBI has also helped, with a slew of sops for the bond markets and for banks. Bond yields have already tumbled from their highs, enabling easier borrowing for firms.
8) All forecasters believe India’s gross domestic product (GDP) as well as corporate earnings will improve this fiscal year, as the disruption caused by the introduction of the goods and services tax (GST) fades.
What could go wrong?
Lots of things could go wrong. Trump’s policies may affect both exporters and the information technology (IT) industry. The state of the banks may crimp lending. Those thrown out of work in the informal sector may not be satisfied with jobs in construction. The fiscal deficit could overshoot, sending yields higher. The government could resort to tax terrorism, if collections fail to achieve targets. The higher MSPs could lead to inflation. Nervous stock markets may inhibit capital expenditure.
But economics may not matter much
Voters do not live by economics alone. The Indian voter will also be affected by other considerations, including caste, lies, propaganda, corruption, the dashing of high expectations, the misuse of religion, broken promises, opposition unity, and how much cash and booze are being freely dispensed by candidates. Some of them could even care about more arcane matters such as whether our history books have been cooked, whether Aryans are indigenous to India and whether someone at the other end of town is eating beef.
Manas Chakravarty looks at trends and issues in the financial markets. Respond to this column at manas.c@livemint.com