The Upside of India’s Economic Slowdown

If the politically dominant BJP’s latest troubles are any guide, the world’s largest democracy’s immune system is working.

india-bjp-economyTime was when a politician could brush off fierce critics of the government as “nattering nabobs of negativism.” But this is not 1970, the year the White House speechwriter William Safire coined that memorable phrase for the Nixon administration to push back against attacks by what it saw as the liberal American mainstream media.

These days, in another robust democracy, the local equivalent of the “nattering nabobs” are predicting a “hard landing” for the world’s sixth largest economy (by nominal GDP) as they launch fierce attacks on Narendra Modi’s government amid indications that India has missed the bus of a global revival in economic growth and jobs growth.

The government has been pushing back, not with witty wordplay but in the form of an ageist insult (“a job applicant at 80”) by the finance minister to a critique of his track record by a stalwart of his own BJP party, followed by a cryptic warning from Modi against “some people who sleep well only after they spread a feeling of pessimism.”

Counter-intuitive though the argument may sound, but if the Indian economy is doing as badly as the media mavens and the number crunchers at the IMF say (6.7 percent for 2017-2018), then the cloudy outlook may have a silver lining or two from the standpoint of the wider national interest.

For one, the persistent weakness of the economy appears to be the only chink in the ruling BJP’s armor keeping its illiberal Hindu nationalist impulses in check, just when the party looks electorally invincible and poised for full-spectrum domination of the country’s political landscape.

For another, the collective sinking feeling may just convince Prime Minister Modi and Arun Jaitley, the finance minister, to stop expecting economic growth to pick up as a result of merely cracking down on tax evasion and unaccounted wealth (black money), and to start putting in place serious structural reforms.

Daunting challenges

To be sure, any optimism at this stage may be premature considering the daunting array of problems facing the vast and diverse country with a billion-plus population.

Besides, the Modi-Jaitley duo may not have any appetite left for bold reforms after watching the disruption caused by the demonetization policy, in which 86 per cent of India’s banknotes were replaced in an effort to flush out “black money”, and the introduction of the country’s first national goods and services tax (GST).

Trouble is, tinkering around the edges of the machinery of government may no longer produce the desired results.

To its credit, the Indian finance ministry threw a lifeline on October 24 in the form of a $32.4 billion recapitalization plan to the most heavily indebted state-owned banks. But it is still too early to tell whether the long-awaited move will succeed in cleaning out the banks’ bad debts and stimulate credit growth and private investments.

According to Ruchir Sharma of Morgan Stanley Investment Management, “there are many reforms that India could carry out to become more competitive in manufacturing. These would involve changing its cumbersome labor laws, cutting corporate taxes to levels seen in East Asian countries and improving the transportation networks.”

Although the Modi government prefers publicly to sing the praises of demonetization and the GST introduction and play down the shortcomings, it is surely all too aware that the Indian economy, whose GDP growth rate has fallen steadily from above eight percent in 2015 to below six percent in the second quarter of 2017-18, is ill-prepared for any more shock therapy.

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Downside vs upside

Whatever its real cause or causes, the slowdown of the Indian economy by even a fraction of a percentage point is undoubtedly no academic issue. Jobs that otherwise would have been created, will not be there for the estimated one million Indians who every month join the ranks of those already looking for openings.

Millions of people who otherwise would have been lifted from poverty, will continue to remain poor. Corporate downsizing and industrial contraction will compete with construction-industry bankruptcies and infrastructure-project delays to dominate the news in the coming days and months.

But, by the same token, the upside of any humbling of the BJP juggernaut tantalizes with its possibilities: fewer assaults on impoverished Muslims by self-styled cow-protection vigilantes; an end to manufactured controversies over patriotism and secularism; and an overall decline in the number of incidents that cause harm to India’s reputation as a democracy where majority rule never rides roughshod over civil rights and liberties.

With a Hindu nationalist government struggling to show its managerial chops, religious minorities would get some respite from an environment of soft bigotry while educational and cultural institutions and media companies would find themselves less exposed to government meddling. The economy too would eventually begin to recover and regain momentum after a steep learning curve.

All this of course is the ideal scenario. So a few caveats are in order. A chastened BJP leadership with plenty of deflated egos may not automatically translate into fewer hate crimes on the ground or the undoing of job-destroying new laws that ban trade of cattle for slaughter.

It is also fanciful to suppose that a BJP saddled with a stuttering economy, will be able to resist the temptation of dog-whistle politics as it confronts a series of tough electoral contests in the months ahead.

Fair trade-off?

Even so, if the outpouring of media analyses, interviews and op-eds assailing the economic record of the government somehow succeeds in rearranging the priorities and changing the attitudes of the BJP’s rainmakers, who hitherto have devoted all their energies and ideas to the task of winning elections, then the outcome can only be all to the good.

To borrow the language of political economists, if a small slippage in India’s GDP growth rate is the price to pay to keep its raucous democratic character intact, then the trade-off may seem fair enough to many.

Meanwhile, for a politician aspiring to a second term as prime minister, Modi could do worse than demonstrate a renewed commitment to his original slogans – “maximum governance, minimum government”, “together with all, development for all” – and abandon what Morgan Stanley’s Sharma calls “uniquely Indian policy experiments.”

Against such a backdrop, it is simple-minded on the part of India’s “nattering nabobs” to view the underperforming economy as an unmitigated national disaster. Rather they should see the slowdown as a function of the natural defense mechanism of the country’s body politic.

Arnab N Sengupta, a Doha-based journalist, is a former editor at India Today newsmagazine and Dubai’s Khaleej Times newspaper.