The first advance estimates released by the National Statistical Office (NSO) expect the Indian economy to grow at 7.3% in 2023-24. This makes India the fastest-growing major economy in the world by a distance. Global growth rankings aside, what does this number actually mean as far as India’s political economy is concerned? This question is best answered by some examples.
To sugarcoat the withdrawal of additional food grain entitlements rolled out during the pandemic, the Narendra Modi government has decided to make regular food entitlements under the National Food Security Act free for its 800 million beneficiaries. These entitlements were heavily subsidized to begin with and savings from the tweak in rules would run into just a few hundred rupees per household. The ruling Bhartiya Janata Party (BJP) expects to reap and hopes to continue to reap political dividends from a move that speaks more about the economic precarity of the masses than anything else.
In an interview with Business Standard on January 9, the CEO of Godrej Consumers Products Ltd, Sudhir Sitapati had to say the following about 2024’s prospects for his company and the industry at large. “For the last two or three years, premium categories have been doing well, while mass categories are not doing that well. I hope this trend reverses in 2024”. On January 8, luxury car maker Mercedes said in a statement that 2023 was its best-ever year, both by sales (17408 units) and production, in India. The company expects this run to continue. On the same day, real estate giant DLF announced that its offering of luxury flats in Gurugram – 1000 of them worth ₹7200 crore – was fully sold within three days of launch. “In 2023, the company launched a high-rise luxury housing project The Arbour after almost a decade that witnessed pre-formal launch sales of more than ₹8,000 crore. It was sold out completely before the official launch”, HT reported. To be sure, the universe of booming demand is not as small as the cohort of those buying luxury cars or houses. Indigo, India’s largest private airline broke a record by becoming the first Indian airline to carry 100 million passengers in a calendar year in 2023. Almost half of the record 4.1 million cars sold in India in 2023 were SUVs, suggesting an upward mobility in India’s car markets.
In a blog post written after a month-long trip in India earlier this month, veteran emerging markets investor Mark Mobius was extremely bullish on India’s future prospects. “Given my optimism for India’s future, I’m often asked about the right time to invest in this market, currently labelled as “overvalued” by some analysts. In my view, traditional stock valuation metrics like price/earnings ratios often overlook the future growth potential of many Indian companies. While the current P/E ratios may seem high, they primarily reflect past performance and don’t fully capture the prospective rapid growth in earnings, potentially making Indian stocks more attractive in the long term”, Mobius wrote in his blog.
Is there a larger message in these disparate examples? It is possible to make an argument that there is one.
The 800 million-plus people who are grateful to the government for providing them free food grains and who are perhaps also struggling to buy even cheap toiletries represent the overwhelming universe of voters in this country.
Then there are tens of millions of those who are buying cars and travelling by air. While small when compared to the 800-million number, this cohort is significant when compared to what markets in other countries offer for sellers of similar products. This multi-million cohort is what can be described as the universe of consumers (who matter) in the Indian economy.
It is this universe of consumers which is attracting investors like Mobius to the Indian economy, whose primary motivation is to invest their money in relatively attractive markets, not whether economic growth has a narrow or broad base. To be sure, investors do not include only foreign investors and there is a sizeable amount of domestic capital in the country which is extremely crucial to the BJP’s political finances. Without this money, the BJP will find it impossible to run the gigantic political machinery the party has come to be associated with in the last decade.
The only mystery in this political economy story is the following. Why are voters not angry about the celebration of an economic boom that is exclusively leading to a mutually beneficial dialectic between consumers and investors? There can be only three logical answers to this question.
One, the current government is giving much more to the poor than any other regime in the past and therefore the poor are actually happy rather with the BJP. Two, this current government is better at ensuring political payback for its support to the poor than previous regimes. And three, this government also has an extra-economic narrative to ensure that the poor do not desert it even when things are difficult on the economic front.
Anybody who has been following India’s political economy in the past decade will agree that all three are true in some way.
While the opposition’s criticism of some of the government’s welfare schemes being rechristened versions of older schemes is true, one cannot but accept the fact that their scale has seen a significant increase during this government’s term. The proliferation of direct benefit transfers and co-branding of almost all welfare schemes with the prime minister’s persona has created a perfect cocktail of technology and politics to ensure efficiency and attribution for the government’s pro-poor schemes. This narrative of the BJP has been ably aided by its rhetoric on Hindutva and nationalism which has tremendous traction within large parts of the country across the class divide. This multi-class traction for the Hindutva nationalism project is extremely important in ensuring that the underclass of voters sees a common cause rather than antagonism vis-à-vis the far more privileged class of consumers.
While investors might not say it explicitly, one of their biggest reasons for being comfortable with the BJP despite its economic philosophy not being wedded to the textbook idea of a free markets regime is their belief that the BJP can use its Hindutva card to mute economic tensions within its multi-class support base.
Is this an invincible political strategy in India? Something will have to give for it to not be the case. There are only two logical ways in which this can happen.
The first kind of rupture can take place if the economic aspirations of the class of voters reach a level where investors and consumers feel threatened by its economic costs. This can take the route of either unmanageable fiscal spending or the poor successfully increasing their wages which triggers a wage price spiral in the economy. So far, the Modi government has done an excellent job in managing both these scenarios. While competitive populism from Opposition-ruled states is a matter of concern for the BJP, it is fair to say that there is no nationwide push at the moment which threatens the core macroeconomics of the government.
In fact, one can go to the extent of saying that the underclass will not become militant enough to challenge the status quo unless it has achieved some upward mobility where the kind of welfare benefits it is receiving become insignificant. A lot of economic commentators who lament the dominance of the identity of the proverbial “labharthi” (beneficiary) over a rights-wielding citizenry get the causation upside down here.
This is not to argue that the economic militancy of the underclass is a switch which will flip with per capita income levels reaching some fixed threshold. Independent India has not had a history of consistent and politically significant class struggle outside feudal agrarian structures or white-collar organized labour employed by the government. Both of these are pretty much irrelevant in India’s political economy today. It will take a radical transformation and purge of the opposition’s ranks to even start this kind of economic pushback in India.
The second rupture can take place by undoing the glue of Hindutva and nationalism which is holding the BJP’s multi-class coalition together. On both these fronts, even the leadership of the opposition is hopelessly confused. The fact that the Indian National Developmental Inclusive Alliance has not been able to come up with a joint position on the politics of participation in the inauguration of the Ram temple in Ayodhya is the biggest example of this confusion.
The opposition’s inability to work on these contradictions is the biggest reason why the BJP is extremely successful and confident about its political prospects despite economic growth continuing to benefit relatively few in the country while the masses continue to live on benefits. Every other theory is just a conspiracy theory.
Every Friday, HT’s data and political economy editor, Roshan Kishore, combines his commitment to data and passion for qualitative analysis in a column for HT Premium, Terms of Trade. With a focus on one big number and one big issue, he will go behind the headlines to ask a question and address political economy issues and social puzzles facing contemporary India.
The views expressed are personal
