by Harish Gupta, National Editor, Lokmat Group
2017 has begun on a heap of misconfigurations from the year that is just over. Brexit, Donald Trump’s victory in the US presidential election, rise of ultra-nationalism, and potential ‘great dictators’, at all corners of the world.
At home, Prime Minister Narendra Modi’s aggressive foreign policy has begun losing its sheen, with traditional India-baiters China and Pakistan wresting old ally Russia from India’s embrace. Trump’s entry into the White House still a few days ahead, and with his legendary unpredictability, events in 2017 may put India in a diplomatic isolation it never experienced. On the economic front, the post-2010 stalemate continues, with demand subdued, exports stunted and consumer prices ruling high. There is little promise of the new year being a break-out year either for India or the world.
However, Modi’s shock move on November 8 to scrap the high denomination notes of 500 and 1,000 rupees has come with the promise of bringing about a series of systemic changes in the economy. The demonetisation exercise has brought large amounts of money into the banking system, thus enabling the government to take a host of fiscal measures to address India’s enduring problem of inequality. It looks like note-scrapping is only the first of a series of measures on the anvil, and may extend to locking up the channels through unmonitored cash flows—property, gold, etc. The biggest distortion caused by unaccounted money is in politics as the untold cost of elections is met from illicit ‘donations’ from persons and organizations with elaborate post-poll agenda. Much of UPA-2’s (2009-14) troubles over price and distribution of natural resources, for that matter, had originated from shadowy poll financiers insisting on their demands being met by the government after election. Under Representation of the People Act, a political party is not liable to disclose identities of donors below Rs. 20,000. Modi, in his new year’s eve speech, has used strong language to remind all parties of their moral duty to help change the elections laws so that election finance becomes transparent, thus clogging perhaps the most toxic outflow channel of unaccounted cash. There is a possibility that some action may follow in the days to come.
Modi’s position in the world, which looked robust till last year, may be badly amiss now. Apart from the diplomatic isolation which I mentioned at the beginning of this article, what he may face is some chilling after-effect of growing protectionism which is threatening global trade and, consequently, the hope of India using FDI as fuel of future growth.
It is evident that Modi is not without an early apprehension about global investment drying up. That may be the real trigger for his de-monetisation move, as all that he wanted, perhaps, was to mobilise domestic cash for giving a push to the economy. May be it will work even in the medium term as the promises he has made in his new year’s eve speech focuses on housing for the poor which, by itself, can be catalyst for general growth. The government banks, reeling under bad debt (the stressed advances to gross advances in June 2016 being 12%), were compelled to shut their doors to all sorts of borrowers, including the small and medium sector, in the recent past, that being the main reason for economic slow-down. 2017 may witness the banks resuming advances to the SME sector which contributes 40% to exports and 45% to the total manufacturing output.
However, in the rapid course corrections the Centre will be forced to make this year on practically all fronts, its success will greatly depend on Modi’s ability to ride out the political storm at home. It appears that the Congress had put all its eggs on the single basket of de-monetisation, thinking that it could not but fail miserably, leading to a massive backlash. Congress vice president Rahul Gandhi happily stayed in this bubble of illusion, and was supported by Mamata Banerjee and Arvind Kejriwal. But Rahul’s de-monetisation ‘bomb’ turned out to be a damp squib with no visible backlash. As he is reportedly holidaying abroad, there is slender chance of his party clawing its way back to a respectable height in near future.
In Uttar Pradesh, the election is likely to be bellwether for general elections in 2019 owing to its size and also due to the closeness of the race between BJP and the ruling Samajwadi Party. In 2012, SP won over half the 403 assembly seats and Akhilesh Singh Yadav, the young chief minister, became the poster boy of the party founded by his father, Mulayam Singh Yadav. But the Yadav family’s primacy was severely dented when, in 2014, BJP grabbed 73 of the state’s 80 LS sets. Trouble erupted in the Yadav clan since then, as Mulayam and his aides began doubting Akhilesh’s capability to measure up to BJP’s challenge while Akhilesh held his father, and his proneness to drive the government from back seat, squarely responsible for the defeat.
The state’s third player, Mayawati, has somehow lost the charisma that enabled her in 2007 to cobble together a multi-caste canvas in which upper castes coexisted with the jatav—her own caste. It did not last in the 2012 election. Nor is there much indication of its revival this time round. Akhilesh is still a leader who commands respect for bringing about some improvement in the quality of life in Uttar Pradesh—a so-called ‘bimaru’ state—by investing in electricity, roads and girls’ education. But doubt persists about his family feud ending before elections, thus giving BJP a valuable edge in a state which is home to a fifth of the country’s population. Armed with Modi's December 31 largesse and project the PM as messiah of the poor, the Sangh Parivar has launched massive blitzkrieg in UP. Undoubtedly, round one has gone to Modi post-demonitization.
