Two Years Before General Election, What Can Modi Do To Avoid Manmohan's Fate?

Almost all the domestic factors that contributed to the fall of the UPA-II regime are back to haunt the BJP-led government as it enters the last two years of its second term
What is certain is that the challenges more or less remain the same for the Modi government
What is certain is that the challenges more or less remain the same for the Modi government

A week ago, Prime Minister Narendra Modi-led BJP government marked its eighth year in power. With just about two years to go for the next General Election in May 2024, experts have already started dissecting the social, political and economic implications of the regime’s controversy-marred rule over the years and the jury is out. 

Interestingly, almost all the domestic factors that contributed to the fall of the Manmohan Singh-led United Progressive Alliance (UPA)-II regime—from crippling inflation, soaring crude oil prices, weakening currency, unemployment to slowing economy—in 2014 are back to haunt the BJP-led Central government as it enters the last two years of its second term. Only, Singh did not have a pandemic and a war adding fuel to the fire.

The eerily similar conditions raise one question: Will they prove to be the end of the road for the Modi government just as they were for the Manmohan Singh government?

Similarity Within Difference

Heading into the 2014 General Election, the BJP, then the major opposition party, had not missed a single opportunity to attack the ruling UPA-II government for failing to check the high rate of inflation and the volatile investment environment in the country.

Famously known for its inability to control prices, the UPA-II government saw the wholesale price inflation average at 7.1 per cent between 2009 and 2014 while it averaged at 6.1 per cent from 2004 to 2009 under the UPA-I government. Food inflation had touched 12.2 per cent under UPA-II. Industrial growth had also collapsed.

Crude oil prices saw a 222 per cent rise—from $34.16 per barrel to $110 per barrel. While the average annual GDP growth stood at 6.7 per cent, average retail inflation rate remained over 8 per cent. 

Fast-forward to 2022. The Russia-Ukraine war has impacted global supply chains and trade between nations which has resulted in spiraling inflation across the globe and India was not left untouched.

The war came at a time when the country was limping out of the economic fallout from the Covid-19 pandemic. The previous financial year was punctuated by loss of production during the second and the third waves of coronavirus. In a short respite, India’s GDP growth in FY22 expanded to 8.7 per cent from a contraction of 6.6 per cent in FY21 but in the January-March period of FY22, economic growth slowed for the third consecutive quarter as it dipped to 4.1 per cent from 5.4 per cent in the previous quarter.

Unlike the current regime, the last two years of the UPA-II did not witness a changing world order. The Russia-Ukraine war and the subsequent sanctions on Russia have had a far-reaching impact on global financial markets. Globalisation and capitalism, as we know it, are facing their biggest crisis moment that is set to change the world order forever. Along with the pandemic, the war, too, could end up defining the ‘new normal.’

Comparing the issues of the two regimes, Arun Kumar, chair professor at the Institute of Social Sciences, says that while the last two years of the Modi government have come after the pandemic, that of UPA-II’s came after the Indian economy recovered from the global financial crisis. The global situation is far worse today than it was during the UPA-II regime, he adds.

“After the dip in 2012-13, the economy had recovered quite quickly. The quarterly growth rate then was about 4.5-5 per cent. By 2014, growth had reached 7.5-8 per cent. But, something similar does not seem to be on the anvil at this point in time because now, we have entered a global Cold War. It is a completely new, evolving situation and we do not know how long it would last,” says Kumar.

Soaring consumer prices and widespread job losses have resulted in muted demand conditions. The manufacturing sector is still reeling from the impact of the Covid pandemic and its subsequent waves. Industrial production growth remained subdued at 1.9 per cent in March, mainly due to poor performance by the manufacturing sector which staggered due to the impact of the third wave.

The index of industrial production growth was a meagre 1.5 per cent in January as well as February, marginally up from the 1 per cent recorded in November and December last year. Factory output grew by 4.2 per cent in October 2021. In April 2022, the retail inflation was at an eight-year high at 7.79 per cent, up from 6.97 per cent seen in March which led to a price rise across all major commodity groups.

Devendra Pant, chief economist India Ratings & Research, says that the country is in a situation almost similar to the last two years of the UPA-II government. The difference, he says, is unlike the 2013 period, when retail inflation was close to double digits, it is still a couple of percentage points lower than that.

“If inflation reaches that level, then you will suddenly see the currency weakening faster and more capital flight taking place. We are looking at an all-time high trade deficit on a monthly basis. No amount of forex reserve is sufficient for a central bank to fight against a weakening currency,” says Pant, indicating that the Modi government has its work cut out for itself. 

Domestic Dichotomy 

Apart from the challenge of rising prices, the UPA-II tenure was blemished by policy paralysis on the domestic front. The 2G, Commonwealth Games and coal block allocation scams and the resultant policy decisions, or the lack thereof, of the government stymied UPA-II’s performance. It was also marked by unsound economic decisions like a retrospective tax on Vodafone. All of this and more had fuelled an anti-government mood that had already started building up. The BJP had then led the opposition, played up that sentiment and ridden to the Centre on the anti-incumbency wave. 

In the Modi government’s case, what has worked is the absence of strong opposition voices to effectively attack some of its policy decisions and benefit electorally out of it. But that is not to indicate that everything has been rosy for the present government, especially during its second stint.

In March 2020, as Covid-19 broke out, the government imposed an unannounced nationwide lockdown which forced the majority of India’s migrant urban labourers from the unorganised sector to head back to their villages on foot. It destroyed consumer demand and value added in construction and services which are yet to return to pre-Covid levels. Even with respect to economic policy, the current government has fumbled at a number of occasions.    

In a recent column, former finance secretary Subhash Garg had elaborated how the government’s privatisation programme had floundered. “Privatisation of two banks announced in the Budget 2021 has not seen any tangible progress. The Bill to amend the bank nationalisation law is nowhere in sight. The privatisation of BPCL is off the table. Privatisation of CONCOR, Shipping Corporation, IDBI Bank, a general insurance company etc. are all stuck. Privatisation transactions of Pawan Hans and CEL have been stopped after announcing acceptance of bids,” Garg wrote.

The goods and services tax, implemented in 2017, has exposed the limits of India’s federal structure. States and the Centre are at loggerheads over the extension of the compensation cess period as most Indian states are finding it difficult to raise new revenue.

At the root cause of the resource crunch that India is currently facing is a battered economy that does not inspire companies to invest more or create enough new jobs. India’s micro enterprises, which create 11 per cent of the jobs in the country, have been struck by the Covid-19 pandemic, thus further exacerbating the employment crisis in India.

The country’s labour force participation rate fell to 40 per cent in 2021 from 46 per cent in 2017. According to the 2011-12 National Sample Survey Office data, India’s labour force participation stood at 55.9 per cent.

“The data indicates that a large number of people have just given up on looking for jobs. One, unemployment, as recorded, has gone up and second, a large chunk of India’s youth is no longer looking for jobs which is why India’s GDP is not rising as much. It is not possible that India’s workforce keeps declining but GDP would continue rising. The situation is quite dire,” says Kumar.

To add to that, the unemployment crisis in India is now aided by widespread automation. With the advent of new technologies and sectors like e-commerce, the shift towards automation has become a pain point for India’s youth which finds it difficult to get employed effectively. As technology continues to disrupt, the biggest challenge for the incumbent government would be to employ its population in sustainable jobs.

While the gig economy has turned out to be an employment generator, rampant exploitation of the labour force and inadequate earnings have been persistent complaints haunting the sector. Unemployment was still a big challenge for the Manmohan Singh government but it had escaped the sectoral disruptions and automation that is making it worse for the current government.

What is certain is that the challenges more or less remain the same for the Modi government albeit upgraded with new layers of complexities. It remains to be seen if the PM is able to deal with them unscathed and lead his party to another win two years from now.

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