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Curbing black money, GDP growth don’t solve problems of common man

In this context, the economic indicators that prevailed just prior to the elections can be examined in the last five elections to deduce whether macro indicators matter or not. Hence, for the 1996 elections, the GDP growth of 7.3% is for FY96 and 6.4% for FY95.

Curbing black money, GDP growth don't solve problems of common man (Representative image)
Curbing black money, GDP growth don't solve problems of common man (Representative image)
Curbing black money, GDP growth don't solve problems of common man (Representative image)
Curbing black money, GDP growth don’t solve problems of common man (Representative image)

With a blitzkrieg of publicity on the achievements of the Central government in the areas of health, education, housing, insurance, etc, it is pertinent to ask the question as to whether or not economics matters when shaping the outcome of an election. The coming general elections will be important from two points of view. Firstly, the record of policies introduced has been amazing with there being probably zero faults. Secondly, a number of economic indicators present a good picture but it is still not clear whether they will matter.

In this context, the economic indicators that prevailed just prior to the elections can be examined in the last five elections to deduce whether macro indicators matter or not. Hence, for the 1996 elections, the GDP growth of 7.3% is for FY96 and 6.4% for FY95.

In 1996, the Congress lost power even while the GDP growth of that year was higher. Government spending was high but inflation was nasty. The 1998 elections were won by the BJP which, consequently, fell and economic indicators were not the driver when the IK Gujral government collapsed.
Inflation had moderated to 6.84% but that did not matter. The last 4 elections that ran their full terms can be considered to be the test for the macro indicators as they were turning points for the respective governments.

The BJP came to power in 1999 on the back of higher GDP growth but very high inflation of 13.1%. This was the time when farm output had also climbed, thereby meaning that the rural community was happy. As it was a BJP government that fell and came back to power with a better majority, it looks unlikely that the economics mattered.

The 2004 elections was interesting because the ‘India Shining’ story of the BJP was bright with very high economic growth and low inflation supported by high farm output growth and a high deficit but which also meant liberal spending. Inflation, too, was very low and should have placated the electorate. Yet the government fell.

In 2009, the Congress went through the lowest GDP growth rate with a fall in output and very high inflation of 9.1%. But the government was voted back to power which was an achievement. The fiscal deficit was higher on the back of the stimulus being pursued by the government post the financial crisis. Here again, the macro indicators did not worry the electorate which voted the Congress back to power. The 2014 elections voted for change and, while the economy clocked higher growth in farm output and GDP on the whole, with support from the budget, the Congress was voted out of power. Inflation was high and could have worked against the incumbent government.

Hence, there does not appear to be a direct relationship with the macro variables which could be pointing in a very different direction. In the present scenario, the government has the advantage of very low inflation but has to face the challenge of slowing growth which means a lower pace of job creation, some farm distress and conservative budgets with the fiscal deficit at an all-time low of 3.4% in a pre-election year.

Hence, to make up for this weakness, there has been relentless advocating of the government’s achievements in the social welfare area, which includes health, education, affordable housing, rural employment, farm insurance, etc, in order to send the right signals to the people.

The reaction of people is hard to guess. In India, with a federal structure, a large part of the electorate may not be able to distinguish between the roles of the different layers of the government and could tend to attribute the gains and losses to a single government i.e, the Central one. They may not be swayed by announcements of schemes or achievements in numbers and might be more likely to vote for the government in case there has been a direct benefit gained from a concerned programme.

What will work for the government is the following: cash transfers as announced in the budget will be helpful to secure votes as it is a direct benefit. The smart move was to have this scheme introduced for FY19 itself which was not in the original budget so that the people know they are getting `2,000 this time which will be topped to `6,000 next year. The peculiar thing is that, once introduced, such schemes cannot be withdrawn and are also taken for granted and may not deliver additional brownie points for the next government in power. This happened for NREGA which worked the first time but then became part of the system.

Insurance for individual families and farmers will work only in case people see benefits in terms of claims getting settled. Otherwise, they would be mere numbers spoken about which the voters may not be able to relate to. Hence, creation of toilets will not garner votes unless it is actually being used by the public. Incomplete toilets or those without lights and water will only lead to scepticism of the project and can become a negative factor.

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While debates on job creation can continue, the proof will be in the voters getting such a benefit. If jobs lost during demonetisation and GST have not just been recovered but accelerated, people will commend the policy. Otherwise, it is not of much importance just like, say, how India flexes its economic muscle on the global stage. Curbing black money does not solve the problems of the man on the street unless it results in a tangible gain for the individual. That is why GDP growth numbers do not really matter nor does the DoingBusiness rank or reforms brought in for industry.

Slogans like Make-in-India work at the corporate level but not for the voter who is more interested in work, income, health, education and so on.

Inflation of 2-3% is not relevant as the voter gets swayed by potato or onion or toor dal prices increasing—even if it is just one product.

Therefore, factors which drive the voter will be different and would be based on actual benefits delivered. This will be besides the decisive issues of religion, caste, regional identity, cow preservation, temples and so on. True, today, with competitive largesse being promised by all parties, there would be confusion. Loan waivers by state governments and promises of more by all parties in all states can be jarring and may not strike the right cord unless it is actually given.

The so-called elites, which may be less than 5% of the voting population, would be looking at the macro indicators which do not matter at the end of the day. In a way, it can be argued that microeconomics matters more than the macros, which are meant for the elites who do not count in the voting process. That is why the language of the government in the last 4 months or so is geared towards practical issues.

The author is Chief economist, CARE Ratings

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