by Surjit Bhalla & Karan Bhasin
Before we go into policy mode, one last attempt at explaining what caused the great electoral victory of Modi/BJP in 2019. At the risk of over-simplification (but not really), one view is that it was Balakot that really turned people’s minds towards Modi as PM. National security was a prominent concern, and the voters felt that their future would be more “secure” with Modi. We don’t have any disagreement with that conclusion—the issue for us is whether the security issue was the most important factor. It was not.
An associated view, and one that pre-dates Balakot, is that people primarily vote on the basis of caste. This is the arithmetic in the title, i.e. caste accounting suggested that in several states, especially UP, the caste and religion arithmetic (votes cast by the lower castes and Muslims) would easily approximate the vote share of the upper-caste non-Muslim support for the BJP. Hence, the expectation in January 2019, that the most likely outcome of the election was a hung parliament.
The chemistry perspective is that Mr. Modi is a charismatic politician and the others (the diverse set of opposition candidates) are not, and therefore, Modi won. Note that this explanation, like the invisible hand, was nowhere to be seen in January 2019, and especially unseen in December 2018, when the BJP lost three state elections.
An alternate explanation (and which one of us has claimed to be the main reason behind Modi’s victory, and explained in detail in a pre-election analysis contained in the book Citizen Raj) is that in this whodunnit case, it was the economic redistribution policies of the Modi government which were primarily responsible for the large gains made by the BJP. There was charisma, yes; chemistry, yes. And Balakot and the weak faces of the opposition, yes. But, by far the most important factor was the accelerated nature of inclusive growth unleashed in Modi 1.0.
Let us count the components of this inclusive growth. The much-criticised demonetisation was the first salvo.
It made possible a sharp increase in direct tax collections—an increase which made possible expenditure on the poor (here defined as the bottom 37 % of the population or 500 million). To ensure that there were no leakages in the expenditure on the poor, the government decided to create the JAM trinity—i.e. Jan Dhan, Aadhaar and Mobile. The Jan Dhan accounts made it possible to transfer funds directly into the banks of beneficiaries using the Direct Benefit Transfer (DBT) mechanism; while Aadhaar ensured that the identification errors were minimized.
Over the last five years, the government has made a total transfer, in 2011 prices, of `2.15 trillion in subsidies which include LPG, the PM Kisan Yojana and other social security programs.
The government has also managed to create collective assets at an unprecedented scale. Roads: in 2013 only 56 per cent of villages in India were connected; in 2018, the road coverage is over 91 per cent. Electricity: Under the Saubhagya Yojana scheme, an additional 20 million houses have been electrified. While these assets may not directly affect the measurement of consumption poverty, their availability is critical for future productivity gains, and gains that will have an impact on the economy (and poverty reduction).
Additionally, the government has made an asset transfer amounting to `1.21 lakh crores or `1,210 billion in 2011 prices. This asset transfer is primarily in terms of construction of toilets and houses. The benefits for poverty reduction in this transfer should not be under-estimated. Toilets lead to better health, and less spread of disease. The psychic and happiness “income” worth of a pucca roof is also beyond an economic calculation.
Our contention is that the Modi government provided inclusive growth, and the recipients of this were thankful to the government, and hence voted for it. The above government programs did not differentiate on the basis of caste or religion; and many surveys have documented that the people felt “touched”, possibly for the first time, by redistributive policies of the centre. Many states have been known for being efficient in the execution, and delivery, of public welfare programs; the same unfortunately, cannot be said for most programs run by the central government.
But that was before Modi 1.0. We have mentioned the various types of transfers that have taken place over the last five years. These programs, if effective, must have had an impact on reduction in absolute poverty. There is an abundance of data on poverty alleviation, both for India and the world (primarily through the World Bank). This poverty effect is measurable, and relatively non-controversial and free of subjective biases associated with voting behaviour (e.g. voters were happier with a toilet and therefore voted for Modi/BJP).
We offer two sets of poverty calculations for India. The reduction in absolute poverty according to the middle-income poverty line of PPP $3.2 per capita per day (pcpd); and the reduction in poverty associated with just the pure asset transfer (houses and toilets) of `1.2 trillion. For our sample of comparable countries, we use World Bank data for non-oil developing economies with a minimum population size of 10 million (a total of 54 countries).
Two time-periods are chosen—the ten-year period 2004-2013 (UPA I & II) and the Modi 1.0 period (2014-2018). In case you forgot, our purpose is to assess the “inclusive growth equal to poverty reduction performance” under UPA and Modi 1.0!
During the period 2004-2013, the best performing economy was Vietnam with a reduction in poverty of 50 percentage points (ppt). China was second with a 37.5 ppt reduction and India eighteenth with a 17.2 ppt reduction. Between 2014-2018, Ethiopia is the best poverty reduction economy (28.8 ppt), Bangladesh second (21.5 ppt), Cote d’Ivoire 3rd at 15.5 ppt, and followed by Cambodia and India (both at 14.9 ppt reduction). Note that for the same poverty line, poverty was reduced by 17 ppt over ten years (UPA) and at nearly twice the rate during five-years of Modi 1.0 (15 ppt).
We now proceed towards an estimate of additional absolute poverty reduction due to asset transfers. These asset transfers accrue mainly to the bottom 500 million; hence, total transfer of `1,210b for 500m amounts to `2,420 per person. At a 7.5 % discount rate, this asset will result in an annual flow of (2,420*.075) `181 in perpetuity. Given a PPP exchange rate of `20, this asset transfer is equal to a transfer of 9 PPP$ a year or PPP $45 over five years of Modi 1.0 (since we are looking at poverty reduction from 2014 to 2018). The average consumption level of the 40th percentile in India in 2018 is PPP $3.18 per day or PPP $1,160 annually. Hence, the asset-income transfer amounts to approximately an additional 4% of consumption.
One final calculation and then we are done. An increase of 4% in the consumption level of the bottom 40% will result in approximately an additional 2.4 ppt reduction in poverty in 2018. In other words, poverty in India in 2018 was not 41.1 % as observed, but rather 38.7 % (middle income poverty line of 3.2 PPP$ a day), and this was the third best poverty reduction in the world.
No matter what the calculation, the Indian record on inclusive growth was spectacular during 2014-18; and much better than the good record during 2004-2013. We think this performance (delivery of welfare) was noticed by the poor voter; and why the 2019 Election result was not a surprise to us. Chemistry delivered—because it was backed by a solid performance.