My title comes from a famous pamphlet by Vladimir Lenin who himself took it from a book by Nikolay Chernyshevsky. It is the question facing the Indian prime minister who has less than a year left to face the electorate. It is remarkable that, a year ago, having won the UP elections, and having overcome the worst effects of demonetisation and launched GST, Narendra Modi looked invincible. On August 15, at the Red Fort, he was confident, and projections were being made of an enhanced majority for the BJP at the next election. There were rumours that Modi may bring the general election forward to coincide with a number of state elections as part of his long run dream of restoring simultaneous elections in the states and the Centre.
Now, after Gujarat and Karnataka, despite the BJP winning one and emerging as the largest party in the second, the mood is sombre. Harold Macmillan, the British prime minister in the later 1950s was asked what worried him the most. He replied, “Events, dear boy, events.” For Modi as well, events are adding complications to the preparations he needs to make for the next challenge. One is the temporary withdrawal of Arun Jaitley from active service as he recovers from his operation. But, the more serious one is the rise in oil prices. Neither is due to anything that Modi has done or left undone.
Rises in the oil price was triggered by Trump’s Iran policy. There is the additional problem that a new alliance seems to have sprung up between Israel and Saudi Arabia. With the Syrian war still unsettled, there is the danger of a general Shia-Sunni war breaking out with Syria, Iran, and Lebanon’s Hezbollah on one side with Russian support, and Israel, Saudi Arabia, and Kurdish armies on the other side with American support. For India, this means the persistence of a high oil price past the next election.
Given that this is an external shock, government policy can only be reactive. Since oil prices are determined by states and the Centre, using their taxing powers, there is only so much the Centre can do. In principle, the consumers of oil are not the poorest and not deserving of any subsidy. They are for most part the better-off. The owners of two-wheelers may be an exception but, that apart, the price of oil is not like the price of onions. It has an impact in the metros and only on the better-off middle classes.
Even so, facing an election, the Centre cannot be seen to be uncaring. Its fiscal room is limited. Doing nothing immediately may yet be the best answer. For all we know, concessions given now can be eroded, if there are further price rises. Voters pocket the subsidy but forget it by the time they face the EVMs. The strategy should be to wait it out till later in the new year with the budget in February 2019.
The overall record of the Centre in terms of income growth is good. There were a couple of quarters following demonetisation when the GDP growth fell below 7%, but the average will be above that level. It is a matter in which the Centre can take pride that, now, India takes 7% as the norm for GDP growth. The challenge for Modi in his second term (assuming he will return with a majority), is to raise that level to 8%.
This will ultimately be the reason why people may vote for him. His many ‘microeconomic’ policies—Swachh Bharat, Ganga cleaning, Jan Dhan Yojana, toilets for villages where there were none, and gas cylinders for the poor have been done and they are no longer headlines. That way, voters can be very cruel and quickly forget the good things once they have happened. It is the short-run, and the moving, or volatile, which influence voters regardless of what politicians on either side may wish to bring to their attention.
Modi’s strength remains in the fact that there is no one among the opposition leaders who can promise or deliver sustained GDP growth. UPA 1 managed while global conditions were favourable, but UPA 2 failed on both growth and inflation. Voters rightly punished the parties involved in that coalition.
Modi has begun structural reforms in the financial sector by legislating for insolvency, and has commenced, but not finished the reforming of the public sector banks. He finished the long saga of GST, and income tax collections have improved in the wake of demonetisation. Yet, much remains to be done. India needs labour market reform. It needs to reduce the number of people on vulnerable subsistence agriculture. There will be a debate on how many jobs have been created and here it would be a test of the Government whether it can promote the distinction Modi made between jobs and livelihoods in his story about the pakodawala. Modi has to convince the voters that there is no alternative to him.