Modinomics is about very rich and poorest

Even Narendra Modi’s diehard supporters concede that his handling of the economy isn’t the best. Modi baiters are more scathing. They believe Modinomics has driven India’s economy into a deep ditch. Both sides see it through the lens of textbook economics, whether of the mainstream or heterodox variety. Narendra Modi, on the other hand, treats economic policy as an extension of electoral politics.

It is well established, through reportage and surveys, that the poor and disadvantaged are more likely to go out to vote than the middle class or affluent voters. That’s because those with money and property do not depend on their local MLA or MP to do things for them. They mostly don’t even depend on the government for the daily services they use. And, when they do need to interface with babudom, they have a friend, an uncle or acquaintance who arranges easier access to government machinery.

The poor, on the other hand, are entirely dependent on the government for their survival. The biggest reason for this is that the structure of the state is essentially organised around protecting property rights. The poor have no property. So, they are constantly ‘encroaching’ on public space — settling in slums on government land, putting up unauthorised shops on roadsides and pavements, selling things without a licence and grazing their animals on public land. Their local neta helps them petition the government to ‘regularise’ these encroachments and the government makes contingent policy announcements to legalise the infringements.

The state capitalism that was followed in the first four decades — what is erroneously called Nehruvian Socialism — hoped to bring the poor into the sphere of the modern economy. It was hoped that peasants will leave agriculture and be absorbed by industry and allied services. Its failure prompted a shift to the ‘opening up’ of the economy from the mid 80s. Free market economics and private enterprise was expected to speed up the spread of capitalism in India.

In reality, the exact opposite happened. Industrial employment stagnated from the 1990s, while real income in agriculture stopped growing. This created India’s celebrated ‘service sector’. It conjures up images of swanky offices filled with young people in business suits. In reality, it is your roadside vegetable vendor, the thelawala selling bhujia, the young man covered in grease at your car service centre, the electrician who can fix your Japanese fridge through jugaad and the truck driver who drives rashly past you on your weekend trip to Kasauli.

It is a fragile, cyclical existence, where earnings are heavily dependent on the top 20 per cent who make up India’s consuming classes. If they do well, some of their prosperity trickles down to one half of India which is sandwiched between the better off and the poorest 30 per cent. It is clear that India’s economic slowdown, that began in 2011-12 and worsened in the past few years, has hit middle class incomes significantly. That is why, the itinerant ‘service providing’ class has become increasingly poorer.

How does Modinomics deal with this reality? First, by taking the top 20 per cent for granted. India’s better off are either entrepreneurs, white collar workers in private companies or well-paid government employees. The key sectors that employ them are retail, trade, finance, real estate, telecom, IT, tourism, hospitality, leisure and management services of various kinds. Most of them are upper caste and many from the traditional trading classes. This has historically been the demographic catchment area for the BJP. You will find the most committed supporter of political Hindutva in this social group.

Therefore, PM Modi knows he can count on them, even if he doesn’t give them anything. In fact, he can take away from them — demonetisation, higher income tax rates, long-term capital gains tax, high fuel prices, withdrawal of subsidies — and they will mostly stick by him. Their already available consent can be further manufactured through propaganda via government-friendly and Opposition-baiting TV channels and newspapers. That is why, despite the sharp drop in incomes during the lockdown, the Modi government hasn’t given any economic relief to the middle class.

Among the remaining 80 per cent, Modinomics targets the poorest lot. Caste parties that have risen since the 90s have mostly represented dominant caste groups within the OBCs and Scheduled Castes. When these parties have been in power, they have been able to place people from their specific castes in the police, railways, and other lower-level government jobs. Political patronage has also helped members of these dominant castes succeed at small businesses, get government contracts and share in the economic pie. These groups are committed to their respective parties, such as the SP, BSP or RJD, even if the Modi Sarkar brings them achhe din.

These parties leave behind a vast number of non-dominant OBC and Dalit castes, who are now called the Most Backward Castes and Mahadalits. This is a fertile zone for harvesting votes. They are also the poorest of Indians, who live on the brink of starvation and destitution. And, they make up at least 30 per cent of Indians. Modinomics is oriented towards providing them with basic subsidies and government handouts, which will just about keep them at the subsistence level, and give them the security that they will not go hungry. That is why almost all of the Modi government’s Covid package has been focused on this poorest segment.

The trouble with this economic vision is that it has weakened the collective purchasing power of India’s middle and affluent classes. We have seen this in the falling demand for housing, cars, consumer durables and even FMCG products. This has affected corporate earnings for the past few years, investment has dried up and corporate capital has moved into financial and treasury operations. This has made India Inc restive.

That could be dangerous when it comes to collective electoral funds. That is why Modinomics is also oriented towards making life smooth for big business. Government policies have helped the biggest companies gain market share and make more money. In short, Modinomics is about an alliance between big capital and the poorest people. The first will provide the funds and the second will give the votes.

The author is a senior economic analyst