The thing with economic policy and economic hardship is that both take some time to really be felt. This is a problem the Modi government is now facing. On one hand, the multiple people-friendly reforms it has implemented are yet to really yield tangible benefits. On the other hand, the economic hardship faced by the common Indian, which started in end-2016 with demonetisation, seems to only now be building enough momentum to maybe influence voting behaviour. This deferred impact of economic pain and gain has put them in a fix. All the good work it has done so far will go a long way in cementing its economic legacy, but will not benefit it politically in 2024. The economic pain it has inflicted, however, has been forgiven so far, but is increasingly becoming a significant factor in voters’ minds as the General elections approach.
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The GST perception
Let’s start with the reforms the government has implemented that stand to help the people. The most important economic reform the Modi government will likely be remembered for is the implementation of the Goods and Services Tax. On a policy level, it had many implications–a single pan-India tax regime, certainty over rates, and a marked shift in the Centre-states fiscal relationship.
The people, however, will remember Modi for GST simply because of the ubiquity of the tax. Every bill you pay carries the word GST towards the bottom. It’s hard to miss. What is easy to miss is the benefit for the people from GST. Taxes are a tricky thing politically. People will only ever hate the government for taking a portion of their money.
It’s remarkably hard to convince most people that their tax money is what makes the nation go. What makes it harder is that whatever lowering of prices GST might have brought in because rates are lower than in the previous regime is undone due to inflation.
All said, it wouldn’t be inaccurate to say that GST has only now–more than 5 years after implementation–entered its mature phase, where real benefits in terms of streamlined return filing and lower harassment by the taxman can become possible. After all, even the state governments were paid compensation for the first five years, indicating the work-in-progress nature of the indirect tax regime so far.
The problem for the Modi government, however, is that not enough people will see their tax compliance easing before the 2024 General elections.
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Cleaner bank books
Another major reform the Modi government has implemented, the benefit of which is coming too late for any sort of political impact, is the cleanup of the banking system. The Asset Quality Review of the banking sector was done in 2015, which showed that numerous bad loans had been hidden in previous years.
This has systematically been cleaned up and the non-performing assets ratios are all steadily improving. When the ratios were bad, the banks had almost completely stopped lending to corporates until their balance sheets could be cleaned up. They have been cleaned up now. Once the private sector decides that it’s time to begin investing again, they’ll find banks ready and able to provide funds.
But even if this credit expansion to big corporates begins today, it’s too late for there to be any real impact in terms of new investments and job creation before May 2024.
The Income Tax Department’s Faceless Assessment scheme of 2020, aimed at anonymising tax assessment, is another way the Modi government can make a real positive impact on people’s lives in a way that they will notice. Removing the taxman from the picture, having a computer do the assessment, and anonymising the taxpayer and taxman when human intervention is needed, is in theory a great way to reduce tax harassment.
In reality, there’s been huge pushback from the tax officials, who feel that their avenues to make a quick buck have been severely curtailed. They have found ways to game this system. It will take a few more years of strict enforcement by the Ministry of Finance to close these loopholes. More years than Modi 2.0 has before it.
The Ujjwala scheme, which provided free LPG connections to the masses, will similarly start showing real benefits only some years from now, when awareness of the health benefits of clean cooking fuel becomes entrenched enough that people choose it even if it is more expensive than the dirtier alternatives.
Even the work the government did in providing Jan Dhan bank accounts and linking them with mobile numbers and Aadhaar saw real, tangible benefits for the people coming in only about five years after work started on this programme. It was only during the pandemic, and through the support the government could provide in terms of free food and cash, that people actually saw a real benefit from this Jan Dhan-Aadhaar-Mobile (JAM) trinity.
But the government is now rightly rolling back the pandemic-related support, and so it’s anybody’s guess whether people will remember it next year.
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Economic hardships now visible
Economic hardship seems to have a similarly long gestation period. That is, only prolonged distress starts translating into electoral issues. That is, relatively recent distress is forgiven, and only seems to become a political issue if it goes on for a while. The recent Lokniti-CSDS survey has some interesting insights here.
Less than two years after demonetisation dealt a massive blow to India’s informal economy, voters refrained from punishing the government for it in the 2019 elections. Indeed, according to the Lokniti-CSDS survey, in 2019, only 17 per cent of respondents found that the biggest issues in India were economic (unemployment, poverty, and inflation).
However, with prolonged high inflation due to the pandemic and the Russia-Ukraine war, sustained high unemployment levels since before the pandemic, and no growth in income levels for most Indians, the 2023 version of the survey has markedly different results.
In the latest edition of the survey, a whopping 70 per cent respondents said either unemployment, poverty, or inflation were the biggest issues the nation was facing. Notably, 22 per cent of the respondents said their economic situation has become worse compared to four years earlier, up from 15 per cent in 2019.
As the always insightful TN Ninan pointed out in his latest column, the RBI’s twin survey-based indices–the Current Situation Index and the Future Expectations Index–both show that consumer confidence levels about the present and the future are lower than they were pre-demonetisation. In other words, the people aren’t seeing their fortunes rise compared to the past, and aren’t as hopeful about the future either.
India’s post-pandemic economic policy has been a sensible one. Hopefully the government won’t now throw that away looking for some quick-fix ways to change the mood of the people but hurts the fisc–such as reintroducing the extra free food scheme, or cutting fuel prices even if oil prices rise again.
Views are personal.
Edited by Anurag Chaubey