New Delhi -°C
Today in New Delhi, India

Dec 13, 2019-Friday
-°C

Humidity
-

Wind
-

Select city

Metro cities - Delhi, Mumbai, Chennai, Kolkata

Other cities - Noida, Gurgaon, Bengaluru, Hyderabad, Bhopal , Chandigarh , Dehradun, Indore, Jaipur, Lucknow, Patna, Ranchi

Saturday, Dec 14, 2019

Analysis | Economic slump need not trigger political headwinds

Official statistics show that the economy was headed downhill even before the elections. Gross Domestic Product (GDP) growth started slowing from the three months ended June 30, 2018. It was 8% in June, 7% in September, and 6.6% in December and 5.8% in March.

india Updated: Aug 04, 2019 10:54 IST
A BJP flag with mask of Prime Minister Narendra Modi seen during his political rally ahead of the Lok Sabha elections, at Brigade Parade Ground, in Kolkata. As it turned out, GDP growth in the quarter ending 31 March 2019 was the lowest under the Narendra Modi government, but this data came out only by the end of May.
A BJP flag with mask of Prime Minister Narendra Modi seen during his political rally ahead of the Lok Sabha elections, at Brigade Parade Ground, in Kolkata. As it turned out, GDP growth in the quarter ending 31 March 2019 was the lowest under the Narendra Modi government, but this data came out only by the end of May. (Samir Jana/ Hindustan Times)
         

The 2019 Lok Sabha election, in which the Bharatiya Janata Party (BJP) secured an overwhelming victory, was held in seven phases between April 11 and May 19. Official statistics show that the economy was headed downhill even before the elections.

Gross Domestic Product (GDP) growth started slowing from the three months ended June 30, 2018. It was 8% in June, 7% in September, and 6.6% in December and 5.8% in March.

These were the numbers going into the elections and they did not affect the electoral prospects of the incumbent.

As it turned out, GDP growth in the quarter ending 31 March 2019 was the lowest under the Narendra Modi government, but this data came out only by the end of May.

How does one explain this?

The easiest explanation is that economic factors were not the primary concern for voters.

If that’s true, it is bad news for the Opposition. After all, if economic factors did not matter when voters were deciding whether or not to vote for the BJP in 2019, then why should they matter in the future? To extend the argument, the Opposition may as well give up on political gains due to a poor economic performance (should it happen) in the Modi government’s second term as well.

The problem with this argument is that it assumes the electorate is irrational and does not punish an incumbent despite its own material condition worsening.

There is another possibility.

Voters, even if they are angry with the incumbent for its economic performance, might decide against voting for somebody else if they think that a change of guard is unlikely to improve matters.

From the Opposition’s perspective, preventing this from happening would require two things. One, the opposition has to offer have a substantive set of alternative policies rather than just a critique of the current situation. Second, and what is more important in today’s complex economies, is the need to identify sections that are the most affected by an economic slowdown and convince them to vote against the incumbent. Here’s why.

The impact of an economic deceleration might be very different for different stakeholders in an economy. Even the solutions to these problems might differ across different sectors and segments of the economy and the workforce. There is also a possibility that what suits a particular sector or section of the workforce does not work, or is even against the interests of another sector or section.

For example, this author had argued in an earlier piece that one reason why rural distress did not hurt the BJP in these elections was because a large number of people, both in rural and urban areas, are actually net buyers of foodgrains. Low food prices are the main reason for the current squeeze on farm incomes in the recent period. While low food prices might have hurt farmers, they have made things easier for those who were buying food items.

What about the slowdown in the non-farm economy? Were voters dependent on sectors other than agriculture irrational in not voting against the BJP because of the slowdown? A look at slightly disaggregated statistics may help answer this. The growth in non-agriculture Gross Value Added (GVA) did not go down in the last year of the first Modi government. It was 7.3% in both 2017-18 and 2018-19. Disaggregating the growth performance further shows that industry, which accounts for one-third of the total GVA actually witnessed a one percentage point increase in growth in 2018-19 compared to 2017-18. It is the service sector which has fared the worst during the first term of the Narendra Modi government. GVA growth in services has been falling continuously for four years now. (See Chart 1 )

Hindustantimes

Looking at the sector-wise performance of the economy matters in understanding the political impact of a slowdown. This is because the Indian economy is extremely diverse when it comes to the share of different sectors in both output and employment across regions.

An example can make this clear. In 2016-17, the latest year for which Net State Value Added (NVSA) figures are available for all major states, industry had a share of 19% in Bihar’s NVSA. This number was 47% for Gujarat. If one were to take just manufacturing, a sub-component of industry, it had a share of 8% for Bihar and 33% for Gujarat. According to the 2017-18 Periodic Labour Force Employment Survey (PLFS), the share of manufacturing in total employment in Bihar and Gujarat was 9% and 20%, respectively. (See Chart 2)

Hindustantimes

These statistics mean that a slowdown in manufacturing will have a disproportionate impact in a handful of regions. The Annual Survey of Industry (ASI) – the most authentic database of registered manufacturing in India – data for 2016-17 (latest available figures) shows that just three states – Gujarat, Maharashtra and Tamil Nadu – had a 40% share in total manufacturing output and employment in the country. (See Chart 3)

Hindustantimes

As is obvious from these statistics, the impact of a slowdown in manufacturing at the national level would have a very different impact in states such as Bihar and Gujarat. While a large section of voters in Gujarat and Tamil Nadu might be angry if there is a manufacturing slowdown, it might not be an issue at all in a state like Bihar.

There is another dimension to the nature and extent of political reaction to an economic slowdown. This is due to what is becoming an increasingly complex and precarious nature of employment even in important sectors of the economy.

The automobile sector, one of the few manufacturing success stories in India, has been facing a serious slump in the recent period.

Sales of passenger cars have declined for 12 consecutive months; those of two-wheelers, for seven. The companies have reported bad sales in both June and July this year.

The auto industry has warned that up to one million jobs could be lost in the industry if the slump is not arrested. While the headline job-loss figures are extremely concerning, there are studies which suggest that a large part of the workforce in India’s automobile industry might have been working under extremely precarious conditions. This could have had an effect where the individual worker might not feel as strongly about the slowdown as the industrialists.

In 2018, Azim Premji University commissioned a study by a trade union activist and a researcher on changing production structures in the automobile belt extending from Gurgaon to Neemrana. This region has a lot of important automobile firms including the likes of Suzuki Motor, Hero MotoCorp etc. Many big auto-component makers also operate in this region. The study argued that most of the work in automobile plants in this region had undergone a shift from manual to automated processes. The quantitative reduction in demand for labour has been accompanied by a qualitative shift in the nature of jobs — from permanent to contract and even apprentice-based arrangements, where workers are hired for very short intervals (a few months) at much lower salaries compared to what is offered to permanent workers. A large part of the non-permanent workforce does not have any significant rights in the workplace. See Chart 4)

This effectively means that large sections of the workers in the automobile sector in the country might never have enjoyed the real fruits of their labour even when there was no slump. While such anti-labour changes in production processes have become an integral component of profit maximisation (and therefore survival) strategies by big-ticket manufacturing across the globe, they also mean that when there is a slump, the industry will find it difficult to draw popular support for the ranks of its workers. To put this differently, the automobile industry’s demands for a relief package from the government would have carried a lot more political weight if its five million strong workforce was unionised and supported such a demand.

That’s just one example.

Interestingly, while political parties in India make every effort to maintain a detailed social database of the electorate to navigate the caste calculus in politics, it is unlikely that they’ve shown a similar kind of sincerity in trying to develop an economic database of the Indian electorate. Unless political parties have access to such information, the understanding about the consequences of an economic slowdown on various sections of the electorate would at best, remain patchy. This is bound to act as a big constraint when it comes to devising a strategy to mobilise such sections against the incumbent party.

Unless, the Opposition steps up its efforts to develop a better understanding of the degree to which different sections and regions are affected by an economic slowdown and offers a concrete plan to address their concerns, empty rhetoric on the state of the economy is unlikely to generate serious political headwinds for the present regime.

In fact, a large number of voters might have voted for the BJP in 2019 despite being dissatisfied with its performance on the economic front. The 2019 pre-poll survey conducted by the Centre for the Study of Developing Societies-Lokniti showed that 46% of the respondents believed that employment opportunities under the first Modi government had actually gone down. Despite this, the BJP and its allies were shown to be comfortably ahead of their opponents. There is no guarantee that 2019, where economic dissatisfaction did not lead to a political disenchantment, will not be repeated in 2024.