It is that season when politicians, unerringly consistent with eleventh-hour mobilisation, hold forth on the economy, triggering ricocheting rhetoric on claims and contestations. When it comes to the economy, the reality is coloured in shades of grey.
The week began with the chief ministers of three southern states coming together to protest against discrimination in the devolution of funds by the Centre to the states—aggravated by rising incidence of central cess and surcharge, which is not shared with the states. The government was quick to denounce the claims and dub them as part of an attempt to balkanise India.
The argument, in essence, is that states which do a better job of managing their economies get a smaller share of the pooled resources—for every rupee contributed in taxes, Karnataka gets back 15 paise and Tamil Nadu gets 29 paise, while Bihar gets Rs 7.06 and Uttar Pradesh gets Rs 2.73. The skew in devolution is caused by the formula of devolution— 15 for population and 15 for area, 10 for forest and ecology, 2.5 for tax and fiscal management, and 12.5 for performance in population control; the highest weightage of 45 is for ‘income distance’, which means the poorer and more populous the state, the higher the devolution.
If the BJP leveraged the electoral lure of double-engine sarkar, the opposition is presenting the concept as the instrument of discrimination. It is true that India’s development mantra since independence has been that the less prosperous states get a higher share of resources as a leg-up to fund development. It is equally true that in the new millennium, any system must evolve to align incentives and disincentives, and the better-performing states have a reason to feel aggrieved.
The question is: are the states which sustain the virtuous cycle being rewarded? There is clearly a case for a rethink on the formula to ensure that state governments deliver and are not getting a free pass. The context calls for adult conversations between the Union and the states, not juvenile jibes—politicos need to look around India and elsewhere in the world to eschew moronic ideas.
Ideally, the Congress, the Left and other regional parties should have called for a conference—in each of the state capitals, involving finance ministers and economists—on ideas for a new devolution formula, mount the alternative model on the manifesto, and ask people to vote on it. Characteristically, the Congress scored a self-goal first.
Politics over economics continued down the week. Normally, incumbent governments present their own performance as the calling card for re-election. That is not enough in the era of Modinomics. The government issued a 59-page White Paper on the Indian economy to list the many failures of UPA—the central themes being fiscal profligacy and corruption—and highlighted how it steered the economy from a “fragile” state to strength, paving a path to Amrit Kaal. The Congress, with remarkable agility, countered the narrative by producing a 54-page “black paper” titled ‘10 Saal Anyay Kal’.
The government has much to be proud of—from its push to digital and physical infrastructure, to fiscal prudence, to the headline-grabbing GDP growth estimate of 7.3 percent. But it has struggled to address the issues of cost of living and livelihoods haunting the political economy. In almost every major opinion poll, respondents have red-flagged inflation and unemployment as serious issues impacting their well-being and the view of the future.
The data on inflation is stark—in December2023, while overall inflation was at 5.7 percent, food price inflation was at 9.5 percent, up from 4.19 percent a year back. The pain is worsened by the stagnation in real rural wages. The effect is visible in corporate reporting on entry-level products and in GDP data—private final consumption expenditure was at 4.4 percent even as the GDP grew by 7-plus percent. Prices of vegetables are up 27 percent, pulses are up 20 percent and cereals are up 9.9 percent. Curiously, the prices of poultry and meat products haven’t risen as much—it is almost as if inflation has turned vegetarian. Mercifully, the government has a free food programme for 810 million citizens, or else the situation would be dire.
The narrative on unemployment in public minds is located between experiential narrative and data—an enduring paradox is the persistence of over 2 million vacant government posts and the cry for jobs. India produces over 1.5 million engineers and, earlier this month, IT services companies indicated that campus recruitment would be the lowest in two decades. Campus placements at MBA colleges have dropped as companies are unsure. The Periodic Labour Force Survey reveals only 20 percent of the workforce have a salaried job, 21 percent are engaged in casual labour and 57 percent certify themselves as self-employed.
It is instructive to note that voting preference is still biased towards the BJP. The opposition is quick to criticise, but has struggled to present an alternative model. The Congress had some ideas in its 2019 manifesto, none of which were implemented in the states it was in power. Smart leaders argue that leadership rests on the idea of 1+1=3—effectively, a collaboration of minds delivers better outcomes. Not so with the opposition—18-plus parties met to produce exits and divisions.
In theory, the vibrancy of democracies rests on competing ideas. The reality in India is that politics is mostly an argument industry.
Shankkar Aiyar
Author of The Gated Republic, Aadhaar:
A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)