Asked last week in an interview with Hindustan Times how relevant the current economy – and how people think about it – is to India's Lok Sabha polls, Finance Minister Nirmala Sitharaman replied: “It is very relevant because people probably saw it for the first time.” Issues related to their economic well-being are taken up and implemented. The word 'beneficiary', laabharthi, is everywhere in the country.” The foreign minister further cited examples of how people have benefited from various key schemes such as housing, cooking gas, piped water, toilets and loans for small businesses. “The economy is important to the common man.” Asked about inflation as a factor, she said it was within the central bank's tolerance range, outlined a series of measures the government has taken to curb food prices and asked a rhetorical question on the bank's policy stance of downplaying price tags as worrying. To observers who cling to an old American maxim: “It's the economy, stupid,” the Indian finance minister's response may sound unsatisfactory. If so, the local context would require a rethink.
From a policy perspective, data on economic growth and its drivers is far less meaningful than what it achieves through budget expansions to support large numbers of people who need government help. We have more than 800 million Indians who benefit from free food donations. Regardless of the poverty line, this figure suggests that welfare needs to cover the majority of Indians. Because there are so many people in need, a dashboard of macro variables tracked by investors would not reflect what matters to most voters. Before the Narendra Modi-led Bharatiya Janata Party (BJP) came to power in 2014, right-wing critics of Indian politics spoke of the “premature welfare state” as a hindrance to the rise of our economy. Modi's slogan “Minimal government, maximum governance” was adopted to herald minimal intervention in a market economy, a capitalist move away from public subsidies and benevolent spending. While the Modi government's introduction and expansion of various programs surprised analysts who expected a break with the socialist template ushered in by Congress rule, it was a call for judgment in line with an imperative of politics: the benefits of progress must be taken into account by the electorate be presented tangibly. The classic limitation of this approach is the inflationary pressures that fiscal excesses can generate. However, a central bank price stability mandate issued by the Center in 2016 was designed – at least in part – to curb voter discontent on this front.
Another common argument is that economic performance pales in the face of the BJP's saffron ideology as a voter. However, the party's confidence in victory might not have been the same if it had not relied on welfare. From a fiscal perspective, this seems to be the default setting for governing a country with so many have-nots. What remains controversial is the role that inequality plays in our economy and the well-being of citizens. India’s demographic profile is a picture of inequality. A flatter pyramid would make India a larger market and reduce the risk of an economic plateau caused by unequal opportunities for advancement. However, we couldn't find a way that would flatten the pyramid without flattening the growth. While welfare packages are essential to this goal, they may not be enough. Do social conditions have to be supportive? If so, politics and economics could be inextricably linked not only from one election to the next, but also in determining the prosperity we ultimately achieve.
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