What do India’s Prime Ministerial candidates mean for its economy?

By: Sourajit Aiyer

As India undergoes federal elections with 800 million eligible voters, what do the contenders for the Prime Ministerial role mean for its economy?

Leading the race are Rahul Gandhi, the candidate of the Congress Party-led UPA coalition, and Narendra Modi, the candidate of the Bharatiya Janata Party-led NDA coalition.

Challenging them are Arvind Kejriwal of the new Aam Aadmi Party, as well as bigwigs from regional parties who can form a possible Third Front alliance.

The new government, whoever forms it, will inherit an economy which is in a severe slowdown – the winner’s curse. The Indian economy, which recently displaced Japan to become the third largest in the world in Purchasing Power Parity terms, is in a very bad shape.

GDP growth is at a decade low, inflation is stuck high, industrial and manufacturing sectors have frozen, job growth has dried substantially, infrastructure development has slowed, exports remain sluggish and the fiscal deficit issue in public finances haunts policymakers.

Election manifestos of the major political parties talk of similar buzzwords like boosting growth, development, jobs etc. Within that, some emphasize certain areas, some others. If one has to define the broad vision of the three main contenders based on the emphasis of their manifestos, it may not be hazardous to estimate Gandhi’s as social welfare-led development, Modi’s as commerce-led development and Kejriwal’s as clean politics-led development.

India probably needs a dose of all three. It needs Gandhi’s social welfare schemes since a large chunk of the population remains at low-income levels, unable to afford basic goods and social services, more so if the country is unable to create enough economic activity and income opportunities to enable them to afford these on their own.

To take the economy out of a crisis quickly, economic activity needs to be enhanced, bringing in more companies to invest and create jobs. This is where Modi’s track-record in improving Gujarat’s economy adds faith for essaying India’s revival.

India also needs a clean political system to ensure effectiveness and efficiency of governance and government services. As Kejriwal puts it – clean economics cannot exist without clean politics. This would also help improve India’s image globally.

AREAS OF CONCERN

There are seven broad areas of concern that come to mind: economic growth; fiscal deficit and inflation; jobs, skills and entrepreneurship; industries, investments and infrastructure; corruption; centralized vs. decentralized management; and credibility of ultimate delivery.

Let us use these areas to dissect the three contenders as per the contents of their manifestos and media coverage, and ascertain what they might bode for the economy.

GDP growth, which ranged between 7% and 9% during the last decade, has dipped to a dismal 5% in the last two fiscal years. Growth under 5% does not do justice to a nation of 1.2 billion. The GDP growth figure also does not tell whether the expansion has been inclusive. Large swathes of population have been left out in India’s two-decade old growth story, which many believe to have been skewed towards certain sections.

Poverty rankles deep, economic distress is a major reason for migration to unplanned urban clusters and perceived socio-economic imbalances are a reason for incidents of crime.

Gandhi promises a return to 8% GDP growth within three years, while Modi or Kejriwal have not made a quantitative commitment. Expectation from Gandhi about reviving growth is biased by the dismal track-record of UPA since 2009-2010.

While this period coincided with the global slowdown, policy slowdown and corruption were also major factors. The main reason for India’s inflation is pegged to be supply-side inadequacies rather than demand.

This inflation is now feared to be structural given that policy paralysis slowed investments into productive assets/infrastructure, which could have addressed those supply-side inadequacies. However, a fresh leadership under Gandhi might overcome these handicaps.

Kejriwal asserts a business-friendly image, stressing his priority to increase participation of the private sector to bolster economic growth. However, the private sector has gone into a cocoon as far as committing fresh investments are concerned, and the government has to initiate commitment by making public expenditure first.

But India’s fiscal situation is weak due to subsidies and social-welfare schemes, and the ability to maneuver for public expenditure plans is limited. In fact, this is a challenge Modi faces too. There are expectations from him of taking India back on the growth path based on his track-record in Gujarat.

Reviving growth is where Modi’s candidature shines. He might start by clearing the stalled projects quickly to initiate some action; however, these projects will take time to fructify. Moreover, the reason for stalling of some of the projects is related to the provincial governments, which might take time.

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