The Budget is the First Opportunity for Modi Sarkar to Make Some Serious Amends

Between November 2023 and April 2024, food inflation has never been below 8%, at times hovering around 10%.

Finance Minister Nirmala Sitharaman. Image used for representation only. 

(Photo: PTI)

The Budget must offer some placating gestures to ordinary Indians after a wake-up call for the Bharatiya Janata Party government in the 2024 Lok Sabha elections.

The author is convinced that many factors played a role in bringing down the BJP tally in the Lok Sabha from 303 to 240. Trends in two-wheeler sales provide a perspective.

Graph showing sales of two-wheelers over the years. 

(Photo: Author)

Look at the chart and see how dramatically different 2019 was from 2024. Back then, in 2018-19, two-wheeler sales registered a record of more than 21 million units. It has been downhill since then.

There has been a recovery in 2023-24 driven by an eight percent plus GDP growth. However, at 18 million units, sales in 2023-24 were still way below the 2018-19 level. In contrast, passenger car sales broke all records to cross four million units in 2023-24. What does this mean?

It’s simple really, and many analysts have been pointing this out since 2022. The remarkable recovery in economic growth post-COVID has benefited mostly the upper middle class and affluent Indian families (who buy cars and SUVs).

The lower middle class and aspirational Indian families (who buy two-wheelers) have not benefited as much. If they had, common sense suggests even two-wheeler sales would have broken all records in the run-up to the 2024 Lok Sabha elections.

Economists call it the result of a K-shaped recovery in the Indian economy. The simpler explanation is that aspirational Indian families have not been confident enough in their incomes to take a consumer loan to invest in a two-wheeler. Data from other sources also confirms this.

CVoter has been conducting a Daily Tracker survey on socio-economic issues for many years. In the aftermath of COVID, more than three out of every four respondents said that they found it very difficult to manage family/household budgets.

GDP growth since then has been spectacular by global standards. Yet, in April 2024, when voting for the Lok Sabha polls began, more than two-thirds of respondents said they found it very difficult to manage family budgets. When you struggle to make ends meet, buying a two-wheeler is difficult.

No one can accurately estimate the degree to which economic distress among aspirational Indian families affected their voting behaviour. But it must have played a part. There is even more data to back this. Real wages in the case of those self-employed at the lower levels of the income pyramid have mostly stagnated or gone down since COVID, despite high GDP growth rates.

So, the absence of a Balakot-like event in 2024 is not the only reason for the unexpectedly underwhelming performance of the Modi juggernaut in the elections. Economics has made a difference as voters were far more optimistic about a better economic future in 2019 than in 2024.

The primary culprit is retail inflation, or food inflation to be more precise, during Modi-2.0. Between 2014 and 2019, barring occasional blips, ordinary Indians enjoyed a period of very moderate inflation. Compared to the double-digit rates of UPA II, this was a huge relief. Stable incomes and low inflation meant aspirational Indians felt confident enough to buy two-wheelers in record numbers.

Not so in Modi-2.0.

There have been months during which retail inflation has threatened to cross eight percent. But that’s not what has hurt aspirational Indians. It has been food inflation. For more than two years, there has hardly been a month when food inflation has not been near double-digits or more than that.

Between November 2023 and April 2024, food inflation has never been below eight percent, sometimes hovering around 10 percent. As it is, food items account for about half the weightage in calculating overall retail inflation. But for aspirational families, expenditure on food accounts for a substantially higher proportion.

This makes it clear why upper-middle-class Indians who spend a small fraction of their income on food went on to buy cars. And aspirational families hit hard by food inflation decided to postpone their decision to buy a two-wheeler.

Even beyond the data, there are numerous anecdotal accounts of how vegetables have become so expensive that poor and aspirational families can no longer afford them. The irony is that while aspirational consumers suffered, even the farmers did not benefit, as they sold in distress as middlemen made a killing. Vegetable inflation has often breached the 20 percent mark in the 12 previous months.

The problem persists. In June 2024, food inflation was at 9.36 percent. When family incomes are stagnant and you can’t afford vegetables, even two-wheelers will remain a dream for aspirational Indians.

The Budget can’t really do much to provide quick solutions. Yet, Finance Minister Sitharaman needs to send a credible signal that Modi-3.0 is serious about helping aspirational Indians snap of economic struggles and distress.

Lok Sabha 2029 may be far away. But numerous assembly elections lurk around the corner.

(Sutanu Guru is the Executive Director of the CVoter Foundation. This is an opinion article and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)