Budget 2022: Can Modi Govt Balance Politics & Economy Ahead of Elections?

The debate on ‘K vs V’ recovery post-COVID-19 has put the government on thin financial ice.

Unless you have been sleeping under a rock, India's economy now is divided between the V ‘school’ and the ‘K school’, neither to be confused with the exalted Delhi School of Economics, popularly called ‘D school’ by its groupies.

It is going to be a tough spring for Prime Minister Narendra Modi's government as it has to face elections in Uttar Pradesh, Punjab and Goa, where voters will show if the alarmist ‘K-walas’ criticising the Vs cut any ice at the polling booths.

Finance Minister Nirmala Sitharaman has to address the K side in her Budget for 2022-23 on 1 February. But will she? Or, can she?

Dwindling Jobs, But Ayodhya Stands Strong

Her own departing Chief Economic Advisor, Krishnamurthy Subramanian, made the V sign after having evangelised all along that India's recovery from the COVID-19 pandemic would be a sharp V-shaped one.

Numbers do show he may be somewhat correct. However, the worrying part is that stock markets love the V but voters may want to know why it looks like a K to them, where ‘K’ is a disturbing K-shaped graph in which the growth does not create sufficient numbers of jobs, or where growth is restricted to a handful of sectors.

In a K-syndrome, incomes grow at a stratospheric level, leaving a yawning K-shaped gap, in which the rich get richer and the poor have to stay content with fringe goodies such as subsidised health insurance, cheap gas cylinders – and a big temple in Ayodhya.

They might eventually get tons of jobs as workers at airports and expressway projects and ‘Make in India’ schemes, only if promises come true and as and when the projects pick up steam.

Business news channels measuring investor lives in spoonfuls of Sensex numbers and fretting about interest rates and whether or not the Minister will meet, stretch or fudge fiscal deficit numbers are far removed from places like Barabanki in Uttar Pradesh and Dera Baba Nanak in Punjab, where voters will have other wounds to nurse, such as a lack of blue-collar industrial jobs and life as farmers after the Modi government rolled back controversial agricultural trade laws.

Neither Inflation Nor Jobs Is in BJP's Favour This Time

The fact is that Sitharaman has to step on the proverbial gas because data shows neither inflation (the stuff that traditionally angers BJP's committed lower-middle-class voters) nor jobs (the stuff that Congress and the Left keep shouting shrill about) seem to be favouring the powers-that-be.

There's hard evidence that India's darling IT companies are worried about how to keep the staff from leaving for greener pastures or better work-life balance (an upper-middle-class luxury) even as the Centre for Monitoring the Indian Economy (CMIE) presents the scenario of pessimistic jobs for the less privileged of the Indian worker species.

India's unemployment rate reached a four-month high of 7.91% in December as compared to 7% and 7.75 per cent in November and October 2021, CMIE data showed in early January. Elaborating later, CMIE estimated that number at 53 million people, of which 35 million were actively seeking work in December.

This would imply that about 140 million people are adversely affected if we estimate that every earning adult Indian serves for a family of four. That is equivalent to the population of seven Australias. Respected organisations like the Asian Development Bank estimate the number of Indians joining the workforce at about 1 million every month.

You get the picture. The jobs gap is yawning.

The Gurugram Irony

In a relevant sideshow, Haryana Chief Minister ML Khattar has contemplated "action" against the CMIE because it reported that his state had the highest unemployment rate among Indian states, even as his administration brought into effect a law that mandates that 75 per cent of specified jobs that fetch Rs 30,000 or less per month must go to "locals". This is clear proof that jobs are a political issue close to Haryana's Gurugram, where Google and Microsoft have their national head offices. In other words, this is evidence of a K-shaped growth.

A survey of 1,111 professionals by career networking site LinkedIn (admittedly a small sample of a highly educated universe) revealed that India's ‘Young and Restless’ professionals are likely to consider changing jobs in 2022. They cited poor work-life balance (30%) and "not enough money" (28%) among the reasons.

This section of India’s workforce is optimistic about the future of careers despite the pandemic, with 82% of those surveyed considering job change. That is like rich folks complaining about the taste of cake in a land where bread is running scarce.

Is It Really a V-Shaped Recovery? 

As for V-shaped recovery at the macro level, the government's own income numbers do show a sharp-looking bounceback from pandemic lows, but that is not the same as a return to the old growth path. The first advance estimate of gross domestic product (GDP) for the financial year 2021-22 has come in at 9.2 per cent, up from a contraction of 7.3 per cent in the pandemic-mauled previous year.

If a frog falls seven feet into a wall and jumps up by nine, that would be only a two-foot rise, right? This is not quite the signal for a ‘V-for-Victory’ sign.

Inflation, meanwhile, is such that it might hurt a resurgent growth path. If inflation persists, the Reserve Bank of India (RBI), which has been so far trying to keep the rates low to help borrowers and fuel growth, may be forced to tighten the amount of money in the economy.

3 Poll-Bound States Have Higher Inflation Than National Average

The country’s retail inflation, which is measured by the Consumer Price Index (CPI) used by the RBI to set rates, rose to a five-month high of 5.59 per cent in December, up from 4.91 per cent in November and close to RBI's fiscal year-end target of 5.7 per cent. RBI's upper tolerance level for inflation is 6 per cent.

Meanwhile, a deeper analysis shows inflation rates have been higher than the national average in Manipur, Uttarakhand and Punjab, three of the five states holding state Assembly elections in February.

Will Budget's Promises Reach the Public?

Orthodox economists have been talking of the need for the government to tighten its purse by reducing the fiscal deficit. If it does, growth and jobs may turn difficult. If it does not, foreign investors may crib about fiscal indiscipline even as local voters may heap scorn at rising prices.

In plain English, the government is on thin financial ice in a challenging socio-political environment. You can expect a lot of nice-sounding numbers and words on health, infrastructure and agriculture in the Budget speech, but how far and when they would touch the lives of ordinary Indians remains to be seen. Nonetheless, the BJP has so far had an election run that makes opposition bullets on the economy look ineffective.

Politics & Economics are at Loggerheads

Sitharaman should look at inequalities in incomes and wealth and not just muscular highways and macro numbers to get a true bird's eye view that might help her party politically. But her eyes are obviously also on the high priests of the ‘market church’ who frown on a big gap between government revenues and spending.

The economy is a tough thing to handle in a democracy where voters may change sides if their jobs and prices pinch where it hurts them. It is clear as of now that politics and economics are likely to be at loggerheads in the coming days.

(The writer is a senior journalist. He tweets as @madversity. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)