Modi’s apparent shift from development to nationalist agenda worries the economists

Police stand beside a poster board announcing a strike, outside the Reserve Bank of India (RBI), during a nationwide general strike called by trade unions aligned with opposition parties to protest the Indian government's economic policies in Hyderabad on January 8, 2020. (Getty Images)

As turmoil engulfs India over the controversial citizenship law, seen by many as a result of pushback against Prime Minister Narendra Modi’s bid to advancing the Hindu majoritarian imprint upon the state, concerns are growing that India’s economy may be adversely impacted in the long run.

Experts say the protests against the citizenship law have as much to do with opposition to “dividing the population along religious lines” as also with peoples’ rising frustration with unemployment and slowing down of the economy.

“The current policy direction of the national government and its implications in terms of conflict, uncertainty and loss of trust and confidence can have long lasting negative impacts on the economy, which pure economic measures will not be able to compensate for,” Nirvikar Singh, Distinguished Professor of Economics at the University of California, Santa Cruz, told India Abroad.

“The government’s approach should be to restore trust and confidence among all citizens throughout India, rather than causing them to feel threatened and fearful while at the same time it must clean up the financial sector, take actions to boost consumer demand and make structural reforms that can improve the growth-inflation tradeoff,” Singh said. He noted that societal trust and a sense of belonging improves economic outcomes, including growth.

Similar sentiments were expressed by economist Kaushik Basu, a former chief economist of the World Bank and also the Carl Marks Professor of International Studies and Professor of Economics at Cornell University. Basu said in Kolkata recently that the politics of division is affecting India and such divisions can have an impact on the economy in the long term.

He said that short term issues can be dealt with policy interventions. Giving the example of the National Infrastructure Pipeline (NIP) with projects worth Rs. 1.2 billion which he said has been a “good idea,” he noted that a lot depends on its implementation. If not implemented properly, the NIP, announced recently to ensure timely implementation of infra-projects across 18 states and union territories over the next five years, can spark off inflation, he said.

“The political situation over here has become very divisive. And we have to hold it together; not by force. But yes, I’m worried about what that (division) is doing to the economy. And once institutions erode, that is a long term problem,” Basu told Hindu Business Line on the sidelines of a FICCI event in Kolkata earlier this month.

Sanjay Reddy, Associate Professor of Economics at The New School for Social Research in New York, told this correspondent that the citizenship law shows “considerable tension” between BJP’s Hindutva agenda and Modi government’s economic goal.

Singh also emphasized that there is need to give states and cities more freedom to act and with budgets to support those actions and to increase investment in infrastructure, both large and small.

In December last year, IMF chief economist Gita Gopinath said that India’s slowdown had “surprised to the downside” and it is planning to significantly downgrade growth estimates for the Indian economy in the World Economic Outlook report.

The report was to be released later this month.

Even before the turmoil of 2019, Singh noted, India’s economy was already ebbing, with industry, agriculture and exports, all growing much slower than a decade earlier. But now, beyond the basic moral principles at stake, the promotion of hate and divisiveness is also hurting India’s economy, he argued. “We are at risk of a major downward spiral,” Singh, along with economist Kaushik Basu wrote in a speak piece in New Age on Jan. 7

India’s economy grew at its weakest pace in six years for the July-September quarter last year, at 4.5 percent.

The frustration of Indians with the economy has also been pointed out by other experts like Ashok Swain, a professor of peace and conflict research at Uppsala University, Sweden. Earlier this month, Swain wrote that although protesters are openly opposing the Citizenship Amendment Act, it would be naive to jump to the conclusion that Hindu Indians are protesting solely in support of secularism and democracy. “What we are seeing is their economic unhappiness emerge under the banner of defeating religious chauvinism,” he wrote in Nikkei Asian Review on Jan. 17.

Taking a critical view of the economy, Swain said, despite claims of impressive economic growth, job creation had not taken place as expected, which prompted the Modi government not to release national employment data before the May 2019 election. However, the leaked figure suggested that unemployment in 2017-18 had reached a 45-year high.

Others say the protests and the pushback against Modi’s policies also threaten a recovery in the economy because disruptions to normal life make foreign investors wary of doing business in the country.

A Bloomberg report said in December quoting Pratyush Rao, associate director at security consulting firm Control Risks, that as a fallout of the situation, foreign investors will increasingly begin counting the opportunity costs of a government expending its hard-earned political capital on firefighting protesters rather than pursuing much-needed structural reforms desperately required to steer India out of its current economic slowdown.

“The risk of social unrest is now elevated over a longer time frame,”Akhil Bery, South Asia analyst at risk consultancy Eurasia Group, told Bloomberg.

Concerns are emerging in some other areas as well.

As a direct corollary of the turmoil, India’s tourism industry was hit, with officials estimating that in two weeks in December, about 200,000 domestic and international tourists cancelled or postponed their trips to the Taj Mahal.

As protests erupted across the nation against the citizenship law, at least seven countries, including the U.S., U.K. and Russia, issued travel warnings, asking their citizens to either refrain from visiting or to exercise caution when visiting regions embroiled in India’s protests.

An estimated 26 people have been killed in clashes between police and protesters, at demonstrations against the Citizenship Amendment Act.

According to the World Travel and Tourism Council last year, tourism generated equivalent of $240 billion or 9.2 percent of India’s GDP in 2018 and supported 42.673 million jobs, 8.1 percent of its total employment.

The United Nations World Economic Situation and Prospects (WESP) 2020 report released this month has lowered its GDP growth estimate for India to 5.7 percent in the current fiscal from 7.6 percent forecast in WESP 2019. It said India needs continued structural reforms to boost growth.

It said economic growth took a hit in much of South Asia in 2019 as the impact of the global economic slowdown was compounded by country-specific crises. Noting the economic slump in India and other countries of the region, the report said, while countries in South Asia are each dealing with their own structural challenges, they share a number of external and domestic downside risks that could cloud their economic outlook.

According to an Economic Times report, India’s exports declined 1.8 percent in December to $27.36 billion as 19 of the 30 exporting sectors showed a decline in outbound shipments.

Some experts say what one has seen with the new Modi government is a real shift of emphasis towards the cultural, the religious, nationalist agenda. “I think what these protests show us is that many young people in India are saying, this is too much. This is not who we want to be,” Alyssa Ayres, senior fellow for India, Pakistan, and South Asia at the Council on Foreign Relations, said on PBS last month.

Raghuram Rajan, former Reserve Bank of India Governor and the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, said student-led protests in the country show that the ideals of the secular nation are still valued by the youth. Rajan could not be reached for comments at press time.

In an article posted on his LinkedIn account, Rajan said, in recent days, the news coming out of India has been worrisome where a gang of masked assailants broke into one of India’s leading universities, going on rampage for hours, attacking students and faculty, entirely undisturbed by the police.

Noting that while the identities of the attackers remain unclear, what was clear is that many of the attacked were activists, and neither the government-appointed administration nor the police intervened, he said.

“When even elite universities become literal battlegrounds, accusations that the government is attempting to suppress dissent — even if by apathy rather than design — gain substantial credibility.”

He noted that tensions have escalated in India after masked assailants, allegedly affiliated with Modi’s Bharatiya Janata Party, attacked hostels in Jawaharlal Nehru University on the evening of Jan. 5 with rods and batons, injuring dozens of students and some professors. The BJP’s student union blamed leftist students’ unions for the attack.

“In these troublesome times, let us work together to make India that shining example of tolerance and respect that our founders envisioned, a beacon once more for a weary world. Let that be our task for the new decade,” he wrote.

Both Basu and Singh in the article wrote that the steady progress of the economy since the mid-1990s was raising hope that India would take on various challenges head on.

“The divisiveness being advocated has, however, caused a setback. This is affecting trust and cooperation in the nation. For example, the use of the state machinery in Uttar Pradesh to seek ‘revenge,’ and to promote the ring-fencing of people and silencing of voices is ethically unacceptable and doing great damage to India’s standing globally,” they wrote in the Jan. 7 article in Print titled “Safeguarding the Idea of India.”

Microsoft CEO Satya Nadella also joined economists and experts when he voiced concern over the contentious citizenship act while speaking to editors at a Microsoft event in New York recently and noting that what is happening in India is “sad.”

In a statement issued by Microsoft India, Nadella said every country will and should define its borders, protect national security and set immigration policy accordingly and in democracies, that is something that the people and their governments will debate and define within those bounds.

“I’m shaped by my Indian heritage, growing up in a multicultural India and my immigrant experience in the United States. My hope is for an India where an immigrant can aspire to found a prosperous start-up or lead a multinational corporation benefitting Indian society and the economy at large,” he said.

Longtime Silicon Valley venture capitalist Vinod Khosla, echoed Nadella’s comments on the citizenship issue. “I strongly believe India should be a secular country!” Khosla told Bloomberg in response to a question about the citizenship law.

Reddy, who sees tension between BJP’s Hindutva and Modi Government’s economic goal, said he fears longer term economic consequences of the unrest emanating from BJP’s agenda and the protests against citizenship.

“I do not think that there will be a large, direct and immediate effect of the turmoil that has been triggered by the Citizenship Act. On the other hand, the longer term economic consequence of a relentless focus on such measures relating to the Hindutva agenda at the potential cost of social and political stability, may well be disastrous,” Reddy told India Abroad in an interview.

Noting that the BJP has recently prominently addressed a non-economic agenda, he said the BJP is vulnerable to charges that it has mismanaged India’s economy.

To a question by this correspondent, Reddy said, “the resulting loss of confidence and trust in the state will affect its ability to be an effective actor in relation to a wide range of social as well as economic issues.

Reddy, a blogger who writes speak pieces on development, including in Financial Times, is a member of the Independent high-level team of advisers to the Economic and Social Council of the United Nations on the longer-term positioning of the UN Development System.

“In India the everyday transactions costs generated by social and political strife may also cumulate. Ultimately, the pursuit of Hindutva agenda is likely to be in considerable tension with inclusive economic prosperity,” Reddy said.

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