The numbers are in and they are pretty scary. Q1 GDP growth is down to just 5%.
I want to make some nuanced arguments in this post, so let me clarify first where I stand. I have a healthy disrespect for economists and so let me just put this on record: here is a graphic that I stole from a tweet by Rahul Raj and decided to edit with red markings to show my point.
Last year, this quarter showed 8% growth which was very high. This year, the same quarter has shown just 5%, which is really low. Let me say this very clearly: you will see fantastic growth in this quarter next year.
This is simply base effect, which you can see amply in the graphic. A high base in Q1 of FY2018-19 led to a low number in Q1 of FY 2019-20. A low base this year will lead to a high headline number in Q1 of FY20-21.
But base effect works both ways : high base effect and low base effect. The only difference is that people tend to forget high base effect and only remember low base effect.
See what they did in 2018. Do you think Congress is attributing this year’s low number to high base effect? Of course not.
So am I playing down the problems in the economy? Of course not. Rather, I would be pleased to see them played up (unless you go into fiction territory with the biscuit stories).
Because what I believe is that the GDP scare is extremely useful to push through reforms that are sorely needed.
See, left wing economics is a bit like not studying and hoping that the exam date will never come. It feels good for a while. But the exam always arrives. And shortly before that, there’s panic. And that’s when things finally get done.
Last week, I heard out the entire Press Conference by Finance Minister Nirmala Sitharaman. Much more than her specific policy announcements, what made me happy was that it was a full hour of this government talking only about how to help out business. This might be the first time that we have seen Modi sarkar talking only about business…business and business.
Because business is the only thing that creates wealth.
This was a huge departure from the welfare focus of the first Modi government.
There are many on the right who are furious with Modi sarkar 1.0 because of its focus on welfare rather than business. These people forget that Modi sarkar ran the most pro-business state government in Gujarat.
So what changed when Modi moved to Delhi? Consider the environment in 2014-15. It may be difficult now to remember the time when the ecosystem was absolutely on top. Do you remember the time the govt tried to pass the Land Acquisition Bill? The narrative was set: Modi on the side of big business and not poor farmers. A total PR disaster for the government.
Do you know what would have happened if Modi had gone “pro business” in his first term? He would have faded away into the sunset by now. PVNR lost. Atal ji lost. Right now, Rahul Gandhi would have been Prime Minister. *Shudder*
Who were the big winners in India’s electoral system? Jawaharlal Nehru, who never did a single thing that was pro-market. Indira Gandhi, who nationalized the banks. Jyoti Basu who didn’t do a thing for Bengal in his 30 year rule. And Manmohan Singh, who rode on the anti-business pitch of Congress in 2004.
Who were the big losers? PVNR and Atal Behari Vajpayee. And yes, Chandrababu Naidu as well. He might be one of the worst politicians in India right now, but you have to remember he created a national business hub in Hyderabad. Soon to be a global business hub. He paid for that “crime” with 10 years out of power.
When Modi came to Delhi, his first priority would have been to put Congress firmly in the rear view mirror. He was on the hunt for the elusive second term. Nobody had ever succeeded (until 2019) in keeping Congress out of power for 10 years. Going up against the accumulated power of 60 years of entrenched socialist narrative was not an option. It was like choosing sure defeat.
Now is the moment. The elusive second term has been achieved. The Congress is gone too far out of the equation. It may never revive as a party.
This is the opportunity. And right now people are terrified at the falling GDP numbers. It’s like the student who finally realizes that the exam is tomorrow.
Suddenly, we have a new consensus in the country. The economic right wing wants far reaching reforms to unleash the animal spirits of the economy.
The economic left does not really like reforms. But they are full of hatred towards Modi. And so they have jumped on these numbers to make Modi look bad. The other day I think I saw Ravish Kumar interviewing a Marxist professor about how Modi sarkar is being anti-business. LOL! People who believe business is evil by definition are now bashing Modi for not doing enough to help business.
This is great. I couldn’t be happier. We have finally achieved a consensus that business is good. The motivations of individuals don’t matter. Right now everyone is boxed into the pro-business club.
Most of all Modi himself, who *knows* his image is suffering badly due to problems in the economy. The government knows that if these problems last, nothing can save them in the next general election, which is a full five years away. Now they have the time, energy and political safety to put India on the path of genuine right wing economics. For once we are all on the same page. Panic works.