There are two things about Prime Minister Narendra Modi that stand out. One is that he is a bold gambler. In November 2016, he gambled on a risky and seemingly foolhardy demonetisation. Despite the misery it caused, his party Bharatiya Janata Party (BJP) swept Uttar Pradesh and Uttarakhand assembly elections with massive mandates.
The second trait is that he usually does the completely unexpected. The Union Budget for 2022-23 presented by Union Finance Minister Nirmala Sitharaman on Tuesday is clear proof of that. Every Tom, Dick and Harry in the form of analysts and pundits expected a budget loaded with welfare and populist schemes as a political move.
There is nothing new in terms of welfare and populist schemes in this Budget. Many analysts are shocked. What about the Uttar Pradesh election, they ask? Why has Sitharaman not directly addressed serious concerns of Indians middle- and lower-income groups on issues like persistent inflation and economic pessimism? Well, the answers will come on March 10 which is just a few weeks away. But more on this move while concluding this piece.
In the backdrop of Covid-19 pandemic, the less glamorous but politically more dangerous economic factor, inflation, is slowly engulfing popular narrative. The number of Indians rating inflation as unchecked has risen by 45 per cent, from a low of 17 per cent in 2015 to 62 per cent in 2022.
Failure to control inflation cost UPA-II led by Manmohan Singh much political capital. The problem for UPA was compounded by a leaky subsidy system prone to corruption. There was no social safety net necessary for cushioning the impact of rampant price rise especially for the poor.
HOW DOES THE MIDDLE-CLASS FEEL?
Under the current dispensation, the poor have been supported well through a slew of micro-interventions, particularly the food security program initiated for 800 million Indians. However, the middle class has not been shielded much from the impact of inflation.
Politically, this has translated into split sentiment, the poor perceive the inflation to be there but sense a level of protection on account of government intervention, the middle-class is feeling vulnerable currently. This disjoint is best illustrated by the fact that the number of Indians sensing a significant decline in quality of life due to inflation are relatively static between 2015 (53 per cent) and 2022 (49 per cent).
Under the UPA, two-third of respondents was claiming to face deterioration in quality of life minor or major. There was a drastic decline in this number, and it was not breached even in the aftermath of the 2020 pandemic induced lockdown.
Nevertheless, the number of people claiming deterioration in quality of life touched 49 per cent. What is worrying for the finance minister and the NDA government is the index of optimism.
The CVoter tracker indicates that deeply optimistic Indian electorate has once again begun to approach the pessimism witnessed the start of previous decade. From a high of 72 per cent in 2017, it has now dipped to 38 per cent.
The number is now hovering in the range observed during the early 2010s. The cause of pessimism is the dual shock induced by economic contraction due to Covid-19 pandemic and the inflation that ensued due to global supply chain issues.
Rising fuel prices have also contributed to the initial supply chain issues. For the first time in recent decades people are facing the dual spectre of declining and stagnant incomes with rising prices.
BJP’S LESSON FROM 2004 LOSS
The hit is particularly hard for the middle-class. The BJP took deep lessons from the loss in 2004. The India Shining campaign was heavily predicated on the middle-class goodwill in the cities. A low turnout by urban voters extinguished those hopes.
Now, the BJP focuses on ensuring growth but at the same time keeping the poor electorate happy as they are deemed to be more loyal. The 2019 Lok Sabha election validated this hypothesis and the government doubled down on it in after the record win.
About 57 per cent Indians stated witnessed a rise in expenditure simultaneously with a decline in income. This is a double whammy for the middle-class. In absence of political heft, they have been left without recourse to subsidies and have had to deplete their savings.
There are rising instances of indebtedness among the urban middle-class. Naturally, there is a rising clamour for tax and expenditure related relief from the middle-class.
We, at CVoter, have been tracking the income that families of four individuals feel should be made tax-free. Between 2010 and 2022, the average income reported increased from Rs 47,260 to Rs 52,073.
This number is instructive of two things. First, the middle-class is not over stating their needs. Second, the demand for declaring an income worth Rs 6 lakh per annum tax-free has been long in the making.
There is another metric that corroborates the rising disquiet. In 2017, 55 per cent Indians called the government’s handling of the economy as much better than expected. The same number has come crashing to only 26 per cent now. About 66 per cent of the respondents stated that their expenses were becoming difficult to maintain.
The key thing for the government to decide is the extent to which it wants to support the vulnerable regardless of their prior economic situation ahead of the pandemic. The middle-class in any country is the opinion maker and the traditional engine of social mobility.
Shrinkage of the same can lead to social upheaval, lowering of growth potential and overall turbulent political situation. The recent job-related riots due to railway recruitment changes are instructive.
SITHARAMAN’S MESSAGES FROM MODI
India faces a tough choice between maintaining the existing expenditure on welfare policies, and infrastructure, and the extending support to a beleaguered middle-class. Expansionary policies in the western economies have led to record high inflation particularly in the US.
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India already has high inflation compared to the recent past and any further rise in it will also be dangerous. Truth is that the government has no quick remedy for the current situation. The economic circumstances are painful for most middle-class families and may remain so in the short term.
But it seems Sitharaman got some unmistakable messages from the PM while she was preparing the Budget. One is that while the going looks tough, his political assessment is that the BJP will manage to win Uttar Pradesh again without resorting to populism in this Budget; doesn’t matter what the margin of victory is.
The second message is perhaps even more typical of Modi. He has possibly told Sitharaman to keep the really heavy ammunition of populism and welfare for the poor for the Budget next year which will be the last full Budget of this tenure.
(Yashwant Deshmukh is the founder editor of polling agency CVoter. Manu Sharma is senior editor at CVoter. The views expressed are personal.)