Narendra Modi’s 2014 election campaign has a clear focus on “small government”. “Minimum government, maximum governance” was a key slogan of the Bharatiya Janata Party. A May 2014 post on Modi’s website, pointing to his record as Gujarat’s chief minister, declared, “There has been more attention paid to the size of the government and not so much to its quality. Thus, Narendra Modi’s model of a small yet efficient government stands out.”
Modi’s campaign enthused many thinkers on the economic Right as well as India’s middle class, which has always seen any move towards wealth redistribution with suspicion. Comparisons with other politicians who had similarly focused on small government, such as former British Prime Minister Margaret Thatcher and former United States President Ronald Reagan, came in thick and fast.
Modi’s promises stood in sharp contrast to the Manmohan Singh government’s focus on expanding the welfare state, with extensive schemes awarding the poorer Indians the right to work and to food.
That was then. The interim budget presented by Modi’s government on Friday is far from his promise of small government, with expensive income support and pension schemes. This caps a steady shift back to the populist economic agenda based on building a welfare state that the mainstream national politics has followed since 1947.
From Gujarat to India
Modi started to backpedal on his minimum government promise within months of assuming office. In February 2015, the prime minister refuted rumours that he was planning to scrap the Mahatma Gandhi National Rural Employment Guarantee Act of 2005, a welfare scheme the previous United Progressive Alliance government, led by the Congress, considered its crowning achievement.
“My political acumen tells me that MNREGA shouldn’t be shut down,” Modi said, passive-aggressively declaring the scheme a “living monument” of the Congress’s failures. Since then, the Modi government has given up even this token opposition and firmly backed the programme. There is now no chatter around scrapping it.
The Modi government also sought to dilute the United Progressive Alliance’s Land Acquisition Act, 2013, which made it harder for private corporations to acquire farmland. In the face of a backlash, however, it gave up on changing the law in August 2015.
Modi has even reversed a trend started by the economic liberalisation of 1991, raising import tariffs on a range of goods from mobile phones to television sets, ostensibly to protect Indian industry. He has also done little to privatise the vast corpus of India’s state-run companies, a core agenda of the economic Right.
Not only did Modi continue with the rural employment guarantee programme, he launched a series of expensive welfare schemes himself. In the West – and even in neighbouring nations such as Bangladesh – financial inclusion has been driven by private players. But Modi utilised India’s vast network of state-owned banks, created by Indira Gandhi’s nationalisation programme, to push the Jan Dhan Yojana in 2014. The scheme has led to the opening of over 34 crore bank accounts as on January 23, 2019. In 2015, Modi’s government announced three social security schemes around accident insurance, life insurance and pension.
In September, with the next general election barely six months away, the BJP government launched Ayushman Bharat, describing it as the “world’s largest government-funded healthcare programme”. On Friday, Modi’s continued pursuit of populism saw his government break convention to present a full budget packed with major welfare schemes. Interim Finance Minister Piyush Goyal announced a scheme for providing farmers income support and a pension for workers in the unorganised sector.
The signal was clear: the voter should not see the BJP as a party of small government.
Left is not Right
Modi’s populism means the Union government’s fiscal deficit – the gap between its revenue and expenditure – has crossed the 3.3% target. On Friday, the global rating agency Moody’s noted that the interim budget has no policies to boost revenue even as it hikes expenditure. The Modi government’s failure to meet its fiscal deficit targets for two years running has led to Moody’s describing the situation as “credit negative”, and point out that it “does not bode well for medium term fiscal consolidation”.
Abhishek Gupta, an economist with Bloomberg Economics, called the interim budget “populist”.
The populist shift of Modinomics encapsulates a change maybe not in Modi’s thinking but in his operating environment from Gujarat to India. Gujarat allowed Modi the space to push through his economic agenda aggressively. As the head of the Indian Union, however, he must take 29 states and 1.3 billion people along. As in the case of the proposed changes to the Land Acquisition Bill, even a clear economic push from the Prime Minister’s Office will have to negotiate multiple power centres, which are often strong enough to overwhelm the Union government.
Without a wider buy-in for small government across India, one can expect the Union government’s welfare populism to be a constant, from the leftist Indira Gandhi to the rightist Modi.
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