Can an economic slowdown ever come at a good time for a government? If you are looking at it purely from a political standpoint, there may have been no better time for the Bharatiya Janata Party-led alliance to face economic difficulties: it has just won a massive political mandate for the second time in five years, it is not expecting any particularly competitive state elections in the short-term and the Opposition appears to be wandering around in the dark.
What’s more, as far as the BJP’s base is concerned, the government notched up a big victory at the very start of its second term by fulfilling a long-standing promise to end Jammu and Kashmir’s special status. This means that the alarm bells ringing around the economy – auto sales down, unsold homes piling up, government revenues sliding, consumer demand flatlining – should not put the government in a bad political place.
This is a good thing for citizens, because the BJP has a terrible record when it comes to facing facts that could hurt the party politically. Instead, the party prefers to spin its way out of such situations, simply denying any suggestions that things may be awry and insisting that the people are firmly behind the government.
But, try as you might, you cannot spin your way out of an economic slowdown. The government might be able to ignore warnings coming from prominent economists, incuding its own former chief economic adviser, but actual indicators from the economy are hard to hide. When the head of biscuit manufacturer Britannia says “even for a Rs 5 product if the consumer is thinking twice before buying it,” it is very clear that something has to give.
This is why it is helpful that the BJP faces no immediate political challenge. Hopefully, that means it puts aside the spinning for a while and actually focuses on solving the many problems at hand. The household savings rate has declined precipitously, consumption is in serious trouble, and the design of the Goods and Services Tax seems to have ended up damaging the economy instead of unleashing growth.
There is already buzz in New Delhi that the government is thinking of some sort of package to address the slowdown, shedding its earlier stance of insisting that all is fine and India continues to be among the fastest growing major economies in the world. Prime Minister Narendra Modi even gave an interview to the Economic Times to reassure the business world that his government has not lost focus on the economy.
The main fear, however, is that the government continues to think of this as just a cyclical downturn, in part because analysts are now saying a global recession is likely. There more than enough indicators that something more structural is happening in the Indian economy. It is not fully clear what is at fault, but analysts believe it is some combination of the after-effects of demonetisation, the GST rollout, formalisation of the economy and the Non Banking Financial Company crisis.
The government is indeed best placed to examine the data, understand what is at fault and address this. But for that to happen, it must be willing to put away usual talking points claiming demonetisation and GST were massive successes and that the economy is roaring along. Although the developing situation in the Kashmir valley will occupy much political and policy space over the next few months, the hope is that – with the government not too bothered about political battles in the immediate future – it can ditch the talking points and actually get to fixing the economy.