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The State of Modi’s India

This week we decided to look solely at India as the country is growing and changing.

The general election in India is fast approaching, with Prime Minister Narendra Modi and his party facing a path to glory. The political steamroller is now in full swing with all politicians campaigning in what will be the world’s largest democratic vote. This will be a significant event that takes place over several weeks to make sure that the millions of voices across India are heard loudly and clearly. The official date is yet to be announced but polling is due to take place between April and May 2019. During the last general election, 830 million individuals were eligible to vote. This time around the country is expecting about 875 million people to have their say. Modi and his nationalist party are looking to be re-elected following their landslide victory in 2014 but are being opposed by Rahul Gandhi, the descendant of the Gandhi dynasty. He is the son of former Prime Minister, Rajiv Gandhi, and the grandson of Indira Gandhi, India’s first female leader. His grandfather was Jawarhlal Nehru, who was India’s founding Prime Minister.

India’s political model is based on the UK system where parties promote candidates for seats in the lower house of parliament with 543 seats at stake. Whichever party wins the majority of seats gets to choose the Prime Minister in charge. Last time around, BJP and Modi won 282 seats in the general election. With their alliances, this number grew to 336 seats, making it the biggest majority in 30 years.

The voting will take place across India’s 29 main states and seven smaller territories that are known as Union territories, with some carrying more weight than others, based on their population. The largest battleground is the northern state of Uttar Pradesh, as it is home to approximately 200 million people. Given that this region accounts for 80 seats in parliament, it is critical for both parties and their ambitions of forming a government. Other key states are Maharashtra, West Bengal, Bihar and Tamil Nadu.

Unemployment and Slow Job Creation

Not too long ago, Narendra Modi looked untouchable, but a few months is a long time in Indian politics. Modi entered 2019 with his halo being shattered as Congress rallied towards the tail end of 2018 after winning a series of state elections, which were labelled “semi-finals”. Opinion polls and state elections were contradictory, demonstrating that BJP had lost a lot of ground. More worryingly, Modi’s popularity has dropped uniformly across urban and rural areas. One factor that could be pivotal is job creation. Even though India’s economy is growing faster than most across the globe, it is evident that jobs are not being created fast enough to match the country’s growth. Looking forward, it is estimated that 1 million Indians will turn 18 each month for the next several years, and at that speed, unemployment could well increase rapidly. Statistics show there is discontent within the population and research demonstrates that confidence in the economy has fallen by over 25% in the past year.

 

Farmers

The despair continues within the farming community who have been struggling with steep falls in the price of staples, such as chickpeas, onions and oilseeds. This is not a good sign and could be pivotal to the outcome of the election as 70% of people still directly or indirectly earn their living from the agricultural industry. Since we last wrote about the farming industry, the mood has not changed much with farmers marching to Delhi five times in the past year. Several commentators have suggested that the farming community is still disturbed by Modi’s decision in 2016 to invalidate a majority of the currency in the economy, which led to a cash shortage and an estimated 2% negative impact on the country’s GDP. In many ways, Modi is now suffering for promising so much when he came to power in 2014. In reality, citizens are dismayed as they feel little has changed in people’s lives after four years (at least in some parts).

Capturing Tycoons

What could play in Modi’s favour is his tenacity to bring a group of fugitives to justice. He has stepped up his efforts to punish a liquor tycoon, an arms dealer, a billionaire jeweller and a corporate lobbyist who have all fled India to avoid trials at home. India’s relationship with the UK has led to an order being signed to extradite Vijay Mallya, who currently lives in London after his Kingfisher airline defaulted on its $1.3 billion loans. This followed the successful extradition of Christian Michel (an arms dealer) and Deepak Talwar (a lobbyist) who were both brought back to India. This has helped Modi’s core initiative of bringing corruption under control which has marred India for decades. Prosecuting wealthy individuals accused of breaking the law would be a key boost for Modi’s image at a critical time in his political campaigning, as these individuals are loathed by the poor, who perceive them as being above the law.

Conflict with Pakistan 

Tensions have been rising with Pakistan recently and Narendra Modi has been responding unfavourably. This has raised questions about Modi’s Pakistan policy and whether he is looking to go to war. One of the objectives of the Balakot attack was to show the Indian public that Modi is a leader with the will to fight the terrorism that is brewing within Pakistan. The Premier has taken a hardline approach with Pakistan, with the BJP often threatening to go to war. This has been led by the party’s right-wing Hindu nationalistic views. Going to war with Pakistan would not guarantee political victory but it may help to gain votes from those sitting on the fence. Commentators believe that a warlike atmosphere would benefit his campaign to get re-elected for a second term. This has presented the Prime Minister with the opportunity to do what he enjoys the most, projecting the aura of a ‘strong leader’. By thumping his chest, driving the hyper-nationalism, he has not only made it impossible for any opposition party to take a stand against this, but will also take the wind out of the growing momentum against the BJP.

Adjusting Real Estate Taxes

To gain further votes and secure his second term, Narendra Modi’s government has announced that it would lower taxes on unfinished and affordable homes. Under the new tax regime, rates will fall from 12% to 5% on unfinished residential developments. Similarly, the rate will fall from 8% to 1% for affordable homes. This will be effective from April 1st and cover 90-95% of housing sales in India’s largest cities. This could reduce the net cost of buying homes by 6-7%, helping to bring down India’s unsold inventory as these measures are expected to shift demand from completed to under-development housing. Most developers have considerable unsold stock within this sector and while interest rates are stabilising (and expected to fall), this is positive news for buyers and companies. This is the eighth tax cut since GST was introduced, with four of the eight reductions coming in the months leading up to the state elections. These cuts will do nothing but aid Modi’s chances of getting re-elected.

Summary

Despite all the negativity, Prime Minister Modi is still enormously popular compared to Rahul Gandhi and this should ensure that he will stay in power for the next term. It just means that Modi’s victory will be less of a landslide and he will have to rely on his coalition partners, who will make greater demands for their support. Last time, the idea of BJP winning a majority on their own was unheard of, so a more normal result this time is not so surprising. That said, Congress has lacked the political imagination to really inspire the masses and found it difficult to produce a counter-narrative to the one assimilated by the BJP. It is clear that Congress has still not adjusted to the changing politics in India and are grabbing on to a political dynasty, having failed to groom a young, alternative leader other than one out of the Gandhi family. Congress’s lack of malleability will provide a strong tailwind for Modi and his quest to change India and remain in power.

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