Surjit S Bhalla writes an interesting book. While the main theme of the book as reflected in the subtitle is ‘Indian Elections 1952 -2019, it also deals with how India has changed economically since 1952 and the impact of this on elections and polity. In 1947, India was one of the poorest countries in the world, having a GDP 8th from the bottom in US$ terms and 23rd from bottom in terms of PPP terms. Today India has transited from being a poor country to a middle-income country with a per-capita income rising from UD$ 276 in the 1980’s to US$ 2016 in 2018. This economic transformation is leading to a new kind of political transformation. Some major takeaways from the book are:
- Bhalla discusses every election since 1952, analysing the vote share and the seat share of various political parties as well as those factors which affected the election outcomes in these elections. He analyses the 2014 elections in greater detail, the role that the ‘Modi factor’ played in this election as well his prognosis for the 2019 election. Here is what he argues;
- Electoral alliances: Mr. Bhalla argues that the problem with the alliances against the BJP is that their joint vote share is less than the vote share of BJP and its partners. For example, in UP the BJP vote share in 2014 was 42.3 per cent while the combined vote share of BSP and SP was 41.8 per cent. The same applies to Bihar and Maharashtra too. Also, as any student of politics understands, when coalitions are built, their combined vote share always comes down when judged in the context of the time when they fought the elections separately. This is inevitable due to the contradictions that such alliances create. During the 2014 Lok Sabha elections when SP and Congress fought separately, they cornered 29.7 per cent of votes, but when they joined hands and fought the 2017 assembly elections together, they got about 2 per cent less votes. Similarly, in 1993 when BSP and SP fought together they obtained 29 per cent of the votes, but in 1996 when they fought separately, their votes totalled 41 per cent. Bhalla argues that he does not see BJP getting less than 50 seats in UP and his assessment is that 62 seats is well within the realm of possibility. Even I think that at least 50 seats look extremely plausible, considering that not only is the combined vote share of SP and BSP lower than that of the BJP, but also that in 41 seats of UP, BJP’s victory margin was in excess of 15 per cent. To nullify this deficit as well as increase vote share requires a severe antipathy of voters against the present government, which one does not witness, at least overtly.
- Modi affect in 2014: The BJP vote share witnessed a 12.2 per cent increase to 31 per cent in 2014 from 2009. During the 3 elections in the mid-90s, BJP averaged 175 seats and during these years each one per cent of vote, brought BJP about 7.5 seats. This strike rate increased to 9.1 in 2014. So, assuming the seat yield of BJP remained at 7.5, with 31 per cent votes it would have got 232 seats. Mr. Bhalla thus argues that by obtaining 282 seats, Modi effect led to the BJP winning 50 more seats.
- Congress: Mr. Bhalla argues that the most important question of 2019 elections is the referendum on the survival of the Congress as a national party. His analysis shows that positive changes in vote share of the Congress party from 1957- 2014 averages 4 percentage point while the negative change averages 5.5 percentage point. The Congress obtains 7 seats for every one per cent vote it garners. Mr. Bhalla argues that if we assume that there is deep resentment against the government, and if the Congress vote share increases by 5 per cent and the strike rate of seats nearly doubles from 2.3 to 4, Congress would get 97 seats. But he believes that since such a situation does not manifest now, what the Congress can realistically hope is to increase its vote share by 3 percentage points, and a strike rate of 3 per cent. This would mean that it could end up with 69 seats.
- The book details the economic performance of the government as well as challenges many of the mainstream wisdom (of lack of it) on issues like Demonetization and Job creation. Mr. Bhalla gives a thumbs up to this government on issue of economic reforms and hails reform measures like GST. He argues that the government has delivered a healthy growth of 7.1 per cent, the second best ever inflation figures, the best ever tax to GDP ratio, the best direct tax buoyancy ever, the best ever tax compliance and the best ever fiscal deficit control in its term. He has some interesting take on demonetization and job data which I summarize below;
(i) Tax compliance: Mr. Bhalla argues that the biggest critics of demonetization has been what he terms the ‘old elites’ because the step has hurt them the most. He argues that it has had a positive impact on tax compliance and in the post demonetization phase, tax compliance has increased by at least 10 percentage point. The number of tax payers has increased from 40 million in 2013-14 to 70 million plus in 2018-19. On tax compliance he has an interesting take, and this surely points to the positive impact that demonetization has had on tax compliance. He argues that one direct measure of tax compliance is to look at the percentage gain in tax revenue and compare it to percentage gain in nominal incomes. Normally this should be close to unity, i.e. if income goes up by 10 per cent, tax rates staying the same, tax revenues should increase by 10 per cent. Instead what happened in 2016-17 and 2017-18 is that personal income tax, increased at twice the rate of nominal income growth. So, who were those paying this extra tax? Mr. Bhalla argues that since the salaried class has its tax deducted at source and has very little possibility to hide incomes, it is the ‘old elites’ who were earlier evading taxes, but were now being forced to pay taxes. They according to him are at the forefront of cribbing about demonetization.
(ii) All cash is back: At the time of demonetization, cash with the public was about 18 trillion rupees of which 15.3 trillion was demonetized. In February 2019, the cash in circulation was 18 trillion rupees making critics argue that demonetization was a cropper. Mr. Bhalla argues that this is an incorrect way of looking at cash in the system, for cash in the system has to be looked at in the context of GDP. While cash may be back at 18 trillion levels, we need to consider that nominal GDP is 15-20 per cent higher, so overall the growth of cash in the economy has reduced.
(iii) Demonetization led to joblessness: CMIE announced that 1.5 million jobs were lost in the first 4 months of 2017 after demonetization. Mr. Bhalla challenges this figure and says that this analysis was wrong, for the author had compared the changes in employment between September – December 2016, with January – March 2017. This was an incorrect way of assessing employment as it did not consider the seasonality of employment. The same CMIE data he says, fortunately, allows the comparison of like with like i.e. employment in the 8 months before demonetization compared against the first 8 months post demonetization. This analysis revealed that employment had actually increased at a healthy rate in the 8 months post demonetization. For the population aged between 15-24, employment increased by 7 million, while for the adult age group of 25-64, it increased by 12.7 million, or at a rate of 3.7 per cent, which was the highest in the last 35 years.
- Investment declined under NDA: Some analyst argued that while in 2013-14 investment share in GDP was 31.3 percent, this declined to 28.6 per cent in 2017-18. Mr. Bhalla argues that like any other economic variable, investment must be measured in real terms i.e. after adjusting for inflation. When inflation is adjusted, the investment share in GDP was 31.1 per cent in 2013-14 and after recording a low of 30.7 per cent in 2015-16, it is now at 31.4 per cent – an increase of 30 basis point over 4 years. Also, what needs to be kept in mind is that the NDA II govt inherited a broken banking system with large NPAs from UPA II.
- Jobs and the leaked NSSO report: The National Employment Survey conducted by NSSO in 2017-18 was leaked, and this survey showed that unemployment rate topped 6 per cent and was the highest in 45 years. Mr. Bhalla argues that one peculiar feature of the employment report that has not been given much attention was the wage growth for employees in the formal sector (the top 30 per cent of the work force) and the wage growth of employees in the daily wage sector (bottom 70 per cent of the work force). This NSSO survey showed that the real wage growth for the bottom 70 percent of casual workers rose at an unprecedented rate of 7.6 per cent per annum for 6 years between 2011-12 and 2011-17. It showed that nominal casual wage rate growth for rural female worker was 17.6 per cent per annum compared to only 12.9 per cent per annum for male casual workers. In contrast, for the formal salaried worker (top 30 per cent of the work force), real wages were not only lower but a negative 0.8 per cent per annum. Never has such a paradoxical situation been seen nor can such conclusions be correct. So, the big conclusion from the NSSO 2017-18 leaked report of highest unemployment rate coexisting with the most inclusive wage growth rate ever documented, as well as most gender correct growth rate ever observed, does lead to questionable methods and conclusions.
Mr. Bhalla argues that most of NDA II governments initiatives have been directed towards helping the bottom 70 per cent of the population of India. The government schemes like PM Awas, Ujjwala, DBT, Swaach Bharat Abhiyan are all geared towards this end. Interesting are his views on reservation and how the reservation of 10 per cent seats for the Economically Weaker Sections (EWS) of the society is a welcome step and will end up helping the most deserving section of society i.e. MUSLIMS with education and jobs. In 1983, average SC/ST youth (8-24 years) had 2.3 years of educational attainment and Muslim youth had 2.9 years. In 2011-12 this changed to 6.4 years for SC/ST youth and 6.2 years for Muslims.
He argues that in the OBC category there has been a caste inflation, with more and more castes joining the overarching OBC category. He gives interesting statistics to substantiate his argument. The first census to measure OBC caste (who were not SC/ST or upper caste) was done in 1931 and according to this census, the proportion of population categorised as OBC was 31 per cent. In the OBC caste survey of 1999-2000, the percent of population categorised as OBC increased to 36 per cent. Mr. Bhalla argues that this increase was realistic and could be explained by partition and migration of OBC caste Hindus from across the borders. However, the NSSO survey 5 years later found that OBC caste numbers in the national population had risen to 41 per cent! Now, this means that the OBC caste population grew at an annual rate of 4.4 per cent! Mr. Bhalla argues that this is beyond the realm of possibility for even amongst the Hutterites, who do not practice birth control and have an average fertility of 9 children per women, the population growth has never exceeded 4 per cent a year. This logically means more and more castes (some not really backward) are joining the OBC bandwagon. This implies that many deserving and actually backward castes are being denied the benefits of OBC reservation with this elite capture.
Mr. Bhalla also lists the mistakes that he things were made by the Modi government. The lynching of minorities in the name pf cow protection tops the list. He however rightly argues that this has been a millstone around several governments with cow protection having introduced into the constitution as a Directive Principle of state policy. He also refers to the SC judgement of 1959 and the bizarre judgement of 2005 which ruled that cows and bulls could not be slaughtered. This was because they are useful till the end of their lives, providing urine and dung, useful for production of bio gas and manure. “An old bullock gives 5 tonnes of dung and 343 pounds of urine in a year which can help in the manufacture of 20 cartloads of composed manure”. So human lives are now at risk for 20 cartloads of composed manure per year! The other mistakes he highlights are keeping the retrospective tax legislation intact in the 2014 budget, creation of the MPC as the sole arbiter of monetary policy, the re-introduction of LTCG tax in 2018 budget, raising of MSP for farmers at 50 per cent above cost and targeting the students who disagreed with government’s political and economic viewpoint.
Overall an excellent read.