Both the fiscal deficit as well as the revenue deficit have steadily come down during the second Modi term.
On 4 June 2024, the verdict of the largest electoral exercise in world history will be announced to the world. During many decades, elections in India were scarcely noticed by much of the world. During the 1950s, the perception was that the Congress was the inevitable choice of voters to rule. In Kerala, the first ever Communist Party to win a mandate through a democratic election was forced out through organised protests, In the 1960s, the image of infallibility was shaken by the defeat of the Congress Party in some states, notably Tamil Nadu. In the 1970s, in West Bengal the CPM came to power and chose Jyoti Basu as its choice for the chief ministership. The cerebral and ruthless politician remained the CM of West Bengal for 23 years. So formidable was his reputation that a group of political parties including a Congress rebel group that had reduced the Congress Party tally in the Lok Sabha to a minority in 1996 wanted Basu to become the Prime Minister, an offer that the CPM leadership refused. Perhaps just as well, for under Jyoti Basu, while the hold of the CPM over the state remained strong, economic development lagged behind states that had in the past smaller economies than West Bengal.
While China is often held up as a model for how a communist state can become an economic powerhouse as well, the reality is that Deng Xiaoping instituted an economic model of capitalism with Chinese Communist Party characteristics. Several outside scholars then and later believed that as a consequence, China would move from being an authoritarian state to a social democracy, and still later to becoming a liberal democracy. Instead, under CCP General Secretary Xi Jinping, the hold of the government over the country and its people has tightened. Both domestic policy and global headwinds combined by 2015 onwards, to place economic performance in China on the downslide even as the CCP increased its control. Prime Minister Narendra Modi was on target when he pointed out in 2014 that maximum governance flows from minimum government. The more complex the modes of control a government exercises, and the lower the powers given to the citizen, the less will be the infusion of dynamism and confidence needed for an economy to race ahead. In 1992, a Prime Minister from whom nothing of consequence was expected, Narasimha Rao, surprised the world by implementing a series of reforms that had the effect of diluting the straitjacket of the Permit Licence Raj and of opening the economy to the world rather than continuing to try and wall it off. After Rao lost the elections and thereby his job in 1996, a series of governments comprising minority parties were formed and fell. In 2014, voters in India trusted Narendra Modi as their choice for the Prime Ministership and gave the BJP a majority in the Lok Sabha, a first for a single party since 1984.
Rajiv Gandhi had in his first Lok Sabha elections benefited from the sympathy factor caused by his mother’s assassination, and had won a landslide for the Congress Party in 1984. The Congress lost badly in 1989, partly as a consequence of Rajiv’s inability to push through reforms that were needed for the economy to grow. In 1996, the Congress Party had lost its majority as a consequence of a split in which the pro-Sonia, anti-Rao faction siphoned off enough votes to cause the downfall of the Congress. This was a party which the Nehru family had dominated since the 1950s, even during its exile from power at the Centre during 1977-79. The shock defeat of the Congress thanks to its split paved the way for the BJP to lead the Central government briefly in 1996 for the first time since 1947, and thereafter in 1998 until 2004. A grateful Atal Behari Vajpayee reciprocated by showing every possible courtesy and consideration to Sonia Gandhi while he was the Prime Minister, an approach that was reciprocated by her when the UPA came to power in 2004. Opinion polls indicate that the BJP with Prime Minister Modi at the helm is on track to win a third term, a record equalled only by Jawaharlal Nehru, who was Mahatma Gandhi’s choice to take over as the first Prime Minister of free India. Should such polls prove to be accurate, given the manner in which he has refashioned the governance mechanism and implemented tough but necessary policies from 2014 to 2024, investors believe that a third Modi term would oversee a raft of reforms. As a consequence of such policy changes, decoupling of businesses from China that has become inevitable as a consequence of geopolitical tectonic shifts would accelerate to the benefit of India. Tough (but at the time needed) measures such as making the entire rather than the additional income of an individual subject to GST once income crosses the annual Rs 20 lakh threshold are expected to be altered, such that only income additional to Rs 20 lakh would attract GST.
Rather than taxing the entire amount once it crosses a specified limit, and levying the same rate of GST irrespective of income once an individual or entity’s income moves past a given threshold, what is likely is that rates would not be the same irrespective of income, but be low at first and reach the present level only at higher incomes. A third term for Prime Minister Modi would in the process catalyse capital investment in India and into India, in a significant manner, thereby giving the Ministry of Finance greater leeway in setting tax rates so as to ensure lower rates and higher slabs than had to be the case at present. Inward investment into India would lift the remaining tens of millions of citizens from poverty.
Both the fiscal deficit as well as the revenue deficit have steadily come down during the second Modi term. It is testimony to the fiscal discipline of Prime Minister Modi and Finance Minister Nirmala Sitharaman that even in an election year, tax rates remained stable rather than reduced. Should there be a third Modi term, GST is almost certain to be levied on petrol and diesel in place of the present system of levies, thereby having the effect of significantly reducing the price of petroproducts, a group of commodities that have a considerable impact on the overall price situation.
Stability and continuity are valued by investors both domestic and foreign, as is a climate freed of the blockades caused by a Permit Licence Raj. It is no accident that a narrative intended to generate fear of the present government returning to power has been disseminated across the world by those seeking to ensure that India will not be on track to displace China as the growth engine of the world. A narrative is being spread that democracy would perish if the BJP returns to power this time as well. Such a view shows contempt for the wisdom of the people of India, and the deep roots of democracy in our country. 4 June 2024 will show whether alarmist narratives seeking to reduce the BJP Lok Sabha strength to a minority will or will not prevail over the fact that a third Modi term has the potential to catapult the economy into double digit growth for decades to come.