India: Election manifestoes talk of similar buzzwords

As India undergoes general elections with 800 million eligible voters, what do the contenders for the Prime Ministerial role mean for its economy? Leading the race are Rahul Gandhi, the candidate of the Congress Party-led UPA coalition, and Narendra Modi, the candidate of the Bharatiya Janata Party-led NDA coalition. Challenging them are Arvind Kejriwal of the new Aam Aadmi Party, as well as bigwigs from regional parties who can form a possible Third Front alliance. The new government, whoever forms it, will inherit an economy which is in a severe crisis - the winner's curse. The Indian economy, which recently displaced Japan to become the 3rd largest economy in the world in Purchasing Power Parity terms, is in a very bad shape currently. GDP (gross domestic product) growth is at a decadal low, inflation is stuck at highs, industrial and manufacturing sectors have frozen, job growth has dried substantially, infrastructure development has slowed, exports remain sluggish and the fiscal deficit issue in public finances haunts policymakers.
Election manifestoes of the major political parties talk of similar buzzwords like boosting growth, development, jobs etc. Within that, some emphasise on certain areas, some in others. If one has to define the broad vision of the three main contenders based on the emphasis of its contents, it may not be a hazardous to estimate Gandhi's as social welfare-led development, Modi's as commerce-led development and Kejriwal's as clean politics-led development. India probably needs a dose of all three. It needs Gandhi's social welfare schemes since a large chunk of the population remains at low-income levels unable to afford basic goods and social services, more so if the country is unable to create enough economic activity and income opportunities to enable them to afford it on their own. To take the economy out of a crisis quickly, it needs to enhance economic activity, bring in more companies to invest and create jobs. This is where Modi's track-record in improving Gujarat's economy adds faith for essaying India's revival. India also needs a clean political system to ensure effectiveness and efficiency of governance and government services. As Kejriwal puts it - clean economics cannot exist without clean politics. This would also help improve India's image globally.
BROAD AREAS OF CONCERN: There are seven broad areas of concern that come to mind: economic growth; fiscal deficit and inflation; jobs, skills and entrepreneurship; industries, investments and infrastructure; corruption; centralised vs. decentralised management; and credibility of ultimate delivery. Let us use these areas to dissect the three contenders as per the contents of their manifestos and media coverage, and ascertain what they might bode for the economy.
GDP growth, which ranged 7-9 per cent during the last decade, has dipped to a dismal 5.0 per cent in the last two fiscal years. Sub-5 per cent growth does not do justice for a nation of 1.2 billion. This single-digit GDP growth also does not tell whether growth has been inclusive. Large swathes of population have been left out in India's two-decade-old growth story, which many believe to have been skewed towards certain sections of population. Poverty rankles deep, economic distress is a major reason for migration to unplanned urban clusters and perceived socio-economic imbalances is a reason for incidents of crime. Gandhi promises returning to 8.0 per cent GDP growth within three years, while Modi or Kejriwal has not made a quantitative commitment. Expectation from Gandhi about reviving growth is biased by the dismal track-record of UPA (United Progressive Alliance) since 2009-10. While this period coincided with the global slowdown, policy slowdown and corruption were also major factors. The main reason for India's inflation is pegged to be supply-side inadequacies rather than demand. This inflation is now feared to be structural given that policy paralysis slowed investments into productive assets/infrastructure, which could have addressed those supply-side inadequacies. However, a fresh leadership under Gandhi might overcome these handicaps. Kejriwal asserts a business-friendly image, stressing his priority to increase participation of the private sector to bolster economic growth. However, the private sector has gone into a cocoon as far as committing fresh investments are concerned, and the government has to initiate commitment by making public expenditure first. However, India's fiscal situation is weak due to subsidies and social-welfare schemes, and the ability to manoeuvre for public expenditure plans is limited. In fact, this is a challenge Modi faces too. There are expectations from him of taking India back on the growth path based on his track-record in Gujarat. Reviving growth is where Modi's candidature shines. He might start by clearing the stalled projects quickly to initiate some action, however these projects will take time to fructify. Moreover, the reason for stalling of some of the projects is related to the provincial governments which might take time. Weather uncertainties regarding El Nino may impact crop output, keeping inflation and interest rates under pressure - non-conducive for growth revival. The Rupee stabilised in the 2nd half of FY2013-14 on the back of record inflows from foreign portfolio investors. But this money is fickle in nature and can move out if the realisation of actual growth gets delayed beyond a few quarters. That might depreciate the Rupee, unless Modi can counter that in record-speed by bringing in foreign direct investments into projects to revive growth.   
FISCAL DEFICIT AND INFLATION: Managing the fiscal deficit and inflation are critical challenges. The current Finance Minister says the fiscal deficit is now under control, though the attributable reasons include cutting public expenditure, rolling over of subsidies to the next year and forced dividends from public sector companies. However, social-welfare plans of all three candidates can put public finances and fiscal deficit under pressure in coming years. While the mega social-welfare plans like rural employment guarantee, food security etc. are synonymous with Gandhi's UPA, even Modi and Kejriwal have populist social plans in their manifestos. All these three candidates promise access to electricity, sanitation, drinking water, education and affordable healthcare, as well assistance for low-cost 'pucca' housing for all citizens.
Modi and Gandhi talk of education and entrepreneurship assistance for backward/minority communities and financial support to unorganised sector/destitute. Interestingly, Modi also includes Madrasa modernisation. One expects Gandhi to continue the UPA legacies like the rural employment scheme (which is 1.0 per cent of GDP), expand the food security schemes, apart from his plans to make healthcare expenses 3.0 per cent of GDP and investments into science and technology 2.0 per cent of GDP. While critics argue such social plans are non-asset creating and a fiscal strain, the rural community and the low-income urban community have been left out of India's skewed economic growth and there was a need to enhance their affordability for social services. Reviving rural demand is where Gandhi's candidature shines. The increase in the rural community's purchasing power due to UPA's schemes can also be credited as a reason of why rural-India is an attractive target market today for Corporate India across consumer sectors. While Modi and Kejriwal stress the need to revive the actual rural economy, but there is no clarity on how they propose to do so - through increasing economic opportunities or by doling out social benefit packages. Modi has raised the topic of skill-creation time and again, and this might enhance opportunities for economic activity. Promises by Modi and Kejriwal also include paying 50 per cent over the input cost for crops to farmers - a rather populist move, while Kejriwal proposes to stop contractual employment so that they get employment-related social benefits. So, Gandhi alone may not be guilty of fiscal indiscipline, as many imagine it to be. But how do they propose to counter fiscal strain with sources of revenue? Gandhi proposes soonest implementation of the Goods and Service Tax Bill and Direct Tax Code to improve tax revenues, Kejriwal's is to increase tax compliance and a progressive tax structure and Modi's is a rationalised tax regime.
But Modi has plans for countering inflation, which impacts people's affordability for basic goods/social services, thus reducing the need for social schemes in the first place. Modi's approach on inflation are measures to stop hoarding and black marketing, unbundle Food Corporation's activities, evolve a single agriculture market and use technology for faster dissemination of actual prices. Incidentally, nobody has raised the issue of disinvestment, except occasional mentions by Modi and Kejriwal that the government has no business to be in business.
Job creation and entrepreneurship are areas all of them have addressed. Gandhi promises creating 100 million new jobs, improving university and secondary education infrastructure, scholarships/jobs for backward communities, bringing in marginalised sections of youth and skill vouchers for unemployed graduates. Gandhi does mention an entrepreneurship fund, but that is only for certain communities. Both Modi and Kejriwal emphasise the need for skill-enhancement and entrepreneurship at a more holistic level. Modi talks of improving entrepreneurship and artisan skills for small-scale industry development and setting up a nationwide incubation programme for innovation and entrepreneurship.
He aims to develop the labour-intensive sectors, modernise retail and agriculture employment base and transform the employment exchanges into career centres. Kejriwal promises a conducive entrepreneurship ecosystem by ensuring access to capital, information, infrastructure and increasing opportunities for skilling and learning and talks of countering economic distress-led migration by enhancing small-scale enterprises and traditional industries. A push towards entrepreneurship and skill creation can help enhance the economic output and public finances. In fact, these are critical for a country of India's size. Not many Prime Ministers in the world face the task of mobilising employment opportunities for a few hundred million citizens.
The author works with a leading capital markets company in India. Views expressed are entirely personal and do not represent those of any entity. [email protected]