Growing anxiety pierces Modi's invulnerable aura

International New York Times Jan 12 2018, 16:58 IST
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Dilip and Manish Patel at their empty factory, which they had to sell after the rollout of Prime Minister Narendra Modi's goods and services tax, in Surat, India, Nov. 1, 2017. Just about all economists agree that two of Modi's biggest policy gambles - abruptly voiding most of the nation's currency and then, less than a year later, imposing a sweeping new sales tax - have slowed India's meteoric growth.

The immense popularity of Narendra Modi, India's most dynamic prime minister in decades, has always rested on two legs: Hindu nationalism and his tantalising promises to build on the country's go-go economy. That second leg is now looking a little shaky.

In the last two years, India's consumer confidence has plummeted, construction has slowed, the fixed investment rate has fallen, many factories have shut down and unemployment has gone up.

Fingers are pointing at Modi. Just about all economists agree that two of the PM's biggest policy gambles - abruptly voiding most of the nation's currency and then, less than a year later, imposing a sweeping new sales tax - have slowed the country's meteoric growth. "Things have been worsening, worsening, worsening," said Himanshu, an economics professor at Jawaharlal Nehru University in New Delhi.

Still, the economy here is far from failing. The stock market continues to soar, major rail, road and port projects are unfolding across the country, and foreign investors poured $25.4 billion into India from April to September, up 17% from the period in 2016.

The government last week predicted that the country's gross domestic product (GDP) would grow by 6.5% in the 2017-18 financial year. While that is the lowest number the country has seen in four years, India's economy is one that most countries would love to have.

But it does not feel that way to the huge number of people negatively affected by Modi's policies, and the grumbles are growing. So are social tensions, especially those that divide Hindus from Muslims, and upper caste from lower caste. The fear is that Modi is already beginning to lean more heavily on that first leg of his, Hindu nationalism, now that his economic strategy is losing some of its sheen.

With 1.3 billion people, India is the world's most populous democracy. In 10 years, economic forecasters predict that its economy will climb to third-largest in the world, behind only the US and China. What happens here matters, and domestically, confidence is strained.

Even in Gujarat, the state considered the strongest of Modi's strongholds, many feel betrayed. The output from the textile industry, a huge employer in Surat, a metropolis with hundreds of years of storied mercantile history and once a healthy exporter, has been cut nearly in half, prompting layoffs and despair.

In many of the industrial areas, the happiest merchants are the merchants of scrap, who make their rounds in lurching trucks, scooping up looms, steel spools and other underused machinery for pennies on the dollar.

In December, in an election that the entire country was watching because it was seen as a referendum on Modi's governance, Gujarati voters elected a new state Assembly. Modi's BJP maintained its majority but lost 16 seats.

The message was clear: Modi's party was still No. 1, but the man himself was no longer bulletproof. "Modi hurt our business, and we want to show him that we can hurt him, too," said Manish Patel, whose once clackety cloth factory is now completely empty, another Gujarati business that has gone under.

Patel complained that under Modi, "It was like we were in first class and now we've been put in 10th class." So for the first time in his life, Patel voted for the Congress, not for the BJP.

In Surat, demonetisation hit like a sledgehammer in November 2016. Manish Patel and his older brother, Dilip, who run the family's cloth business, found themselves scurrying into line at the bank and waiting hours each day, trying to get money. It was never enough, and when the brothers could not pay their loom operators, many walked off. Hundreds of factories had the same problem. The Surat textile traders association said production in the area dropped to 25 million metres a day now from 40 million metres two years ago.

It's hard to overstate how central cash is to Gujarat, and India in general. Most labourers, whether they operate looms, drive trucks, wash clothes or haul bricks, are paid in stacks of soft rupee notes, Mahatma Gandhi's face on each one. Even large real estate deals, say for a home that costs around Rs 3 crore, will be done partly in blocks of rupees, to keep profits off the books.

This was what motivated Modi, who has made fighting corruption a big plank in his platform. He said that by making people turn in old bank notes, he would capture billions of rupees of "black money."

It has never been made clear how much black money he actually captured, and perhaps he thought he could get away with the enormous disruption because India's economy had been doing so well. It expanded at more than 8% annually between 2005 and 2009 and more than 7% between 2010 and 2014.

But his timing seems to have been bad. Unlike many of the other big economies that turn on exports - such as China's, Japan's or Germany's - India is not nearly as industrialised.

Modi has vowed to change this, launching a Make in India campaign to attract foreign investors. But analysts say that India's labour laws are still too restrictive, imposing all kinds of red tape on factories of more than 100 workers, which discourages businesses from thinking big. "A manufacturing revolution is nowhere in sight," one commentator recently said.

Another blow

Then in July 2017, before people had a chance to recover from the currency chaos - which had
also hampered consumption, because many Indians simply didn't have any spare cash in their pockets - Modi moved ahead on another front: the new goods and services tax, or GST.

It was the most sweeping tax overhaul India had ever tried, and probably overdue. But many economists and business people questioned Modi's timing on this as well.

Suddenly, with the economy softening, all but the smallest businesses had to file dozens of returns each year, online, paying taxes on everything from yarn to mixed nuts, often at confusing rates.

Business owners like the Patels, who had run their factory off a calculator and a paper pad, said they had no idea how to file. "You need a computer; you need to buy online time; you need to hire someone who knows how to do it," Manish Patel lamented. "All this costs money."

India's economy still has a lot going for it: it is already huge, and still growing relatively fast. It has an educated workforce; a young, working-age population; and a public that craves new technology. Facebook has 217 million monthly active users in India, second only to the US.

Economic growth is projected to be higher next year, and Modi's supporters say that as India's economy matures, some sort of slowdown was inevitable. And it is not as if his base has fragmented.

For every Gujarati business owner who wants to send Modi an angry message, many others are still with him. For them, politics and economics are not connected at the hip.

Kailash Dhoot, a textile exporter, said that Modi's recent policies had wounded his business but that BJP was still his first choice. When asked why, Dhoot was quick, and curt, with an answer. "Hindutva," he said.

Since Modi came to power, cow vigilantes have brutalised or killed dozens of people, many Muslim, for slaughtering or trading cows. The hate crimes seem to never end.

"If economic manoeuvrability is limited," said Ashutosh Varshney, a political-science professor and India specialist at Brown University, "then the communal card, the Hindu-Muslim card, is a massive political temptation."

"That's what Modi did in Gujarat," Varshney said. "He twisted every available political possibility into a Hindu-Muslim question."

"It didn't used to be like this," said Hanif Belim, a taxi driver in Gujarat. But nowadays, he added, "politicians divide the public and sit on the side and watch them fight."

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