India's economic crisis will divide us further in 2018

Will India's protracted economic downturn alter Indian politics in 2018? If recent electoral trends sustain, India's burgeoning urban middle class may run into a first-of-its-kind generational polarisation.

The year gone by has left us with some curious pointers and surprising economic paradoxes, which might fructify in 2018, the mega year of elections.

India's socio-economic set-up is on the verge of a new split between the financially secure and economically insecure population. This economic division is shaping up India's demography and geography.

The new generation gap

In Gujarat, the urban middle-aged cohort by and large voted for the BJP. A similar trend can be noticed among majority communities in the other parts of urban India as well.

Thanks to a faster growth post liberalisation, the middle-aged majority urban India largely grew financially secure and stable. Now, they appear more or less at ease with the religious and cultural narratives of the BJP.

However, the aspiring young population of the country is increasingly feeling uneasy with economics of the day.

The middle-class that emerged right after economic liberalisation has gone through a transformation in the last 20 years of change. They led India's pre-slowdown housing boom, electrified consumption and powered savings back then. A combination of economic advancement, social mobility and rapid urbanisation made them financially stable.

This happened before the rise of Narendra Modi in 2014, while the generation that started its quest for a better life during the early 2000 is witnessing some painful paradoxes. Interestingly, in 2014, both had joined hands to defeat the Congress, hoping for growth and stability.

This curious rift is now seeping into urban Indian families, where adults are emotionally more charged about the cultural past while the generation next is anxious about the future. As an entirely new generation of voters will join the mainstream of 2018 with bubbling aspirations and lingering anxieties, the clash between the two generations of middle-class may emerge as the central theme of political discourse in the months to come.

The looming demographic-economic split is the result of India's longer than expected economic slowdown. Modi had not inherited an all-round growing and job creating economy. The recent phase of economic slowdown started in 2011-12. India was a three-speed economy when Modi logged in.

The double-digit growth was confined to the section that comprised sectors such as e-commerce, travel and stock markets, while industries were growing in single digits. The bottom of the pyramid, comprising primarily agriculture and construction was clocking negative growth.

Instead of bringing widespread growth back to its feet, the Goods and Services Tax (GST) and demonetisation staged an anti-climax, thus pushing economic revival back by at least two to three years. A very striking trend observed from the recent exports and industrial activity data is that the labour intensive sectors such as textiles, apparel, leather, paper, rubber and plastic products, furniture, printing, media, handicrafts, sports good, footwear, gems and jewellery are yet to recover from GST shock.

If this does not prove to be temporary, the second round effects on consumption through labour market weakness could manifest.

As BJP approaches the big electoral battles, except stock market and travel, most of the sectors are sunk under prolonged structural slowdown and extended jobs famine. In the given state of macros and various headwinds, the return of a stable and job-breeding growth is not possible before 2020.

Tale of two economic geographies

The division of financial security and insecurity is not less loud in the economic geographies of India. Unlike the best days of soaring commodity prices and high growth of 2008-14, India's rural economy is now reeling under deflation (low food inflation) coupled with squeezed support price amid nature's fury.

Since urban job market has no solace to offer, the rural middle-class has grown alarmingly concerned about its economic future. Despite the political rhetoric of the focus being on rural economy, the fact remains that the urban economy has successfully protected their interests amid policy disruption. The sacrifice of GST before Gujarat elections in order to assuage raging traders is a burning proof of it. However, farmers have not been able to influence the government enough to receive adequate prices for their farm produce.

Since the economic transformation of 1991, no party has ruled over 75 per cent of India's geography, 68 per cent of its population and 54 per cent of its economy at any given point of time. While this feat underlines the mega success of BJP's election machine and massive support for the party, it should worry them too because 2018-19 will see PM Modi's tryst with not one but 19 anti-incumbencies ranging from states to Centre.

That said, how will the flavour of politics develop in 2018? Will the "minority-sensitive" (triple talaq is touted as BJP's proof of concern for Muslim women) new BJP corner "soft Hindu" Rahul or will the Opposition capitalise on emerging economic conflicts across the length and breadth of the country? Interesting times lie ahead.

Also read: Why 2018 looks like a promising year for Indian sports