Why AAP sweep does not reflect poorly on Modi's reform agenda

Despite Delhi being a quasi-state with a relatively small electorate of 13.3 million, its election results promise to have far greater significance for the Indian political landscape.

Delhi’s electorate, predominantly middle class and politically mature, is a microcosm of the nation’s middle class, whose rising numbers and more importantly the aspirations are increasingly the dominant driving force in Indian politics. What happens in Delhi today could well foretell the future trends in the country. Therefore, it is critical that the right lessons are learnt from these elections. In particular, the AAP’s victory should not be seen as a signal for a return to populism for guaranteeing electoral success. Both the BJP and the Congress themselves made many promises in their campaigns like halving electricity tariffs and replacing jhuggis with pucca houses.

Development

The fact that these did not resonate with the Delhi electorate points towards the importance of building credibility through actual performance. Quite clearly, the Delhi electorate was not happy that the BJP, did not implement measures to improve the lives of Delhiites. Most importantly, nothing was done to improve the lives of the majority which exists as an underclass in Delhi – the rickshaw pullers, street vendors, hawkers, coolies, migrant workers and the large number of micro entrepreneurs who are at the mercy of the petty official and policemen on a daily basis. To assume all these people want doles and hand-outs from the government denies them their due dignity. They want a conducive environment to carry on with their hard work. This could have been achieved with good governance, which is one of the key promises of PM Modi. Those advising him in running Delhi during the last eight months forgot to pay the necessary attention at improving ground level governance in Delhi. The voters were dejected and expressed it in no unclear terms.

Amit Shah’s real contrition will be seen in his resolve to become a real champion of Modi’s development agenda and not use shortcuts backed by empty rhetoric to secure political success. Most importantly, he should discourage his cadre from adopting polarisation tactics in future elections. These will be rejected by the electorate that does not see a divisive agenda to be in sync with their middle class aspirations. Shyama Prasad Mukherjee’s vision of creating a national party with a difference will be achieved if the BJP emerges as political formation that will work for the welfare of all people in a non-discriminatory manner and by promoting the entrepreneurial talents of its population.

The most important lesson the BJP should draw is that these results are not a negative verdict on Modi’s reform agenda. If at all, these results must steel his resolve to focus on measures that reignite private investment and generate large-scale employment. Modi should now direct Cabinet colleagues to implement a programme of rational economic policies that will release entrepreneurial energies and generate jobs by eliminating the governance, infrastructure and regulatory deficits.

Reform

This is the time to take the people more directly into confidence about the merits of a rational agenda of economic policies. Modi will have to use his persuasive skills to change the mood of the people in favour of private investment led development in the context of well regulated markets. The PM will do well to devote his interactions with the public on the radio to bring out the real meaning of a mixed economy in which both the government and the private sector, working cooperatively, have important and clearly designated roles.

With the AAP’s victory in Delhi, it has become more important for the budget to include reform measures to promote investment, growth and employment generation. The budget should rationalise public expenditure and ensure that subsidies are well targeted and do not benefit the middle class in the name of the poor. For example, it should announce the transfer of fertiliser subsidies directly to the poor farmers through bank transfers and not allow the middle and rich farmers to usurp the benefit of such subsidies.

Economy

Similarly, food subsidies can be far better managed than is presently the case under the Food Corporation of India (FCI) dispensation. With a bold reform oriented budget, the BJP will draw sharp lines between itself as the party with a rational economic programme that will generate inclusive and rapid growth and the AAP which can be shown to be adopting irresponsible populism.

Sabka saath, sabka vikas in the context of a liberal market-based economy has to be now put in practice as soon as possible. This implies that the BJP leadership focus on addressing the real problems and challenges faced by the 58 million private enterprises, the great majority of which are in the medium and small enterprise (MSME) category. These enterprises provide employment for more than 85 per cent of the working population and yet have to fight a daily battle against the rent seeking petty official, policemen and ubiquitous inspector. The PM must ask his government to work actively to create the much needed trust between itself and MSMEs. The culture of “us and them”, a legacy from colonial times, has to urgently jettisoned. The programme for improving the business climate must be focused on enterprises in the unorganised sector. They have never had the benefit of a level playing field.

They have to borrow credit at two point five to five per cent per month, face the inspector daily and see their margins being squeezed by larger corporates, who are seen to control any government in power in Delhi. The direct tax system needs to be overhauled, made taxpayer friendly instead of being used as an instrument for harassing businessmen, especially from the MSME sector. At present 35 million households of a total of 250 million are in the direct tax net. This number can be trebled. Therefore, tax officials should be given annual targets for expanding the tax net and not to maximise revenues. This will result in lower tax rates for the middle class, and be seen as welfare raising. These steps will ensure that the government is successful in igniting growth and at the same time improving the lives of the ordinary people. This should ensure electoral successes in an environment in which voters are likely to reward good governance and reject divisive populism.