Pragmatically, you could hope Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) focus on Hindu nationalism is more a smokescreen to deflect attention from a deteriorating economy than it is the start of India’s spiral to increasing polarization and fragmentation of its multicultural democracy.
The economy has certainly been on a slide for much of the last year and the BJP has been harassed increasingly by the opposition Indian National Congress over its handling of the economy.
India’s consumer price index increase reached 7.35% in December 2019 from a year earlier, the third month in a row in which it has breached the Reserve Bank of India’s 4% target.
Yet, the economy is slowing.
Growth is estimated at just 6.1% in the current fiscal year up to the end of March 2020, according to the International Monetary Fund, the World Bank and the Reserve Bank of India. Speaking to businessmen in Delhi this week, the sense is growth is in reality significantly lower than that — more like 4%, most seem to suggest.
With revenue slowing and costs rising, the government could breach its deficit target of 3.3%, denting the country’s credit rating and potentially increasing borrowing costs.
The blame cannot all be laid at the BJP’s, or even India’s, door.
Global growth has slowed and exports have been hit by cooling demand in Europe and the U.S. amidst a trade war that focuses on China but has caught up much of the rest of the world in the process.
Inflation has been driven by ripping agricultural prices following a poor monsoon and low crop yields. The Finance Ministry’s decision to slash the corporate tax rate from 30% to 22% should ultimately stimulate corporate investment — and, hence, growth — boosting tax revenues.
However, in the short to medium term, the reduced government income could mean the government is running a higher deficit.
Modi earned something of a reputation for the Midas touch as Gujarat’s chief minister. In his first term in office as prime minister, growth hit over 8% but has been falling ever since in part, Stratfor’s World Review reports, because of Modi’s demonetization drive in November 2016 and his rollout of the Goods and Services Tax (GST) in July 2017.
With inflation running at such a high level, albeit driven by agricultural prices rather than runaway wage growth or unbridled consumption, India’s central bank decided to keep its interest rate steady last month after five consecutive cuts that reduced the rate from 6.5 to 5.15%. But borrowing costs remain high and the shadow banking sector is being squeezed as the authorities seek to tighten up previously lax regulation and resolve issues such as nonperforming loans.
In short, the conditions are ripe for a further slowdown in 2020, with little prospect of the wider global economic landscape coming to the rescue.