Congress acts to repel junk rating, BJP invites middle class re-rating

The trill over the frenzied action on Friday, which wasn’t the 13th, is curious to say the least. It is true that Indians are getting accustomed to expecting less and less from governments. The politics of low expectations this week has reached a new nadir. There is applause even for a government which wantonly—what else would you say about a regime that allows GDP growth to fall for 27 months in a row and inflation to persist—allowed conditions in the economy to worsen. Perhaps, it is just a cloudburst of collective relief.  There is no escaping the fact that it is the threat of junk rating of the economy and the party that has spurred the frenzied action.

It took less than six months between September 1990 and March 1991 for India to be downgraded by Standard and & Poor’s from stable to the ‘lowest investment grade’ and by May 1991, India was downgraded further to ‘speculative grade’. The rationale then for the downgrade was the worsening state of public finances. It was only after India pledged its gold reserves, jettisoned the romantic idea of the nanny state by dismantling the licence-quota-permit raj apparatus and opened the economy that the rating agencies even deigned to move India’s rating to BB+/Stable/B.

Twenty years later, history seemed set to repeat itself. On April 25, 2012, the rating agency Standard and Poor’s changed the India’s outlook from stable to negative. The rationale: worsening fiscal deficit, current account deficit and falling growth. On June 11, 2012, the rating agency, in an unprecedented broadside, said “political roadblocks to economic policy-making could put India at the risk of losing its investment grade rating”. On June 18, 2012, Fitch Ratings also revised its outlook on India’s rating from stable to negative. Moody’s, which retained its rating at Baaa3-Stable, however, did express that its outlook reflected fading investor confidence and worsening conditions in the economy. A downgrade was looming large.

Yes, the government has acted but it does raise the question why the government didn’t act for so long. When P Chidambaram took charge of the finance ministry, he must have experienced a sense of déjà vu. Between 2008 and 2012, the UPA did to the economy what it did to internal security between 2004 and 2008. There has been no change at the top. Yet there is no doubting the choir’s preference for Singh-song adulation.

What is most amazing, however, is the response of the principal Opposition, the BJP. If the Congress acted on fears of junk rating, the BJP reaction invites re-rating —in any case by right-thinking middle class voters. The facts of high fiscal deficit, of the burgeoning size of non-merit subsidies can scarcely be unknown to its leaders. Yashwant Sinha, former finance minister, during the NDA rule, described himself as a “fiscal fundamentalist” at a seminar in Mumbai on Wednesday. On Thursday, his party lit into the UPA government for raising the prices of diesel and setting a new cap for subsidised cooking gas.

Consider the facts: the government in its budget set aside less than `50,000 crore as fuel subsidy. By September, the burden of subsidy was well over `1, 70,000 crore. The concern for farmers and middle class is laudable. Fact is less than 18 per cent of the subsidised diesel is used by farmers. It is also a fact that several studies have established that as a country that imports over 75 per cent of its petro needs, India must align the price of petro products to costs. Yes, it could have argued that the government must stop profiteering from taxes on fuels but then it would have to walk its talk in the states.

On Friday, the government re-announced the much-discussed reforms in FDI. It opened up FDI in aviation for foreign airlines, opened up investment in DTH, in power trading and in multi-brand retail. Predictably, the BJP has opposed the opening up of FDI in retail. It was till now arguing the case for millions of traders—all surviving in the unorganised sector—who man the supply chain from farms to markets. There is a fundamental problem with this position, however. Arguably, big retail will hurt small businesses, particularly in urban areas. So how come the BJP is not against big retail and is only against big foreign retail?

 The objective of politics is to maximise support, but the BJP obviously feels the constituency of traders and entrepreneurs is larger than that of consumers and job-seekers. This week, the BJP added another enigma to its economic theology. It has argued that the policy to open up FDI in multi-brand retail will hurt Indian small- and medium-scale entrepreneurs in the manufacturing sector. That is rich—coming from a party that promoted many free trade agreements that opened India to competition—specifically from the ASEAN region. Be that as it may, why can’t the BJP argue it out with the government to ensure that Indian manufacturing doesn’t suffer? Why not present an alternative with all the caveats to protect everybody, from farmers to traders and entrepreneurs?

The BJP was once hailed by many as the natural inheritor of the right of centre space of the Swatantra Party. It was hailed as a party that didn’t merely lip sync sloganeering of the “socialist club” but thought differently and was indeed the party with a difference. It was viewed till recently as the party which put the nation first. One wonders what is being smoked at Ashoka Road these days! The BJP now seems to be in a contest with the communist cousins, the Trinamool Congress and caste-based enterprises.

Politics cannot be an argument industry. Politics demands that parties articulate not just problems but also present solutions. India desperately needs an alternative.  shankkar.aiyar@gmail.com