The Threat Within

HOURS AFTER HIS party won a deci­sive third term in Haryana, Prime Minister Narendra Modi gave a rousing speech at the Bharatiya Janata Party (BJP) headquarters in New Delhi. As can be expected from a political speech in the aftermath of what most pundits said was a lost cause for BJP, the prime minister’s mood was celebratory. But his speech was peppered with interesting, if somewhat alarming, nuggets.

“The country has witnessed how attempts were made to instigate farm­ers but Haryana’s farmers gave them a befitting reply that they stand with the country and that they stand with BJP,” Modi said. He went on to add, “[F] or some time in the past, conspiracies of different kinds are being hatched against India. India’s democracy, India’s economy, India’s social fabric are being subjected to different conspiracies in a bid to weaken them. Conspira­cies are being hatched at the international level.”

One does not have to believe in conspiracy theories to see the serious strains in the Indian economy, strains that are largely the products of a certain brand of politics now in vogue among the Opposition. On the surface, India’s economic growth on a year-to-year basis remains the envy of its peers: the country continues to grow in the 7 per cent range. But beneath the bonnet of the economic engine there are three strands, a triad as it were, exposing India to economic strains. The first is the periodic emergence of strikes—industrial action—against foreign investors. The second is the mobilisation of disaffect­ed groups, such as rich farmers from relatively better-off states, and, finally, the extreme strain being witnessed in the public finances of key states that has the potential to derail India’s economic growth as resources are frittered away to win elections through extravagant promises. No party—including BJP—is immune to this trend. Once it acquires a systemic character—as it already has—it moves the political system itself in a ruinous direction. What Modi mentioned lies at the root of these developments.

On October 16, a month-long strike at Samsung India’s Chennai manufac­turing facility came to an end. The workers promised to “cooperate” with the management even as the latter said it would not victimise those who had participated in the strike. The strike was sponsored by the Left trade union, the Centre of Indian Trade Unions (CITU). Among the “charter of demands” put forward by the striking workers was recognition for a new union, the Samsung India La­bour Welfare Union (SILWU), a matter that will now be decided through judicial means.

This is not the first time striking employees at a multinational company have disrupted production. Back in 2011, workers at Maruti Suzuki India Ltd’s Manesar plant went on a strike as they wanted recognition for a “new” union. That strike was called off but a year later the rampaging workers caused extensive damage to the facility at Manesar, burning down a portion of it. One HR manager lost his life. In 2017, a court handed life imprisonment to 13 individuals involved in the arson and rioting. The company had to end up firing troublemakers by the dozens.

There are many other examples where workers, backed and instigated by a variety of groups ranging from NGOs and religious authorities like the church, have either forced particular entities to close down (such as the copper smelting plant of Sterlite Cop­per in Thoothukudi in Tamil Nadu in 2018) or have disrupted the functioning of key units, such as Wistron’s manufacturing plant in Kolar district of Karnataka in 2020. (Wistron manufactured iPhones in India.)

There are two distinct features of such strikes and industrial disruption. One, they selectively target MNCs. One seldom hears of a public sector unit being subjected to such treatment. That only happens when a public sector undertaking (PSU) is likely to be privatised. One recent example is the ongoing agitation against the planned privatisation of the Rashtriya Ispat Nigam Ltd (RINL), the owner of the loss-making Visakhapatnam Steel Plant (VSP). Unsurprisingly, the agitation is backed by trade unions.

The second interesting feature of such agitations is that they occur in India’s economically progressive states. These include Tamil Nadu, Karnataka and Haryana, among others. States rela­tively immune from such actions are those where the govern­ment of the day is careful not to indulge trade unions and political forces backing such unrest. Haryana is one state that has learnt a lesson in this respect after burning its hands.

What makes these trends doubly dangerous is that many of these industrial actions take place in states that are economically vital to India as its industrial facilities are located in these states. Such states are recipients of large dollops of foreign direct invest­ment (FDI) and many were, until recently, immune to populist politics. This is no longer the case. Karnataka is one example and Maharashtra is another. Had Haryana seen a government of a different complexion, it too could have fallen victim. Congress’ “seven guarantees” to Haryana’s voters would have made sure that it would have been left with nothing to invest after frittering away money on populist consumption.

Here, the contrast with the Centre is revealing. The Centre’s spending, in spite of large outlays for programmes like MGNREGS, PM-Kisan and the huge drain on subsidies, has improved in terms of quality. One measure of better spending is the ratio of current expenditure to capital expenditure, which very roughly measures the consumption to investment ratio at the macroeconomic level. The higher the ratio, the worse the quality of spending. In the Cen­tre’s case, this ratio witnessed a prolonged deterioration between fiscals 2017 and 2021 when it hovered in the 7-plus range. For FY25, private sector economists estimate it to be around 3.3.

In the case of states, it is difficult to estimate this ratio as the sums they spend on salaries are not available on time and the ratio can only be known with a lag of some years. But another mea­sure—committed expenditures to a state’s revenue receipts—is a good estimate of the quality of spending. This ratio is rising in the case of states like Karnataka (54 per cent), Tamil Nadu (64 per cent), Haryana (58 per cent), and Maharashtra (56 per cent). One is not even talking of profligate states like Punjab, Himachal Pradesh, and Kerala where these ratios are unmanageable now. In any case, these states do not contribute to India’s economic growth as powerhouses like Maharashtra and Karnataka do.

These ratios, however, do not capture the full extent of the de­terioration. In Karnataka’s case, the annual bill of the Congress government’s ‘guarantees’ is upward of ₹50,000 crore every year. In Maharashtra, the Ladki Bahin scheme—launched just months before the Assembly elections next month—dishes out ₹1,500 per month to eligible women beneficiaries. The third and fourth instal­ments of the scheme have increased the money disbursed to ₹3,000 per beneficiary. In the case of Karnataka, a similar scheme, Gruha Lakshmi, eats up to 6 per cent of the annual state budget. It is now certain that other states will copy these schemes to win favour with voters, never mind their ruinous financial consequences.

WHEN GURNAM SINGH CHARUNI lost his election deposit in the Pehowa Assembly constitu­ency, there was nothing surprising about it. Charuni, who was an important cog in the farmers’ agitation in 2020-21, was instrumental in fomenting an anti-BJP atmo­sphere in Haryana. One way to look at his defeat is that farm leaders who enter electoral politics seldom succeed. But the im­portance of a person like Charuni lies elsewhere. After his defeat, Charuni rued that while he and his party had helped create an anti-BJP atmosphere, Congress could not make use of it.

The money misspent on populist consumption by states is investment foregone on better objectives like education, infrastructure, healthcare, and capital expenditures. There is very little that the Centre can do in this regard. This may be hailed as a federal safeguard but it weakens India as an economy

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One could say that Haryana’s is just one of multiple Assembly elections held in India every year. A victory or defeat in a single state does not really matter in the overall political scheme of things. Or­dinarily, this would be true as there is something of a ‘largeness bias’ in Indian politics. Big states like Uttar Pradesh (UP), Maharashtra and Gujarat, among others, attract a disproportionate amount of public attention. But this is not an accurate reflection of prevailing political conditions. Haryana is—or more accurately, was—an im­portant leg of the agitational triad that threatens India’s economic security. Haryana’s location, the domination of Jat farmers in its politics, and its growing importance as an economic powerhouse in northern India have made it imperative that the state not fall victim to economic populism. Had the Opposition gained control of Haryana, there was a good chance it would not have stopped the unruly farmers of Punjab—who continue to lurk on Hary­ana’s borders—from marching on to Delhi. If anything, in case relations between the Opposition and the Centre deteriorated, there was every chance that these farmers would have come in handy to besiege the national capital. If this large geographical area were to remain in the throes of agitation, political uncertainty would have ensued even if the ruling coalition had a majority in Parliament. India has been in such a situation before, in 2020-21 when the Modi government was forced to repeal the three farm laws in the face of militant protests. Since then, ‘farmers’ from Pun­jab, and an influential section in Haryana as well—the kind repre­sented by Charuni—have continued to threaten further agitation. That is the nature of India’s ‘new politics’ where street power can bring an elected government to its knees by the unreasonableness of its demands: legalisation of the minimum support price (MSP) regime, suspension of key legislation, and a street veto on any law it deems unacceptable. The only answer to these disruptive tactics is to ensure that these groups are unable to gain the backing of legislatures and, in turn, governments that are powerless before them. That is the significance of BJP’s victory in Haryana.

That leaves fixing the two other legs of the disruptive triad: en­suring an investor-friendly climate and making states behave in a fiscally responsible manner. If it were the India of the 1970s and 1980s—autarkic, indolent and incapable—these issues would be left unresolved. But in the third decade of the 21st century when India is close to becoming a $5 trillion economy, it cannot muddle along. Else, it risks losing all the gains made over the past decade. India also cannot live under the illusion that being a large and growing economy makes it an attractive investment destination—any sign of industrial militancy or internal loss of cohesion will make investors look for politically more stable op­tions. Countries like Mexico, Indonesia and Vietnam are already attractive investment destinations.

To an extent, there is a variegated pattern of investment from this perspective in India itself. States like Gujarat and Maharash­tra (and to a lesser extent, Haryana) are able to attract investments not only because they offer growth ecosystems and friendly gov­ernments but also because labour militancy is not a problem here (again this is only partially true for Haryana). The problem is that labour militancy and so-called federalist politics go hand-in-hand in many states. For example, it was not easy to end the strike at Samsung in Chennai that had lasted for more than a month. One is not even talking of states ruled (or that were ruled) by Left par­ties where trade unions wrecked industry. The problem is now increasingly generalised and at some point the Centre will have to find a solution to check this menace.

Probably the only part of the agitational triad amenable to working itself out by democratic means is the politics of federal­ism and freebies. But this is taking place at a great cost. In states like Karnataka and Himachal Pradesh, populist spending is lead­ing to governance problems not seen earlier when such spend­ing remained within bounds. The trouble is that in these—and other—states, the governments in question will not retrace their steps and put an end to wrongheaded spending priorities. This has largely to do with the loss of face and the resultant political costs. The net result is that the march of folly will continue and will only end when a new government comes to power. But the opportunity cost of this process is huge—the money misspent on populist consumption is investment foregone on better ob­jectives like infrastructure, education, healthcare, and capital expenditures. There is very little that the Centre can do in this regard. This may be hailed as a federal safeguard but it weakens India as an economy and certainly weakens it as a country. The prime minister’s warning is not without substance.

(With V Shoba)

About The Author

Siddharth Singh

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