Rating That Matter for Modi


Moody’s and Fitch ratings would allow Modi government to counter attack opposition but favourable poll results from Gujarat and Himachal may allow Modi to nail opposition coffin


After receiving criticism from all section, Indian Finance Minister Arun jaitley had a sigh of relief when Moody’s rating report was made public. This rating upgraded India’s sovereign rating after 14 years and allowed Modi supporters and Arun Jaitley to take on Congress and other opposition parties to being ‘careless opposition’ who made a dent to national pride by making dubious comments upon the big economic reforms being made by the Modi government. They also criticized the opposition for creating confusion among the public on GST legislation and demonetization — two major steps that Modi took last year and BJP supporters feel them a boon for national economy in long-term perspective. Now, all eyes are set on the Fitch rating as its report would give a concrete cue about the national economy. However, the biggest rating which Prime Minister Narendra Modi would be waiting is Himachal and Gujarat assembly poll results.

Until December 18 when the results of the Himachal Pradesh and Gujarat elections are known, the rarefied debate is likely to centre on an abstruse question: should India trust the judgment of Moody’s and by implication, Modi, or should it bank on the negativism of The Economist and eminent economists?

It is not that electoral verdicts alone can determine economic wisdom. But at least it can settle the question of the popular acceptability or otherwise of the Narendra Modi government. If Modi’s track record of economic management is as horrible as his trenchant critics suggest, it is more than likely that Gujarat, a state that has dhanda in its DNA, should turn its back on the BJP. Not that Indian elections are determined by livelihood concerns alone. However, as the only credible yardstick of public mood, a favourable verdict for the BJP will also confirm the findings of the Pew Research Center Survey — yet another pesky foreign judgment — that more than 80% of its respondents have a positive view of the leadership of Modi and his stewardship of the economy.

In this age of shrill sound bites and opinionated versions of ground realities, people can be forgiven for not knowing where things really stand. Most opposition MPs, for example, were genuinely convinced that demonetisation would trigger a monumental backlash that would unsettle the government. The verdict of the Uttar Pradesh election clearly indicated that those who were most vocal in their complaints about the calamitous effects of demonetisation weren’t necessarily reflecting the overall public mood. In assessing public opinion, it is important that the voices of those who don’t shout the loudest aren’t discounted.

The debate over Modi’s economic management didn’t quite end with the installation of Mahant Adityanath as the chief minister of India’s largest state. The issue has resurfaced in Gujarat with GST as the principal focus. No doubt there were issues about GST that provoked irritation. The compliance regime was perceived to be too cumbersome and the rates felt to be needlessly high. However, more important, the GST set up near-insurmountable roadblocks in the path of those businesses whose competitive edge stemmed from their avoidance (or evasion) of taxes. It is this section, already badly hit by demonetisation, that has used the complexities of compliance and the steep rates to mount a larger challenge to the new tax regime. It is not that the Congress and other opposition parties are unaware that their challenge to GST is being propped up by those with a single-minded determination to revert to zero tax bliss. But politics often involves conscious departures from principled positions.

There have been protests — with one eye to the assembly election — in places such as Rajkot and Surat. There has also been some economic dislocation and job losses in some sectors too. However, what is not yet clear is the social clout of the anti-GST stir. That the GST Council relaxed compliance procedures and lowered rates of many items suggests that some grievances were quite legitimate. But has irritation with facets of the GST design translated into a larger exasperation with the leadership of Modi? Does India prefer predictability to sharp ruptures? These are the questions the Gujarat verdict should settle, if not decisively, at least till the next round of elections.

The importance of the political test shouldn’t be minimised. For very long, successive governments have put off important structural reforms for two reasons. First, because they were likely to lead to short-term pain and even a quantum of dislocation. Secondly, many governments lacked the necessary confidence to be able to manage the political shocks of big change. Modi is different, not merely because he has a majority in the Lok Sabha, but because of his ability to communicate directly to the electorate. His biggest assets are his powers of persuasion and the fact that his intentions are not seen as being suspect. He has a moral standing which complements his political reputation.

The Moody’s upgrade after a gap of 14 years indicates quite clearly that there are two parallel narratives at work in India. One sees Modi as moving well beyond incremental tinkering and reforms by stealth — something that was indeed the fear before the demonetisation bomb. The other narrative portrays Modi as an adventurist who has broken the mould of cautiousness, aka chalta hai, which hitherto defined India.

Whichever narrative one subscribes to, India has finally been presented with clear choices for its future development. The fog over politics has lifted.