Political Economy

What Will India's New Saffron Curtain Mean for its Economic Growth?

History has shown that most countries which built ideological curtains failed to generate economic wealth and achieve their social objectives. They typically gave you their social outcomes at the cost of your economic well-being.

After decades of being stuck in the Hindu rate of growth, 3.5% per annum growth rate in GDP, the Indian economy pulled out of the dark ages to grow at an estimated 6.5% per annum in the years after the 1991 reforms.

The current sluggishness in the economy suggests it may be at risk of being pulled down to a Hindutva rate of growth of below 3% per annum. And that has implications for your near term economic and job security and for your long term investments. Let me explain.

Many countries and civilisations have built physical barriers or “curtains” to protect themselves and to separate themselves from others. Some of these ventures have ended up being social and political disasters.

The Great Wall of China was built by many dynasties from 445 BC and completed by the Ming Dynasty in 1644 AD to keep out the invading armies from the Steppes – nomads like the Mongols.

The Iron Curtain, separating the communist East and the democratic West, was established after World War 2, and flagged off the start of the Cold War. The Iron Curtain was not a physical structure but a conceptual dividing line between the “free world” and the other world. The Berlin Wall, construction of which started in 1961, represented a small part of the physical structure which exemplified the division between the East and the West. Though limited in size to a height of 12 feet and a length of only 27 miles, the Berlin Wall had 302 guard towers and 55,000 land mines. It was a physical manifestation of the Iron Curtain.

The Bamboo Curtain of 1959 was a political demarcation between the Communist-ruled areas of Russia, China, and some nations in South East Asia — and the rest of the world. There was no physical Bamboo Curtain though there was this conceptual dividing line. Those behind the Bamboo Curtain were communists. Mao had just taken over China in the Great Revolution.

Hungary built a barbed wire fence in 2015 on its border with Serbia and Croatia to keep out Syrian refugees. There was no curtain, but Prime Minister Viktor Orban may as well have had one. He had said that Hungary was 96% Christian and must stay that way. Basically, the refugees from Syria, mostly Muslims, were to be kept out.

President Trump is going ahead with his plans to build the wall between the southern borders of the US and Mexico – though Mexico does not seem to be paying for it, as was promised in his 2016 election campaign. Since there are many Christians in Mexico, Trump cannot use religion as a dividing line. Thus, he has built a “rapist” curtain to keep the “criminals” out.

A world with borders is necessary.

Having a physical wall or border has its merits as a means of security. It protects the state from raiding marauders. Having a “curtain” is typical for demarcating a philosophy, or reinforcing a distinction based on an attribute such as religion, or, in the case of communism, enforcing tyranny on your subjects.

Also read: BJP’s Strategy of Pitting Hindutva as an Alternative Agenda to Development is Unravelling

India has physical fences and border walls with, for example:

1) The rogue state of Pakistan, often described as an army with a country.

2) Natural and man-made fences with the ever-threatening fire-dragon of China; and

3) Barbed wire fences with Bangladesh, a country with whom India has enjoyed great friendship and which is indebted to India for its Independence in 1971.

But now, with the move to implement the Citizenship Amendment Act (CAA), India may be building a saffron curtain between its neighbours and itself. If the critics are to be believed, the saffron curtain may divide India itself.

Count me, but don’t count me out.

To start with there is the need to have:

1) The National Population Register. A list of people who live in the country; a normal and useful database that every country must have. Aadhaar was meant to be this “national” database but it was voluntary  and its limited intent was to ensure that benefits given by the government were received by those who were meant to receive it. Aadhaar was the Holy Grail to stop the pilferage in the system that had become commonplace in every government subsidy scheme. In 2012, P Chidambaram, then home minister under the Congress-led UPA-2, had a public spat with Nandan Nilekani over the duplication of resources and money being used for Aadhaar (run by Nilekani) and the National Population Register (run by the Home Ministry). Chidambaram had branded the NPR as integral to the internal security of India was clearly in favour of an NPR.

2) The National Register of Citizens. This register wishes to find out who, from those who live in the country, are citizens of India. This NRC will also need to make a list of those Indian citizens who may be living outside India (for example, an Indian passport holder working for a tech company in USA under a H-1 visa still needs to be listed in the NRC.) Nothing wrong with that, either. Every country must know how many citizens it is responsible for.

So far, so good. All this information is normal and useful. Other countries have their versions of the NPR and NRC; India must have hers.

The problem arose because of the implementation of the NRC in Assam which has, since the 1970s, seen an influx of immigrants (many illegal) from Bangladesh. The NRC for Assam was published under the watchful eye of the Supreme Court and released on August 31, 2019.

Of the 33 million people living in Assam, 31 million were counted as citizens. This means that about 1.9 million were not. Many of the 1.9 million were Hindus, a crucial vote bank for the BJP. In the 2019 elections for the Lok Sabha, the BJP won 6.4 million votes (9 Lok Sabha seats) while the Congress won 6.3 million votes (3 Lok Sabha seats). The Congress’s share of votes had increased but the BJP still gained more seats. There was an 81% voter turnout in Assam. A swing of 0.1 million votes led to a difference of 6 Lok Sabha seats under the first-past-the-post system in India. To allegedly ensure that many of the 1.9 million Hindu refugees, who may have been citizens of Bangladesh, qualify to be citizens of India, the Citizenship Amendment Act was passed. The CAA has a cut-off year of 2014 while the Assam Accord had a cut-off year of 1971.

The CAA was, allegedly, tailor-made to get the Hindus from Bangladesh into Assam by ensuring that a person “persecuted” for their religious beliefs could be given citizenship of India. Muslims were excluded from the list of people persecuted for their religion. The Muslims from Bangladesh, even if they were persecuted for belonging to a minority Muslim sect, will have to head back to Bangladesh.

So, there are two fears over the CAA:

1) The people of Assam don’t want anyone after the 1971 cut-off year to be given Indian citizenship and a right to live in Assam, irrespective of their religion. The protests in Assam are focused on this cut-off year – Hindu or Muslim refugee is not the issue here; the Assamese don’t want anyone who was a refugee after 1971 to be given a legal right to live in Assam;

2) The rest of India is concerned that the CAA (currently a move to legitimize many persecuted Hindus of Bangladesh origin) may be the first step towards future constitutional amendments and actions which evolve into a bias against those who are Muslims and who may legitimately be citizens of India – but do not have the papers to prove that.

There is a fear that if a Muslim is on the NPR list (which means he lives in India), the body-counters may not convert the Muslim into the NRC list: the list of citizens of India.

Also read: Hindutva Has Nowhere to Go Except Down the Road to Tyranny

Getting on the NPR list is easy. Getting on the NRC list may require more documents.

A Muslim in a Hindu Rashtra Raj could be denied citizenship, even if he was born in India, if he does not have the correct papers. In a country where tens of millions do not have a birth certificate – or where there are local rivalries preventing that person from seeking an endorsement of familiarity from others in the village, another criterion – this process of proving one’s citizenship could be a nightmare. IndiaSpend says that a “larger number of Indians, especially older Indians, do not possess birth certificates”. Additionally, IndiaSpend says that 38% of children under the age of 5 years do not have a birth certificate. “Further, those belonging to the poorest sections, scheduled castes and tribes, and families with no schooling are more likely to not have a birth certificate”. Getting a birth certificate the day you are born to register the child for a good school is an urban phenomena. Record-less rural India does not have that luxury!

More importantly, the Constitution does not permit the denying of a citizenship to any person based on the religion that they follow. This was against the spiritual belief of Mahatma Gandhi as he led the fight for India’s Independence:

“For me, the different religions are beautiful flowers from the same garden, or they are branches of the same majestic tree. Therefore, they are equally true, though being received and interpreted through human instruments equally imperfect.”

In a Hindu Rashtra, such lofty idealistic talk is, well, lofty idealistic talk. The Mahatma is dead and he was, in the eyes of those who want a Hindu Rashtra, a traitor to India for allowing partition and giving the Muslims their own country without giving the Hindus “our own” country. Jinnah got what he wanted for his Muslims: a country of their own; but we did not and Hindus have had to face the perceived injustice of sitting with 150 million Muslims around us on Indian soil. In the eyes of many, Islam, Christianity and Judaism are “imported” religions and need to be expelled. For now, the Hindu sangh recognizes Jainism, Buddhism, and Sikhism as offshoots of Hinduism: they can be tolerated.

The link to the economy

In November 2016, the BJP government introduced demonetisation. That led to months of chaos as people lined up to change notes. This killed economic activity. The effects of that questionable policy were felt for quite some time.  Rather than adding to economic activity, people stood in lines. Barring those who may have been hawking pakodas, channa-singh, or chai to those who trudged distances to get to the banks there was little economic output. The political objective of demonetisation was achieved — to win the UP elections by ensuring that the horde of cash, stashed by the Opposition, was made worthless. None of the objectives stated on the floor of Parliament as a reason for the exercise of demonetisation were achieved.

Also read: The BJP Is Digging Its Own Grave

In July 2017, the GST was introduced. This questionable idea which ignored the vast differences in the stages of economic evolution of every state originated from the Congress government. Sadly, it was amplified and adopted by the BJP. Rather than allowing small businesses to work and continue to contribute to the economy, GST shut the small businesses out. It benefited two classes of people: (1) the software programmers, accountants and lawyers who got windfall fees from the trails of computer and paperwork for an ever-changing, ever-modifying set of procedures and rules, and (2) the larger companies, including multinationals, who gained business and market share in a slowing economy at the cost of the smaller companies. Since large companies do not add jobs to the extent that small companies do, there was a net job loss in the economy.

The fraudulent practices of many Indian CEOs and founders — from companies involved in banking to telecom to oil to power to steel to retailing — had caused a hole in the balance sheet of many banks. While this theft of money from companies and poor governance is a disease that has infected India for decades, it reached its Golden Age under the rule of the UPA government. With large losses from these legacy loans, the banks have neither the desire, nor the means, to lend more money. Economies only grow when the money is available to lubricate the engines of growth.

But not only was money not readily available, even the engines of growth were stalling.

Companies saddled with debt and lower sales (people standing in line can only buy pakodas and chai, not cars and steel; people who lost their jobs buy even less) have little incentive to borrow more to build factories and add to capacity or create jobs. Those few companies that do wish to borrow have fewer banks to borrow from.

With the banking system in a freeze and consumer demand in a tailspin, real estate companies are sitting on 12 months to 36 months of unsold inventory of flats. With no desire to build more homes, most real estate developers are not hiring labour to work on new projects. Fewer flats being purchased means that fewer people are buying toasters, microwaves, and furnishings for the new flats.

The economy is dead.

Killing a dead cat?

There was hope that the government would do something in the budget of 2019.

They did. And that 2019 budget was perceived to damage the economy further. It was a negative shock! After much criticism and pointlessly defending the indefensible, the government rolled the negatives back and took away the pain.

Then they gave a boost to large companies who pay tax. None of this has created jobs – not even in the stock market which has set successive new peaks due to the recent tax freebies to corporate India.

It is possible that the NPR will add jobs: someone needs to count the people in the country.

It is possible that the NRC will add jobs: someone need to scrutinize the papers of the people to figure out who is a citizen and who is not.

It is possible that those who are not classified as citizens will need to be housed in detention camps.

The building of these camps will require cement, steel, tiling and barbed wire. And labour to put it all together and guards to man the detainees. That could be a boost of some sorts for economic activity!

But those who are standing in line waiting for papers and waiting to be counted will neither be available to work, nor will they be consumers.

The pakoda, channa-singh, and chai sellers may see another spurt in business though.

Also read: What’s So Neoliberal About Narendra Modi’s India Anyway?

As protests sweep across India, there is a huge human cost and a large economic cost. Assam’s oil-fields produce 4.3 million tonnes of oil every year, about 12% of India’s domestic production and 5% of our annual consumption of oil products. If the oil supply is disrupted, and given the higher price of oil in global markets the past few days, there will be a further dent on the import bill and on the Indian Rupee. Tea from Assam accounts for 50% of all tea grown in India and tea generates 5% of the revenue for the state.

Other states and industrial hubs across India (Gurgaon, Chennai, Bangalore, Hyderabad, Pune) are larger and contribute more to the national exchequer – and have a roster of global clients and customers. In May 1974, there was a 20-day strike by the Indian Railways demanding the implementation of 8-hour days. 46 years later, the Indian Railways are more crucial to a more integrated domestic economy. The Bharat Bandh, called on January 8, is reminiscent of those unsettling days.

The building of a saffron curtain will cost a lot of money.

The direct cost of Rs. 21,000 crore for the demonetisation (about 0.5% of the annual budget, though this cost was borne by the RBI which many say has already morphed into a Division of the Government of India) was more than the “economic earnings” from demonetisation. The indirect cost of the demonetisation to the economy which went into a slump and had low tax collections, was felt for years. Some have estimated this cost to be in the region of 1.5% to 2% of GDP.

The economic pain of the demonetisation for most people has been significant – even though the BJP may not have lost elections. (For this, the BJP has to thank the Congress for still insisting on being around. As an aside, the expiration date of the Congress was supposed to be 1947; the year India won its Independence. Having led the Freedom Struggle, Mahatma Gandhi said the work of the Congress was over and it should be disbanded.)

Building walls for security is a necessary activity. Building a saffron curtain to segregate a population by religion may be a socially and economically expensive political passion.

India could potentially get stuck in the quicksand of the past.

Under a saffron curtain, India may rewind the clock not to the pathetic 3.5% per annum “Hindu rate of growth” of GDP under the Nehruvian period of the 1950’s to 1980’s, but to a sub-3% p.a. Hindutva rate of growth under the BJP.

And, if the data points released by the government are to be believed and adjusted for the change in the way data has been compiled since 2015, we already are at a Hindutva rate of growth of sub-3% per annum, a new low in post-reform Modern India. This does not make it worse or better than the 7% per annum growth rate achieved under the UPA 1 and UPA 2 governments, where much of the growth can be attributed to crony capitalism and the initiation of projects that were so poorly financed that the banking system is paying the price for those blunders today. The Indian economy has been badly bruised by the poor policies of the UPA and may be knocked out by the social focus of the BJP.

The budget of 2020 will be a challenge. It will have to offset the likely adverse economic impact of a Saffron Curtain and seek ways to boost the creation and distribution of wealth by kick-starting a dead economy. It will not be an easy task. The 2020 budget may either prove our Hindutva-ness – or reinforce our faith in the idea of a more economically prosperous India.

History has shown that most countries which built ideological curtains failed to generate economic wealth and achieve their social objectives. They typically gave you the social outcome at the cost of your economic well-being. And that, too, for a short period of time. The victorious social outcome tended to lose their veneer over time to expose the rot within. A saffron curtain is not what India needs now – it needs focus on the sabka vikas that was promised in 2014. “History”, as Mark Twain said, “never repeats itself, but it often rhymes.” For India, its tryst with destiny may be ending as a curtain rises.

Ajit Dayal is a mutual fund veteran and  is the founder of Quantum Asset Management Company. This article was originally published on EquityMaster. You can read it here.