DisFact #14: What the state polls verdict mean for the 2019 election; RBI governor resigns

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In this issue:

  1. In-depth analysis of the recently concluded assembly elections and what it means for the 2019 general election

  2. The resignation of Urjit Patel as the governor of the Reserve Bank of India and why it matters

2019 is now an open battleground

Results of the five states that went to polls were declared on Tuesday.

  • Indian National Congress won in three states of the Hindi heartland: Rajasthan, Madhya Pradesh and Chhattisgarh.

  • In the other two, regional parties reigned: Telangana Rashtra Samithi (TRS) won in Telangana and Mizo National Front in Mizoram.

These results are significant: it punches holes in the narrative of invincibility of the BJP electoral machine led by Prime Minister Narendra Modi and BJP chief Amit Shah, sets the stage for the emergence of Rahul Gandhi as a national leader, highlights the public discontent with grave economic issues ranging from unemployment to rural distress, and signals that the 2019 general election may not be an easy clean sweep for the BJP.

Election results,Assembly election results,Narendra Modi
(Image source: Hindustan Times)

Here are my big takeaways:

1. Issues

An analysis by political scientist Neelanjan Sircar in the Hindustan Times shows that in the three Hindi belt states, BJP’s strike rate (the percentage of seats it wins among those it is contesting) reduced in both urban and rural constituencies. Erosion of the party’s support is even more visible in agricultural constituencies.

This points to the two key issues that dominated the campaign: agrarian distress and jobs. Add it to the transient problems in the implementation of the Goods and Services Tax and the impact of demonetisation, now considered a failure by most economists.

These are complex policy puzzles. Take a look at rural distress:

A. The case of Madhya Pradesh

Madhya Pradesh has been one of India’s better performers in agricultural growth (in terms of the growth rate) under the 15-year rule of BJP’s Shivraj Singh Chauhan—especially because of the government’s focus on irrigation. Farmers say that irrigation infrastructure (including power supply) had improved significantly under the BJP government, my colleague Roshan Kishore wrote in the Hindustan Times. But still, farmers were not happy this time around. Why? Price crash.

Farmers recount how the prices they are getting today are only a small fraction of what they used to get earlier. This shows up in the data as well. CMIE statistics show that the average prices of soyabean, gram, garlic etc., all important crops in Madhya Pradesh, fell significantly in the post-demonetisation period. Cost of cultivation did not go down though. Labour, fertilizer, diesel etc. all of them have become more expensive. (Hindustan Times)

B. “LPG, toilet, house: BJP built solid rural assets but income didn’t rise”

Harish Damodaran, one of the most authoritative voices on the rural economy, makes an interesting observation in the Indian Express. Why, despite the “impressive record” of the Modi government in the creation of assets and provision of amenities in rural areas, is support among rural voters in decline? Answer: incomes.

The big rural economy takeaway for the BJP from the just-concluded assembly elections is that mere asset creation — building roads, houses and toilets or providing access to electricity, LPG and broadband connectivity — isn’t enough.

For rural voters, incomes count as much, if not more.

“Incomes” not rising, due to low crop prices and stagnating wages, has more than offset any “asset” gains in the recent period, which also probably explains the party’s heavy losses in the three states it ruled, Madhya Pradesh, Rajasthan and Chhattisgarh. (Indian Express)

Why it matters: Timing. We are just five months away from the 2019 general election. There is no magic wand to turn around the narrative in the short span of time, which can be a big challenge for the BJP.

The opposition (Congress) has promised farm loan waivers, which may help the farmers in the short term but do not fix the structural problems in the agricultural sector. On Friday, former Reserve Bank of India (RBI) governor Raghuram Rajan said that farm loan waivers should not form part of poll promises as has been the trend.

“I have written a letter to the Election Commissioner saying that it (farm loan waiver) should be taken off the table. Certainly there is reason to think about farm distress. However, they (benefits of welfare measures) often go to the best connected. Second, it obviously creates enormous problems for the fiscal (health) of the state once those waivers are done. And I think, unfortunately, it inhibits investment down the line,” he said. (Mint)

2. Congress bounces back

Pundits had started writing obituaries of the Indian National Congress: the party was decimated to just 44 seats (of the total 543 seats) in the 2014 Lok Sabha election; it had just three Chief Ministers as of mid-2018.

The results change that. It is the first time that the Congress has snatched a state from the BJP (not one, but three) since Modi became the Prime Minister.

The reason why these elections are resonant well beyond their respective state boundaries is because the face-off in Rajasthan, Madhya Pradesh and Chhattisgarh was directly between the Congress and BJP.

Since 2014, the BJP has trampled over the Congress in almost all its confrontations with that party, be it in Uttarakhand or Himachal Pradesh, Haryana or Jharkhand, Maharashtra or Assam. In Goa and Manipur, it trounced the Congress in post-poll manoeuvering. The Congress stole the post-poll march over the BJP in Karnataka, made it sweat for its victory in Gujarat, and won Punjab, where the BJP was not a leading player. This is the first time, however, that the Congress has defeated the BJP and won a majority in direct contests since 2014. (Indian Express)

To be sure, the results were close. In Madhya Pradesh, ten out of the total 230 seats were decided by a margin of less than 1,000 votes. The difference in BJP’s and INC’s tally was just five seats. In Rajasthan, Congress was expected to win more decisively. Only in Chattisgarh, did Congress sweep the election.

Not all good news: Congress lost its only government in the North East region in Mizoram. Plus, the TRS in Telangana crushed the Maha Kootami alliance stitched together by Rahul Gandhi and Andhra Pradesh chief minister N Chandrababu Naidu

Read more: How Congress led by Rahul Gandhi turned the party around in 3 states (Hindustan Times)

3. Assembly elections don’t extrapolate to general elections, says BJP

In the 2014 general election, the BJP won 62 of the total 65 parliamentary seats from Rajasthan, Madhya Pradesh and Chhattisgarh. If the Congress is able to repeat a similar performance in the 2019 election—five months from now—BJP’s tally in the states might get reduced by half. But the BJP says there is no automatic transfer of results from assembly elections to national elections, especially because that will be a direct vote for Prime Minister Modi.

Some analysts say that victory is a victory. 3-0 win for the Congress in the Hindi belt is very different than 2-1. If nothing else, it changes the optics and boosts the morale of the opposition, who will “enter the 2019 battle with renewed confidence in its ability to take on the BJP machine”.

4. Is BJP’s electoral dominance a liability for 2019?

In The Print, political scientist Rahul Verma notes that after 2014 elections, “the BJP won most states as an opposition party” but “has had a tough time retaining (or winning) a state wherever it was the incumbent.”

The BJP became the single-largest party in Maharashtra after playing second fiddle to Shiv Sena for decades. It was defeated in Bihar but emerged as the second pole in the state politics, around which upcoming elections would revolve. It trounced the Congress in Haryana, Uttarakhand and Himachal Pradesh. The party also made forays in northeast India by winning Assam in 2016 and dislodged the three-decade-old Communist party government in Tripura in 2018.

When the party managed to win Uttar Pradesh in 2017 with the largest mandate ever seen in the state’s history, we were staring at the rise of the second dominant party system, this one led by the BJP.

In all these states, the BJP was a challenger. As an incumbent, the party had a tough time. In Goa, however, the BJP needed post-election manoeuvring to retain the state. The combined mobilisation by the trio of Hardik Patel, Alpesh Thakor and Jignesh Mevani along with Rahul Gandhi gave the BJP a scare in Modi’s home state of Gujarat. It required an extra push by Modi in the last leg of the campaign to rescue the party from the jaws of defeat.

In Foreign Policy, political scientist Milan Vaishnav reiterated the point:

Incumbency in India is a double-edged sword: unlike in many advanced democracies, incumbent members of parliament (MPs) are more likely to get tossed out of office than retained. The BJP’s asset of electoral dominance, therefore, counterintuitively poses an electoral liability.

Read more: Incumbency in India: More curse than blessing? (Hindustan Times)

5. The debate inside the BJP: Does Hindutva work?

UP Chief Minister Yogi Adityanath is turning to be the third most important leader in the BJP ranks, following Modi and Shah. According to The Hindu, Yogi addressed more rallies than any other BJP leader in the recent elections.

Yogi Adityanath emerging as BJP’s star campaigner

There is hardly any doubt about Yogi’s claim to fame: anti-minority rhetoric to divide the electorate. Simple.

So the question is: What will be the primary focus of the BJP in the run-up to the 2019 election—Development or Hindutva?

The electoral setback has sparked a debate within the BJP, its ideological parent, the Rashtriya Swayamsevak Sangh (RSS), and its wider ecosystem of supporters.

There are two camps. From the Hindustan Times:

On the one hand are supporters and loyalists who argue that the BJP lost because it focused on development and welfare schemes, but ignored the ideological agenda of Hindutva. They critique the Modi government for not delivering on the Ram temple issue and believe that only an ordinance or an effort at legislation on the issue will showcase the government’s commitment. This will consolidate Hindus, make 2019 an emotive election, and drown class based and caste based considerations.

On the other hand are those who believe the outcome actually reflects the limits of the Hindutva approach. To suggest that the BJP regime has not been committed enough to its ideological worldview is not true. From the obsession with cow protection, which has had dangerous consequences, to aggressive display of majoritarian political symbols, to the marginalisation of minorities in various spheres, the hardline has actually managed to push its script. Both Amit Shah and Yogi Adityanath’s speeches reflect this.

Add to all this the soft-Hindutva of the Congress:

In a move that dismayed some, Mr Gandhi also made a more overt show of his devotion to the Hindu god Shiva, as he sought to counter the BJP’s relentless depiction of the Congress as a party in thrall to India’s Muslim minority. 

“Congress is trying out a strategy of trying to neutralise religion as the principal cleavage in Indian politics and remove the BJP’s strong card,” said Louise Tillin, a lecturer in Indian politics at King’s College London. “It may have helped them focus voters’ attention to other economic issues.” (Financial Times)

Some analysts have declared that Hindutva doesn’t deliver votes unless you get the economics right. I am not too sure to draw any conclusions at this point.

6. Social media and politics

My story this week for the Hindustan Times: Rajasthan an exception, Facebook popularity doesn’t ensure win

Do engagements with politicians on Facebook reflect on-ground sentiment? If we go by the results of the five states that went to polls in November and December, the answer is: not so much. At least, there is no strict correlation between leaders who grab attention on social media and those who get to rule the state.

A Hindustan Times analysis of Facebook data shows that Rajasthan was the only state where the leaders of the party that won also captured the most engagement on the social media platform. The story was the opposite in Madhya Pradesh and Telangana. In the other two, Chhattisgarh and Mizoram, Facebook activity was low. (Hindustan Times)

Read the full story here for more details.

More social media and election stories:

1. On Twitter, Sachin Pilot is CM and Shivraj trumps Modi in MP (Mint)

In Rajasthan, the question of who stood at the center of the Congress story was settled. Sachin Pilot emerged as the key opposition figure at least on Twitter, leaving Ashok Gehlot far behind. In MP, Shivraj Singh Chouhan drowned away any noise about Vyapam or doubts about his supremacy within the party. Data shows that Chouhan achieved the impossible task of usurping Modi’s primacy in an election campaign. Against Chouhan’s dominance on MP’s pre-election Twitterverse, his trio of powerful opponents—Digvijay Singh, Kamal Nath, and Jyotiraditya Singh—looked like marginal players trying to scrape an audience.

2. How BJP, Congress differ in their tweeting patterns (Mint)

Roughly a third of the tweets of both Modi and Gandhi featured the poll-bound states in the one-month period to 29 November…Modi and the BJP both use videos more than their rivals…On average, Gandhi’s tweets on the poll-bound states are being retweeted more than Modi’s…While the Twitter handles of both parties are attacking each other, among leaders, Modi is attacking state rivals more than Gandhi…Average retweets of the BJP surges 151%, while those of the Congress falls 44% when they attack their opponents

As the saying goes, a week is a long time in politics. Only one thing is clear now: The 2019 contest is open. That’s good news for democracy.

What do you think about the election results? I would love to hear from you. Write back: samarthbansal42@gmail.com

On resignation of Urjit Patel

What: On Monday, Urjit Patel resigned as the Governor of the Reserve Bank of India, citing “personal reasons”, days before a crucial RBI board meeting to discuss “governance reforms”. This is the first such resignation in post-liberalisation India.

Why did he resign: Patel’s resignation is being read as a consequence of the ongoing tussle between the RBI and the Finance Ministry on multiple issues that had a bearing on the independence of the RBI.

These tensions came into full public spat in the last week of October when deputy RBI governor Viral Acharya said in a speech that a government undermining a central bank’s independence could be “potentially catastrophic”. (I wrote about this in the seventh issue of DisFact)

Former RBI governor Raghuram Rajan called Patel’s resignation a “matter of great concern” adding that “the act of resignation by a government servant or a regulator is a note of protest”.

“I think this is something all Indians should be concerned about because strength of our institution is really important both for growth and sustainable growth in equity and the economy.”—Raghuram Rajan

Read more: India’s elite institutions are facing a credibility crisis (Mint)

What are the issues between RBI and the government? BloombergQuint has details in this piece (it was published on 31st October, but still relevant).

The issues that have cropped up between the RBI and the government range from banking regulation to payment systems and the central bank balancesheet. Neither the government nor the RBI has signaled any thaw of any of these specific issues yet.

These issues were detailed in a speech by RBI deputy governor Viral Acharya in a speech on Friday, which, in many ways, brought the differences between the RBI and the government into the public domain.

Acharya cited demands on the RBI to ease the prompt corrective action framework as one pressure point. Eleven government banks are under this framework, making it hard for them to expand their lending meaningfully. The government has been seeking a relaxation of this framework.

A recent suggestion to create a payment regulator outside the purview of the Reserve Bank has also been opposed by the RBI. In a dissent note, the RBI said that regulation of payment systems is central to the functions of a central bank.

But perhaps the most contentious issue remains that of the RBI’s reserves and capital on the central bank’s balancesheet. (BloombergQuint)

Who’s next: Patel has been replaced by career bureaucrat Shatikanta Das, a former finance secretary and current member of the 15th Finance Commission. Das was the Centre’s face during demonetisation.

More about RBI’s independence: In Mint, Niranjan Rajadhyaksha explains why the breakdown of trust between RBI and finance ministry is a problem and what independence of the RBI really means.

The entire episode of his resignation leaves a bitter aftertaste. The relations between the government and the RBI have been tense for more than a decade now. The smooth collaboration between Yashwant Sinha in New Delhi and Bimal Jalan in Mumbai is now a distant memory. The Indian central bank has been under fire—and insiders have for long claimed that there is a broader agenda to cut it down to size.

One counter view is that there is no such thing as independence from the sovereign in a democratic republic; so central bank independence is a silly demand. This is a straw-man argument. No sensible person believes that a central bank can have statutory independence. The closest any central bank has come to formal independence is the European Central Bank, but it is the creation of a treaty rather than a national government.

The point is not statutory but operational independence is quite a different matter. The RBI does not—and should not—decide its policy goals. They are given to it by law as well as the monetary policy agreement. The governor is also appointed by the government. He needs the operational independence to pursue these goals. The reason this arrangement exists across the world is that a central bank has a different objective function than a finance ministry, even if the final goal is the same. To slip into the language of game theory, governments and citizens are the players in a trust game, while the central bank is designed as a credibility device.

The sort of operating freedom that central banks need to do their job is by nature ambiguous, so formal law needs to be backed by strong norms. That is why the breakdown of trust in recent years is a problem.

From The Hindu editorial:

Mr. Patel’s resignation is bound to raise questions about the Centre’s ability to work with independent-minded economists, coming as it does following the departures of former RBI Governor Raghuram Rajan, who was at odds with the Centre on many issues, and the sudden resignations of Niti Aayog Vice-Chairman Arvind Panagariya and Chief Economic Adviser Arvind Subramanian.

It is true that Mr. Patel’s reclusive and non-communicative style may not have endeared him to some bankers, but his eminence as an economist and his understanding of macro-economic issues is undisputed. Governments have sparred with the RBI before on the issue of autonomy, but the NDA government went one step further by starting consultations under Section 7 of the RBI Act, which gives the Centre the power to direct the RBI to act in specific ways.

Read more:

  1. Urjit Patel: A RBI Governor Most Controversial In BloombergQuint, Ira Dugal looks back at various aspects of Patel’s governorship. This is the best piece I read about Patel’s tenure.

  2. Why Urjit Patel will not be missed as RBI governor In Mint, R. Jagannathan makes a counter argument: he calls Patel’s resignation a “positive development”.

    Any RBI governor needs two skills. One is the ability to communicate, including with the finance ministry, so that the relationship is smooth despite disagreements. The other is the ability to take policy decisions keeping the complexities of the real Indian economy in mind. Patel failed to measure up on both counts.

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