Despite the deteriorating financial situation of the states, the opposition missed a once-in-a-lifetime opportunity to generate a narrative against the Centre on this issue
Since BJP's landslide win in 2014, the opposition has taken up several economic issues to challenge the former's increasing political clout in the country. First it was demonetisation, then enactment of farm laws, the opposition has fancied dethroning the BJP government at the Centre and various states using economic issues.
However, unlike in the past, when the high price of onions led to the downfall of the Late Sushma Swaraj government in Delhi, high inflation, rising unemployment or falling economic growth seem to have little impact on the BJP's fortunes.
Come July 1, and the opposition parties will lose out on another crucial economic issue that could have become political.
The revenue compensation promised to states for a period of five years under the GST regime will no longer be available. While states have been pushing for an extension, there has been no word from the Centre. While Finance Minister Nirmala Sitharaman had previously said there would be no extension beyond five years, states maintain that the double whammy of Covid and slowdown has impacted their revenue.
Despite the deteriorating financial situation of the states, the opposition missed a once-in-a-lifetime opportunity to generate a narrative against the Centre on this issue. Political scientists consider this a massive failure on its part, but the opposition seems to have a different view on this.
"States have not yet begun agitating because the Centre hasn't yet categorically denied that it would not extend the compensation period. Till we are told in clear terms that there will be no extension, states cannot also take a stand against the Centre politically. Yes, they have been implying they won't, but that has to be said in clear terms," said Chandrima Bhattacharya, Minister of State for Finance in West Bengal.
The Resource Crunch
The GST regime came into being after the Centre guaranteed a 14 per cent annual growth rate in GST revenue for five years—beginning July 2017—to the states, with 2015–16 as the base financial year. Since the annual revenue growth in pre-GST times was lower than 10 per cent, the Centre's GST proposal was acceptable to states.
The Centre's ability to present the GST regime purely as a revenue mobilization idea kept the stakes in the power tussle low. Despite the number of BJP-ruled state assemblies still being lower than what it is presently, the then Finance Minister, Arun Jaitley, convinced states to agree on the new GST regime by promising robust revenue growth.
But the economy entered slowdown mode much before the pandemic hit. Moreover, GST revenue could not reach the promised 14 per cent annual growth.
A look at the Union Budget for 2018-19, the first full year under GST, projected receipts worth Rs 7.43 lakh crore. Actual collections were just 78 per cent of this amount. In 2019-20, the budget estimate saw a significant downward revision to Rs 6.63 lakh crore. The budget estimates for GST collections in both 2020-21 and 2021-22 were lower than what was projected in 2018-19.
The lower than anticipated GST revenue growth has hit state finances. A study by credit rating agency ICRA shows that 22 state governments reported a fiscal deficit of Rs 3.2 trillion in the first seven months of FY22, up from the pre-Covid level of Rs 2.3 trillion. The cause of the higher deficiency was a meagre increase of 4.2 per cent in state governments' tax and non-tax revenue compared to the pre-pandemic period.
The Centre also managed to save its own money in the divisible pool for devolution of taxes by withdrawing its support to a set of schemes entirely. In contrast, for others, it asked the states to contribute up to 50 per cent more, making a dent in their finances. It also managed to increase cess and surcharges to earn revenue sharply. All these together left states with minimal scope for generating revenue.
Rising Unemployment And Prices
It's not just revenue under the GST. Price rise and unemployment has been making headlines for many months. Santosh Mehrotra, research fellow, IZA Institute of Labour Economics Germany, recently wrote, "Urban employment till March 2021 ignores that urban employment barely captures a third of total employment.
Besides, agriculture output may have performed well during COVID, and free rations may have alleviated acute distress. It completely ignores that between 2019 and 2020, the absolute number of workers in agriculture increased from 200 million to 232 million, depressing rural wages — a reversal of the absolute fall in farm employment of 37 million between 2005-2012, when non-farm jobs were growing 7.5 million annually, real wages were rising, and number of poor falling. Rising farm employment is a reversal of the structural change underway until 2014."
Even the inflation in the country has been above acceptable level, leading to reduced consumption among segment of population.
But in recent state assembly polls, the BJP returned to power in 4 out of five states. What explains the electorate's trust in the BJP government, despite so many economic issues that could turn against the incumbent government?
"The most important thing for doing business and people to earn their living is law and order. Under the Yogi government in UP and Nitish government in Bihar, this has been the hallmark. Every time the opposition talks about issues in the ruling government, both Yogi Adityanath and Nitish Kumar have pitched the idea of law and order in previous governments," claimed Mahendra Kumar Singh, assistant professor, political science, Gorakhpur University.
Singh further elaborates that as far as general elections are concerned, it's important to note that when Narendra Modi was the challenger, he showcased the Gujarat development model. "Which current opposition leader can talk about such a model of growth? Joblessness is an issue today, but it was also an issue in the UPA government. Voters want a new vision of development. Unless opposition showcases alternative vision, it would be difficult for them to win elections on economic issues."
Opposition Against Opposition
Another possible explanation for the opposition's failure to benefit from economic turmoil in the country is the lack of an overarching personality. The opposition's identity is now fragmented, with credible regional voices showing national ambitions to replace the void created by Congress.
"It (inability to translate policy failures into political narratives) is symptomatic of the larger opposition failure. The main opposition party has failed to function productively. It is not only concerning GST compensation issue but various other issues," a senior Congress leader, who did not wish to be quoted, said.
According to him, economic issues for winning political battles still matter. But the instrument for articulating them needs to be effective. In the case of GST compensation, he explains that the government does not have to pay out of its pocket and can pay states by just levying a sin tax on certain items.
"But the Centre had begun reneging on the promise to pay states their due even before the five-year period ended. And rather than all states coming together and making brouhaha about it, the opposition has been much muted. That is primarily because the opposition dances around a central pole. When that pole has become much hollow, individually, there is not much a chief minister or a regional party can do. But the main opposition party could have done the coordination," the leader said.
Opposition parties have often failed to offer a counter-narrative to the significant economic problems of the day. For example, the Congress, the RJD, the SP and Congress could not showcase how they would generate jobs if voted to power.
On the other hand, when Narendra Modi was challenging the then Manmohan Singh government in 2014, he proposed clear ideas on black money, inflation, GST and job creation. Though his government has struggled to keep the promises made, the opposition has often failed to propose plans to address economic distress. The NYAY scheme proposed in 2019 by Congress was rejected as too ambitious to be true by voters.
Changing Society And Its Take On Poverty
Some experts believe that the fear of losing out on the money has stopped most states from turning the resource crunch issue into a political tool.
"If it (GST compensation extension) is converted into a political issue, there is no chance of getting those funds because then you are giving an incentive to the central government to deny those funds. Then you are clearly saying this is a political issue, and the fight would be won politically. Until states are completely sure that central government will not offer an extension, they try to make a joint case with BJP-ruled states," said Narendra Pani, Professor of Economics and Social Science at Bangalore’s National Institute of Advanced Studies.
Changing the nature of society post-liberalization also has a vital role in making economic issues redundant in the political pitch. With the opening up of the economy, a new aspiring class was created that did not wish to critique the mode of accumulating wealth but wanted to beget wealth. Poverty ceased to be looked at as the apparent byproduct of structural inequalities and came to be accepted as inevitable in creating wealth.
Pani explained that there are two approaches to mobilizing economic issues for political gains. One is the rich versus the poor way, which used to be a feature during Indira Gandhi's time until the 1990s. "Post 1990, there has been a growth in aspiration. And aspirational growth implies accepting inequalities. You no longer want to hate, for e.g., Ambani, but you want to become Ambani. So that makes economic issues lose the political edge during the times of gareebi hatao. So now you must convert that into a self-respect kind of argument, which is largely social," he summed up.