The dichotomy between their economic stances is dubious; the difference is in politics and in shaping the social coherence essential for the economy to function
Social media is awash with spurious claims of the intrinsic merits and contrast between the economic programmes of the Congress and the BJP.
The BJP is pro-growth, the Congress stands for welfare and redistribution. The BJP is pro-market, the Congress is socialist. The BJP makes India more attractive to foreign investors while the Congress will drive investors away.
The BJP is pro-billionaires, the Congress is pro-poor. The BJP encourages Indian scientists to do more, the Congress does not care about India’s scientific progress. The Congress stands for higher taxes, the BJP for lower taxes.
Flaky assertions
Each such assertion is flaky, and the dichotomy between the two parties’ stances, dubious. Instead of an ocean separating the economic strategies of the BJP and the Congress, the reality is that there isn’t enough space to cram a sheet of paper between the two. The difference between the BJP and the Congress is in politics and in shaping the social coherence essential for the economy to function. Here, the difference is, indeed, vast.
The BJP, inspired by the ideology of the Rashtriya Swayamsevak Sangh (RSS), creates systemic hostility towards 14 per cent of the population – they can, of course, be identified by their clothes – and that carries with it an authoritarian, anti-democratic logic.
The Hindu Rashtra, the Sangh’s ideal, is incompatible with equality of all citizens, and citizenship unrelated to faith. The conversion of India into a Hindu state can be achieved only by curtailing democracy – not just for the minority but for everyone.
Here, let us focus on the economic policies of the two parties.
Is Congress socialist?
Is the Congress socialist? Nehru talked about a socialistic pattern of society and putting the public sector at the commanding heights of the economy. Indira Gandhi nationalised banks and inserted the word 'socialist' in the Constitution’s Preamble.
So, the Congress must be socialist, right?
If that is the case, if we go by what people say rather than by what they do, we should credit Christopher Columbus with the discovery of India, not the discovery of America.
He was commissioned by the King and Queen of Spain to reach India in the East, by sailing West. He landed in the Bahamas, believed he had reached India, and called the native inhabitants Indians. This confusion should matter to us, the original Indians. If it does, we should credit the Congress, under Nehru, with building up India’s capitalist class, not building socialism.
Nehru's policy
Nehru’s government gave protection to the domestic industry from producers abroad, by means of high tariffs and import restrictions.
Demand for the produce of private industry was created by public sector expenditure, which also built up essential infrastructure, steel and machine tools that the Indian capitalist class was too feeble to produce on its own. Protection made industrial produce more expensive than they needed to be.
This turned the terms of trade against agriculture – instead of paying two bags of grain to buy one bag of fertiliser, the farmer paid five bags of grain – helping transfer agricultural surplus to industry, and facilitate capital formation in industry.
The Nehru government also set up term-lending institutions, like IFCI, ICICI and IDBI, to make capital available to Indian industry, and encouraged banks to transfer the public’s savings deposited with them to these term-lending institutions by counting the bonds issued by them as SLR-eligible, that is, qualifying to meet the statutory liquidity ratio, a technical sounding name for saying banks had to lend a minimum proportion of their total loans to the government.
'Tata-Birla sarkar'
If building up the fledgling Indian capitalist class by giving them a captive market, capital to deploy, demand for their goods, and manpower trained in technology and management at state-run institutions was socialism, of course the Congress was socialist.
The principal Opposition of the time did not buy into the Congress government’s socialist claims: "Tata-Birla ki sarkar", they chanted. The Tatas, Birlas and other industrial houses prospered and grew.
New ones came up, like the Ambanis. Gautam Adani has publicly hailed Sharad Pawar as his original mentor and that the group took off under the Rajiv Gandhi regime.
Onset of liberalisation
When Indian businesses grew big enough to use up all the slack in the regulatory system, liberalisation began, first under Rajiv Gandhi, and later, under PV Narasimha Rao. India joined the World Trade Organisation (WTO), and opened up the economy to global competition.
Infrastructure was opened up to the private sector, with spectacular success in telecom. Private players competed to lower tariffs and made phone ownership near-universal.
The initial response of the BJP was to align with the Bombay Club and oppose reforms. Later, it climbed on to the reform bandwagon and, under Atal Bihari Vajpayee, deepened and extended the reform process.
BJP opposed Aadhaar, GST
The Congress-led United Progressive Alliance (UPA) government expanded the social base of growth, made governance a little more inclusive than before, with innovations like employment guarantee, forest rights, the right to information, and also vastly expanded infrastructure, innovating public-private-partnership that created marvels like the Delhi and Mumbai airports and ultra-mega power plants.
The National Payments Corporation of India (NPCI) started working in 2009, and Aadhaar was innovated, the India Stack of APIs was put in place, to enable the build out of applications based on Aadhaar, such as the Digilocker and UPI, and, over time, the bulk of the digital public infrastructure that Indians can legitimately take pride in. The BJP opposed Aadhaar, opposed the Goods and Services Tax.
India's global profile
The BJP claims it alone is responsible for raising India’s global profile. The fact is that, as leader of the Non-Aligned Movement (NAM), India had always punched above its weight in global fora.
During the liberation of Bangladesh, the US had despatched the Seventh Fleet to scare India into leaving Pakistan unhindered in its bloody suppression of Bangla freedom, including by killing three million people. Indira Gandhi mobilised Soviet support and sent the American superpower packing from the Bay of Bengal. The only other countries to stand up against American might and prevail have been Vietnam and Cuba.
The collapse of the Soviet Union and the rise of China created new priorities and new opportunities in foreign policy. Narasimha Rao formulated the Look East policy (Narendra Modi later called it 'Act East', as if the point of Looking East had been to enjoy the scenery). It gradually dawned on the major powers that a powerful India is an instrumentality to keep China’s rise peaceful.
Nuclear deal
Then, the George Bush administration in the US agreed to enter into a civil nuclear cooperation agreement with India. And the nuclear deal was the turning point in raising India’s profile among the nations of the world.
It set India free from the technology denial regime in which the country had been placed after its nuclear tests. It opened the doors to India’s membership of crucial arrangements to control weapons technology. It opened the doors to partnership with the US, Japan and Australia in the Quad.
Which party fought tooth and nail to scuttle the nuclear deal, and which party fought tooth and nail to defend it? The BJP and Modi, as Chief Minister of Gujarat, were dead against the nuclear deal, and the Manmohan Singh government had to survive a vote of no confidence brought by the BJP to push the nuclear deal through.
Bush also initiated the G20 summits after the global financial crisis to coordinate global policy responses to economic challenges. India figured in it, naturally. And its presidency rotates, every year and the presiding country hosts the summit.
The BRICS grouping started off as the BRIC grouping of fast-growing emerging markets Brazil, Russia, India and China, holding its first summit in 2009, with South Africa joining later, to make it BRICS. Modi did not invent these groupings, as his fans believe.
Science, and taxes
Is the BJP more proactive on boosting Indian science? Its contribution has primarily been to redesign the Indian Space Research Organisation (ISRO) website to bury mention of ISRO’s proto-form, the Indian National Commission on Space Research (INCOSPAR), set up by Nehru in 1962, on the recommendation of Homi Bhabha, so that BJP trolls could spread the misinformation that Nehru had nothing to do with India’s space programme.
Is the BJP more liberal on taxation? Personal income tax rates remain, after 15 intervening years of BJP rule, where P Chidambaram had left them in the 1997.
The effective rate of corporate tax, after milking the assorted tax breaks offered, was always way below the nominal rate, but had crept up, under the Modi regime, from 21 per cent to 27 per cent, before Covid forced a reckoning, and tax rates were brought down.
What of inheritance tax/estate duty? The estate duty is levied on the estate of the deceased, and the inheritor receives what is left after paying the tax. The inheritance tax, in contrast, is paid by the inheritor. There is nothing wrong or socialist about the tax. Former BJP minister Jayant Sinha and BJP-aligned Mohandas Pai have championed the tax in India.
What the West does
Western capitalist countries levy the tax. However, it just does not work in practice. The rich use their riches to devise ways to minimise the tax outgo.
In the US, the collections under these heads are just 0.6 per cent of GDP, in spite of high nominal rates of tax. On the consideration that the cost of collecting the tax, when compared with the proceeds, did not justify continuation of the tax, the Rajiv Gandhi government abolished the tax in India in 1985 – with prospective effect, and not to avoid paying tax on the estate of Indira Gandhi, as the PM has alleged. Indira Gandhi was killed in 1984.
The simple fact is that India collects too little tax: about 17 per cent of GDP, half the average for the rich country club, OECD.
As countries develop, their economies grow more complex and individual lives get enmeshed in complex ways, the share of a nation’s total income that is spent by the government on behalf of the collective goes up. It is more than 46 per cent of GDP for the OECD as a whole. For France, Italy and Greece, general government expenditure is above 57 per cent of GDP, and for the EU members as a whole, it is above 50 per cent of GDP.
Need for tax
As India progresses, the share of GDP passing through the state will go up, and to finance it, the tax collected will have to go up, too. Both parties would have to agree on this, but increasing tax collection often goes along with reducing tax rates and improving administration and compliance.
The present government is guilty of not following up on the audit trails automatically generated by GST to collect the tax – both direct and indirect – that could be collected. The design of input tax credit permits fraud, for no conceivable valid reason.
The lure of subsidies
The BJP is aggressive on transfers and subsidy, just as the Congress promises to be. Many people vote BJP because of such subsidies. There is little to differentiate the parties on this count.
The Modi government puts little faith in policy and relies, instead, on a bunch of programmes. This downgrading of policy leads to chaotic choices, such as demonetisation, and contradictions – protection that erodes competitiveness goes alongside subsidies to expand manufacturing in select sectors.
The choice between the BJP and the Congress lies not in the area of economic policy, but in politics.
(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not reflect the views of The Federal.)
