Welcome to The Political Fix by Rohan Venkataramakrishnan, a newsletter on Indian politics and policy. To get it in your inbox every week, sign up here.

We don’t charge for this newsletter, but if you would like to support us consider contributing to the Scroll Reporting Fund or, if you’re not in India, subscribing to Scroll+.

The Big Story: Timing trouble

There have been promising developments over the last couple of weeks on Covid-19 vaccine development, with several teams moving into the third phase of clinical trials. Yet it would still be foolhardy to assume that there will be a working vaccine by September or October that would allow ordinary life to resume.

Advertisement

(Unless you are the Indian Council for Medical Research, which in the first week of July ordered a vaccine to be ready by August 15 – India’s Independence Day – only to retreat after scientists questioned the blatantly political, scientifically questionable demand.)

Prime Minister Narendra Modi’s chief economic advisor, KV Subramanian, acknowledged this week that India needed a fiscal stimulus, and would not be able to make do with all the liquidity on offer in the last package the government unveiled.

But he added a condition:

“The question [on a fiscal stimulus] is not about if, the question is about when. I think the right point would be, if some of these, what we are seeing, the vaccines, really come through in the next few months lets say, and thereby the uncertainty goes down, I think the time would be very right for there to be then a fiscal (stimulus) for discretionary items.”

Never mind the fact that even after a viable vaccine has been developed, it may take two years to vaccinate India. Still, Subramanian’s acknowledgment that India even needs fiscal spending is a departure from arguments made in May, when Modi’s Rs 20 lakh crore package turned out to have very little in the way of fresh government expenditure.

Advertisement

The chief economic advisor’s argument is that an ill-timed stimulus could lead to people saving the money rather than spending it. This would not lead to any appreciable increase in demand and consumption, which need to be kick-started for the economy to grow again.

The claim is also that India suffered from badly timed stimulus in the Congress-led years, which is generally identified as the reason for the current non-performing asset problem faced by banks – undoubtedly about to get much worse. However, the conventional belief is not that the stimulus was put in place too early, but that it went on for too long.

But can India afford to wait until there is a viable vaccine before it takes fiscal action?

The economy showed some signs of recovery in June, though that may have well been because of pent-up demand. But in July, the continued spread of Covid-19 and local lockdowns across the country have stalled this. A process that was supposed to be a steady recovery has plateaued and the limited fiscal spending by the government is fast running out.

Advertisement

Meanwhile, banks are preparing for a huge jump in defaults if the loan moratorium that ends on August 31 is not extended until the end of the calendar year. (Indeed, how the end of this moratorium is managed may be key to India’s economic future.) Even the positive signs from the agriculture economy, which we wrote about in June, are insufficient to lift the country out of this malaise.

Because of this, the World Bank has warned that “India is at risk of losing its hard-won gains against poverty,” with 90% of the country’s workers “at risk of falling into poverty due to wage and livelihood losses triggered by shrinking economic activity, government-imposed closures and social distancing protocols.”

In the face of businesses failing en masse and citizens falling back into poverty, shouldn’t the question facing economic policymakers be how the government ensures a basic income, rather than whether the stimulus will lead to GDP growth?

Advertisement

“India’s approach in the face of a severe contraction is curious – the optics of Keynesianism with monetarist characteristics,” wrote Shankkar Aiyar. “Like companies, countries operating below capacity are doomed to dire straits where deficits and debt will overwhelm the economy… The question, therefore, is not whether India can afford to spend but can India afford not to spend.

Dharmakirti Joshi, chief economist at CRISIL, explained the trade-off:

“The effectiveness of a generous stimulus is reduced by a rise in precautionary savings among households. Further, if there is a second wave, it raises the question of whether there will be enough fiscal ammunition left.

The risk with India’s approach is that too little a stimulus can hurt the productive capacity of the economy and complicate the recovery process.”

Despite Subramanian’s timeline, however, there are some indications that the government has been considering other interventions that may not wait for a vaccine. Said the Business Standard:

“The Central government is considering an employment scheme for the poor and migrants in urban and sub-urban parts of the country, as job creation becomes the biggest priority for the administration trying to steer the country out of an economic decline, made worse by the pandemic.

By all indications, these measures will be more in the form of fiscal intervention by the Centre, compared with the ‘Atmanirbhar Bharat’ package, which leaned heavily towards credit and liquidity measures.”

Meanwhile, it must be something about where North Block is located or that large patch of reserved forest nearby, but they seem to have a lot of very small plants anytime you go looking for them:

“During the lockdown the several things that have been done have now borne fruits that I can confidently tell you that we are able to see green shoots,” said Nirmala Sitharaman last week.

From the TPF archives:

India-China-US

In June, after the first deaths on the India-China disputed border in more than four decades, we asked if Narendra Modi – usually known for chest-thumping jingoism – was taking a more realistic tone with Beijing.

Advertisement

Modi definitely did everything necessary to limit public criticism, including muddying the waters about what had actually happened, while continuing to project confidence, with pro-government voices insisting that India had successfully pressured the Chinese to move towards disengagement.

Now even government sources and pro-government media accept that not only are the Chinese digging in, they are in possession of territory where Indian troops once patrolled.

The Indian Express reiterates this:

“There has been limited progress in disengagement on the ground, leaving the situation tense on at least three of the friction points: PP17A in Gogra, Pangong area and Depsang Plains. As per intelligence sources, a sustained strength of 2,000 PLA soldiers has been blocking Indian patrols in Depsang for 10 weeks now.

In the assessment of intelligence agencies, China is attempting to make the Kugrang Tsangpo river as the new LAC at PP15 and PP17A in the Hot Springs sector. It has also not removed its posts on the forward slope of Finger 4 at Pangong Tso, and has further strengthened its deployment close to Finger 6, sources said.”

Meanwhile, those tensions have led to some movement on the India-US engagement front.

Advertisement

First, unlike during the India-China confrontation over Doklam in 2017, Washington DC has been much more vocal on the matter – most likely with New Delhi’s consent. Rajeswari Pillai Rajagopalan lists out a “a steady stream of comments from senior US officials condemning the Chinese aggression while extending support to India”.

On the trade front, after several years of struggling to arrive at an agreement, it looks like the aim of countering China might help remove some points of friction between the two countries and lead to a quick deal that could grow into something larger, like a Free Trade Agreement.

And on the military front, New Delhi has a big decision to make, says Suhasini Haidar:

“All eyes are on a decision by New Delhi, to accept Australia’s request that has been pending for four years now, to join the annual Malabar exercises with India, the U.S. and Japan. The decision has not been an easy one, given China’s fierce opposition to the militarisation of a coalition seen as a counter to its claims in the Pacific and inroads in the Indian Ocean…

Many contend that China’s recent moves, including its aggression in the South China Sea and transgressions and deadly clashes across the Line of Actual Control, may in fact prove to be the tipping point that makes India take the plunge, pushing the countries of the Quadrilateral Security Group, called the Quad for short, into a military embrace that will have far-reaching implications for regional and global security.”

Rajasthan rumble

The stand-off is where we left it in Rajasthan, with some legal contortions thrown in.

Advertisement

Sachin Pilot has rebelled, but he and the legislators in his camp haven’t been disqualified from the Congress Legislative Party, because the High Court put a stay on the disqualification process, after which the Supreme Court said it would consider the question of disqualification but not stop the High Court from acting after which the High Court said it would wait for the Supreme Court to decide first.

Yes, seriously. Even though the questions of law are quite well-settled.

As my colleague Sruthisagar Yamunan explains, if the High Court and Supreme Court actually get into it, the way India’s anti-defection law – the much-criticised legal bar on elected representatives switching parties – works could be significantly reworked.

Advertisement

As if the court complications were not enough, the Centrally appointed Rajathan governor has decided to sit on a demand from the directly elected chief minister and his cabinet to call a special assembly session.

My colleague Shoaib Daniyal – who has long argued against the institution of the governor in India’s system – points out that while it’s quite common to see political tactics that try and prevent a no-confidence motion from the Opposition, this time however, the governor is standing in the way of the ruling government convening the assembly and asserting its majority.

Flotsam and Jetsam

If you missed it on Friday, read our fascinating Q&A with political scientist Neelanjan Sircar on Narendra Modi’s politics of vishwas, meaning trust.

Advertisement

The Centre put in more restrictions on procurement, primarily to keep out Chinese firms. Bangladesh Prime Minister Sheikh Hasina has not met India’s High Commissioner for the last four months despite repeated requests.

Omar Abdullah threatened legal action against Chhattisgarh Chief Minister Bhupersh Baghel for suggesting that Sachin Pilot’s anti-Congress moves in Rajasthan were somehow linked to his release from detention in Kashmir. Meanwhile, a year after the Centre unilaterally took control of the state and unconstitutionally denied it internet, among other things, the Lieutenant Governor now claims he has no problem with restoring high-speed internet to the valley.

And if you hadn’t noticed, Prime Minister Narendra Modi will be at the bhoomi pujan to mark the beginning of construction of the controversial Ram temple in Ayodhya on August 5, which will also be the one-year anniversary of the government’s politically repressive moves in Jammu & Kashmir. More on this next week.

Advertisement

Six months after they were passed by Parliament, the government still hasn’t framed rules for the Citizenship Act amendments, believed by many to be religiously discriminatory.

That’s all for today’s The Political Fix. Send feedback to rohan@scroll.in, and if you enjoy this newsletter please do share it.