The “Modi tujhse bair nahi” fallacy

Stunned by the 0-3 verdict in the Hindi heartland, many BJP supporters are hoping that Prime Minister Narendra Modi’s charisma will counter the anti-incumbency that led to the party’s defeat in Chhattisgarh, Madhya Pradesh and Rajasthan. Some point to the slogan “Modi tujhse bair nahi, Vasundhara teri khair nahi” as a sign that voters were angry with state leaders rather than with the PM, and that this setback was a one-off.

This is somewhat optimistic. There was undeniably a national element to the state campaigns. Many of the issues that afflicted the incumbent BJP governments were national – agricultural distress, demonetisation impact, GST. Congress President Rahul Gandhi campaigned at length on the alleged failings of the Modi government, and Modi also spent a lot of time criticising the Congress Party.

That said, issues and candidates do differ between state and national elections, so we can’t rule out the possibility of some voters in those states voting differently in the coming general election. However recent history is not encouraging for the BJP, at least when it comes to Chhattisgarh, Madhya Pradesh and Rajasthan.

Consider the average swing for the winning and losing parties in these three states over the past 15 years.

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The party that wins a state election on average gains 7-9 percentage points in the following general election. The party that loses also gains 1-2 points. The overall share of the vote going to smaller parties and independents usually shrinks between state and national elections, benefitting national parties.

If this pattern holds, the INC can expect to increase its lead over the BJP in these states in the coming general election. And even if there is a Modi effect on some voters, the state winner effect could neutralise it.

Some might argue that Modi is sui generis, and that his personal charisma will suffice to see the BJP through, especially in the Hindi belt. The historical record suggests otherwise. Consider 2013-14, when the INC was at a low point and dealing with serious anti-incumbency. In Chhattisgarh, Madhya Pradesh and Rajasthan, the party lost only 1-3 percentage points between the 2013 state election and the 2014 general election.

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This means that very few INC voters in the state election switched to the BJP – or at least those losses were offset by incoming voters who had previously voted for other parties or independents. The INC lost such few votes at arguably its lowest point that it seems unlikely that it will slide when it is resurgent, and when the BJP faces anti-incumbency after five years in office.

The BJP could still jump ahead of the INC, as occurred early in the Atal Bihari Vajpayee era. The former won Madhya Pradesh (which included Chhattisgarh then) decisively in the February 1998 and September 1999 general elections, even though in between it had lost the November 1998 state election to the INC. Again, the INC held on to its vote share but the floating vote moved towards the BJP.

The problem is that the momentum is now going the other way. The BJP could in theory reverse its losses in the Hindi belt, but it won’t be easy.

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BJP won’t win a Rajya Sabha majority until at least 2024

The year 2022 appears to have acquired mythical status among some Modi supporters. It’s when “New India” arrives in the form of a majority in the Rajya Sabha. Unfortunately that’s as likely to happen as the bullet train.

The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) currently has 90 seats in the Rajya Sabha, some thirty short of a majority. If we assume that all current state governments are re-elected between 2018 and 2019 — a very good scenario for the BJP — the Rajya Sabha looks as follows in 2020 (assuming no state legislators cross-vote):

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The NDA is still around 20 seats short of the halfway mark, leaving it dependent on non-aligned regional parties to muster the majority it needs to pass bills in the upper house. If we boldly extend the assumption that state governments are re-elected in 2020 and 2021, the Rajya Sabha looks like this in 2022:

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The NDA could still corral votes from smaller parties and pass bills via simple majority, but remains well short of the two-thirds mark needed to pass a constitutional amendment. This should reassure those who worry about the BJP’s goal of transforming India into a “Hindu Rashtra”, even if the party wins the 2019 election.

For argument’s sake, assume that Indian politics returns to a more “normal” pattern that is still favourable to the BJP. This means that the BJP loses in Madhya Pradesh and Rajasthan (2018), wins more narrowly in Maharashtra and Haryana (2019), the DMK wins Tamil Nadu (2021), INC gains in Assam (2021) and the BJP is narrowly re-elected in Uttar Pradesh (2022). Here’s what the 2022 Rajya Sabha looks like:

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In this scenario the NDA is 20 seats short of the halfway mark until 2024. That means that even if Modi is re-elected in 2019, control of both houses will remain a distant dream for his entire term, as will Hindu Rashtra. Hopefully the bullet train will be running by then.

Watch out BJP, you’re trailing behind the UPA in your bypoll performance

How can Modi be beaten in 2019? Following the Bharatiya Janata Party’s byelection reverses last week, the consensus in the commentariat clearly leans towards a grand alliance (or mahagathbandhan) of opposition parties of the sort that humbled BJP in Bihar in 2015 and in three recent Uttar Pradesh parliamentary byelections. The subtext is that an “arrogant” Indian National Congress should be more generous towards regional parties, possibly even putting forward a non-Congress candidate as prime minister to cement a grand alliance.

https://twitter.com/sardesairajdeep/status/1002079250424434688

https://twitter.com/sardesairajdeep/status/1002079250424434688

But is it valid to extrapolate from parliamentary bypolls to national politics? Gilles Verniers and Rajkamal Singh argue not, saying “bypolls do not have a predictive value for the following state or general election” and that they reflect mostly local factors, such as the interplay among influential political families in Kairana. There does seem to be some truth to this — the United Progressive Alliance won 6 of 12 bypolls in 2012 and 2013 and the simple average of its vote rose 2 percentage points vis-à-vis the 2009 general election. Yet it was routed in 2014.

If you look closely at parliamentary – as opposed to state – byelections though (see charts below), there does seem to be a correlation in terms of vote swing between how the UPA did in the by-elections and in the subsequent general election. The simple average of the vote swing away from the UPA in the seats that had byelections is similar to the national swing in 2014, implying that they may have been representative of the national picture.

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It is striking how poorly the BJP has done in comparison with the UPA, winning only one of the 13 seats that had parliamentary byelections in 2017 and 2018. It seems difficult to imagine the BJP reversing all of the ground it has ceded in those seats between now and 2019. Rajasthan, Uttar Pradesh and Maharashtra are all states that were central to Modi’s 2014 victory. It might be challenging for the BJP to make up these losses with evident gains in eastern states such as West Bengal. There is reason for the BJP to worry.

Do the byelection results support the proposition that the opposition cannot win in 2019 without a mahagathbandhan? Not really. Of the 15 seats that just had elections, only four were won by an opposition grand alliance. Non-BJP parties won three seats fighting alone and another five were won by longstanding state alliances in Bihar (RJD-Congress) and Maharashtra (Congress-NCP).

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The case for a mahagathbandhan is obviously strongest in Uttar Pradesh. The BJP remains ahead of the Samajwadi Party and Bahujan Samaj Party individually by quite a margin. It suffered a major vote erosion only in Phulpur; in Gorakhpur and in Kairana it slipped but still polled strongly in the high 40s.

That doesn’t mean that a grand alliance is the answer everywhere. The BJP and its allies rule 12 of India’s 20 biggest states, and the INC is in a position to defeat it – either singly or with its existing allies – in all but Uttar Pradesh. The one ally that could make a difference is the BSP whose vote base overlaps with that of the Congress, as in Madhya Pradesh where an alliance seems to be in the works. In a close election, the addition of the BSP vote could make the difference between victory and defeat in Chhattisgarh, Madhya Pradesh and Rajasthan, states that contributed 62 of 65 seats to the BJP in 2014 and will hold elections in a few months.

Whether Mayawati is amenable to a broader alliance, and on what terms, remains to be seen. It is often said that the BSP suffers because allied parties do not transfer their votes even as they they benefit from the BSP’s vote bank. However this does not appear to be the case in the BSP’s biggest alliances. In 1993 and 1996, the BSP allied with the SP and the INC respectively in the Uttar Pradesh state elections. The BSP’s vote share in the seats it contested was only about percentage point lower than its partners’, suggesting that a smooth transfer of votes occurred.

To sum up, the BJP is facing a serious erosion of votes that is making the 2019 election much more competitive than in 2014. But with the exception of Uttar Pradesh and Karnataka, the results suggest that the INC should be judicious about ceding ground to potential allies rather than rushing into a mahagathbandhan. In 2004 and 2009, the INC became the single-largest party by winning 35% and 47% of the 417 and 440 seats it had contested respectively. If the party cedes more space to a mahagathbandhan and ends up contesting, say, 300 seats, it will be difficult for it to come close to the 150 mark needed to block the BJP’s claims and to form a stable coalition.

(Originally published on NewsCentral24x7.)

Spinning an electricity turnaround in Uttar Pradesh

An Economic Times (ET) report on 26 Apr credited the newly elected Bharatiya Janata Party government in Uttar Pradesh (UP) for a dramatic turnaround in the state’s electricity situation. The news report claimed that UP had “shed blackouts within a month of the BJP taking over the reins, moving from perennially running short of electricity to ‘zero-shortage’ in April”.

Soon enough, Power Minister Piyush Goyal shared the article with an approving tweet:

https://twitter.com/PiyushGoyal/status/858150103776931840

That’s a whopper.

It is certainly true that UP’s energy deficit (measured in million units) hit a record low in Mar 2017 of 0.2%, compared to a much bigger gap of 10.5% a year ago in Mar 2016. However, it would be ridiculous to give the new government credit for this improvement: the UP election results were declared on 11 Mar, and a new government sworn in on 19 Mar.

The ET article cited unpublished data from the National Load Despatch Centre, which oversees the national electricity grid, to show that this improvement continued into April, but we’ll have to wait for numbers from the Central Electricity Authority to get a clearer idea.

But regardless of how April turns out, the ET claim completely elides the fact that power shortages in UP, and indeed all over India, have strongly diminished over the past year, as this chart vividly shows:

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India’s energy deficit fell sharply in the first half of 2016, and particularly so in UP. UP’s deficit (shown here as a 3-month moving average) converged with north India’s around Sep 2016, and by Dec 2016 had fallen below that level. This was unanticipated: the Central Electricity Authority’s 2016-17 Load Generation Balance Report had anticipated that UP would have an energy deficit of 6.5%, but it turned out to be only 1.7%. Since the BJP ran the state only 13 of those 365 days, the decline in UP’s power shortage had little to do with it, Goyal’s celebration notwithstanding.

Even so, fewer blackouts and less load shedding can only be good news, right?

Yes and no. As much as India’s power capacity has risen in recent years, it is more weak growth in demand that accounts for the disappearance of India’s once-chronic electricity shortages (see chart below):

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The chart above shows a steady decline in the growth of energy demand since 2014-15, both in UP and in India. This doesn’t have to be a bad thing; many economies display lower energy intensity as they grow, and technological advances could also play a role. Consider the UJALA scheme to promote energy-efficient LED bulbs: government claims likely overstate the energy savings by a factor of two (see Why you shouldn’t be bedazzled by Modi’s LED claims), but their adoption probably shaved a percentage point off 2016-17 energy demand. However, if the decline in demand reflects industrial weakness, and the lingering effects of demonetization, that would be an unhealthy sign. And the rapid decline in the growth rate of energy demand in the past two years is worrying.

Either way, one thing is clear: the ending of UP’s power shortage is part of a broader structural story that has little to do with the new UP state government. And no amount of PR claims dressed up as news reports can change this reality.

(This article was originally published in The Quint.)

 

 

The compelling logic of a Grand Alliance in UP

There’s nothing like the word Mahagathbandhan (Grand Alliance) to make even the most boosterish Bharatiya Janata Party (BJP) supporter sweat a little. And it’s not just because of what happened in Bihar in 2015, when an alliance of the Rashtriya Janata Dal, Janata Dal (United) and Indian National Congress (INC) inflicted a defeat on the BJP. Ever since 1977, dominant parties – the INC until the 1980s, the BJP now – have been vulnerable to a united opposition challenge. Which is why Nitish Kumar and Lalu Prasad Yadav have both urged the INC to engineer a national-level grand alliance to break the BJP’s current ascendance.

Uttar Pradesh (UP) is of course the lynchpin of the BJP’s national dominance, having contributed 71 of its 282 Lok Sabha seats in 2014. That is why its recent state election victory was such good news for the party, since it places the BJP on a strong footing for the 2019 election, only two years away now.

The best way to stop the BJP juggernaut, at this point, seems to be a Mahagathbandhan in UP. After the Emergency, an opposition alliance forced the INC’s Lok Sabha seats in UP down from 73 (of 85) in 1971 to exactly zero in 1977. Its state assembly tally fell from 215 in 1974 to 47 in 1977. Little more than a decade later, another grand alliance knocked the INC down from 83 Lok Sabha seats in 1984 to 15 in 1989. In the state assembly, the INC dropped from 269 seats in 1985 to 94 in 1989. Grand alliances in UP have proved effective in countering dominant political parties.

Like the previous instances, a UP grand alliance might not be more than a stopgap. The Bahujan Samaj Party (BSP) and Samajwadi Party (SP) have a history of animosity that won’t be easy to overcome, though the INC could play mediator between former rivals as it did in Bihar.

So what impact might a Mahagathbandhan have had on the just completed state elections? Here’s what the new UP state assembly looks like:

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A simple addition exercise shows that the BJP and its allies exceeded the combined vote share of the SP, BSP and INC in 115 state assembly seats. If we include the Rashtriya Lok Dal (RLD), this number drops to 101.

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What about the Lok Sabha? The BJP and its allies won more votes than a theoretical Mahagathbandhan in only 25 seats (24 if you include the RLD), compared with its 2014 tally of 73. The BJP would still have won the national election, but its Lok Sabha tally would have been down to (a still impressive) 236.

There are obvious caveats: it’s not clear that parties’s vote banks will seamlessly transfer to grand alliance partners. Some portion of BSP and SP voters who dislike the other party could instead vote for a third party, which could even be the BJP. Or party workers could be unenthusiastic for a candidate in their constituency from a different party. For instance, INC candidates on average won fewer votes in the 2017 UP election than did SP candidates, which political scientist Gilles Verniers sees as evidence that “SP supporters did not transfer their votes to Congress supporters to the same extent that Congress supporters did”.

On the other hand, a grand alliance that looks like a potential winner could gain votes purely on momentum. The Centre for the Study of Developing Societies’ 2014 National Election Study found strong evidence for such a bandwagon effect: 43% of voters said that they chose the party they thought was leading the race.

Either way, the compelling logic of a grand alliance in UP suggests that the parties the BJP defeated in 2017 will put in a serious effort to get one going. Whether it happens or not is the 80-seat question.

An upper hand in the Upper House

Now that the dust has settled on the Bharatiya Janata Party’s historic victory in Uttar Pradesh, let’s get down to the big question: how close does it get the ruling National Democratic Alliance to a Rajya Sabha majority, and when? The government’s minority status in the RS has slowed and even halted important elements of its legislative agenda, such as the GST and land acquisition amendments. An upper house majority would greatly strengthen its ability to pass bills, but it could also embolden the Sangh Parivar to push its core ideological issues such as a uniform civil code, eliminating Article 370 and perhaps even transforming India into a “Hindu Rashtra”.

Here’s what the Rajya Sabha currently looks like:

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UP is clearly the prize in the RS: it contributes 31 of the upper house’s 245 seats, of which ten will have elections in 2018 and another ten in 2020. With a supermajority in the UP state assembly, the BJP is likely to win seven new seats from UP in each round (it already has three RS MPs in UP).

Adding up all the states, the NDA will gain a total of 18 seats in 2017 and 2018 (including two grabbed from the Congress Party in Goa and Manipur), while the Congress Party and its allies’ tally will drop by a similar amount.

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Those are meaningful shifts in seats, but not enough to give the NDA control of the upper house, where it will remain short by about 30 seats (as this blog anticipated in 2014). It will continue to require the support of regional parties like the Trinamool Congress, AIADMK and Samajwadi Party to pass bills through the RS.

Things improve for the NDA in 2019 and 2020. If we assume no major changes in the state elections held in 2018 and 2019 (a strong but unavoidable assumption since we can’t predict the future), the NDA approaches an RS majority only in 2020.

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The ruling coalition will still fall a few seats short, but should be able to corral support from a wide selection of regional parties to pass bills. The good news, at least for people wary of the BJP’s Hindutva agenda, is that the BJP will lack the power to change India’s constitution. But it should be able to push economic reform bills through both houses if its allies are supportive.

The bad news: the BJP has every intention – as revealed by Adityanath’s anointment as UP chief minister – to push ahead with hardline Hindutva. And if the environment is polarized enough, there is no guarantee that the BJP’s allies won’t cave to an aggressive right-wing assertion. Assuming, of course, that 2019 is in the bag for the BJP.

Uttar Pradesh is the BJP’s to lose. Or is it?

As counting day on 11 March approaches, it seems as difficult as ever to gauge which way the political wind in Uttar Pradesh (UP) is blowing. Even before the campaign began, pre-election opinion polls offered little help, showing the Bharatiya Janata Party (BJP) and the Samajwadi Party (SP)-Congress alliance neck and neck, with the Bahujan Samaj Party (BSP) lagging.

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We know from elections in Delhi (2015), Bihar (2015) and West Bengal (2016) that a dead heat in pre-election polls is almost never a good predictor of the eventual outcome.

So what are the BJP’s chances of pulling off a win? If the starting point is the BJP’s historic 2014 victory, its lead seems unassailable. The BJP won 328 of 403 assembly segments, including 253 with more than 40% of the vote, and as Praveen Chakravarty states, for it to win fewer than 200 seats even if “two of the opposition parties get together, the BJP would still have to lose more than 10% of its voters”.

But if the baseline is the 2012 state election, the SP-Congress alliance begins to look formidable. As Karthik Sashidhar writes: “it will take a 7 percentage point swing from the 2012 elections to pull the Samajwadi Party-Congress alliance below the halfway mark”. While this sounds big, it is well within the realm of possibility: in 2014, the SP dropped seven percentage points from its 2012 tally, giving the BJP a sweep in that four-cornered contest.

So which is it? The opinion poll numbers suggest that 2014 is, in fact, the appropriate baseline: 33% represents a near doubling of the BJP vote in the past three state elections and a decisive break from UP’s two-party dominant system. Yet it is undeniable that the SP-Congress alliance has raised the threshold of votes any party needs to attain a majority, transforming the contest from a seeming BJP walkover to a tough fight.

One way to resolve this impasse is to look at UP by-elections. Since the 2014 general election, the state has had 18 assembly by-elections: 11 in 2014, two in 2015 and five in 2016. These constituencies are fairly representative of the state: they are distributed across UP, and their combined 2014 general election vote shares approximate how the whole state voted in 2014, albeit with a slight bias of 3-4 percentage points each towards the BJP and INC (see table below).

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And this is how those 18 constituencies’ votes moved, from 2012 to 2014 to the subsequent by-elections:

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Note that the BJP’s vote share fell about 11 percentage points in the by-elections, while that of the SP rose more than 24 percentage points. The BJP retained only three of the 14 assembly constituencies in which it had a lead in 2014, and lost 11 to the SP. That’s a sharp fall in votes compared with 2014.

There are two obvious caveats. One is that ruling parties tend to do very well in by-elections. Voters calculate that having a ruling party legislator is more beneficial for their constituency, and parties in power tend to win by-elections about 2/3rds of the time. The second is that the BSP does not generally contest by-elections, so the 2014-16 numbers aren’t strictly comparable to 2012 and 2014 when the BSP was in the fray.

But that’s also the bad news for the BJP. One reason it did very well in the general election is that many BSP voters – including Dalits and MBCs – preferred Modi in 2014. But in the subsequent by-elections, the BSP’s vote appears to have gravitated towards the SP rather than to the BJP. It’s possible that incumbent advantage, including control of the state’s law-and-order machinery, contributed to this shift, but the BJP will have to fight to retain its 2014 voting bloc.

Such big drops in vote share are not unheard of in the wake of “wave” elections, such as in 1984. In November that year, the INC won 51% of votes in Uttar Pradesh, only to slip three months later to 39% in the state election that followed. Even bigger dips have occurred: in 1987, the INC won 29% in Haryana, a sharp drop from the 55% it received in 1984.

Now 1984 was a long time ago, and the obvious counter-argument is that UP has seen many big political events since the by-elections that could put wind beneath the BJP’s wings. These include the army raid across the Line-of-Control, demonetisation, the civil war in the SP and the high-pitched election campaign in which the BJP has brought out its big guns. And voters could decide that the BJP deserves a chance to run UP after successive BSP and SP governments.

But the reality is that the BJP’s vote share has dropped substantially since its 2014 victory, and the SP-Congress alliance has built a vote chest that makes it imperative for the BJP to outperform. As it happens, in the 2015 Bihar election, by-election vote shifts overstated the ruling alliance’s vote share but captured the drop in the vote share of the BJP and its allies. The BJP should hope that it won’t be the same story in UP.

Jumla is the new black

It’s hard to tell whether demonetisation will turn out to be a bold hit or a costly miss, but it appears to many that the government has taken the black money bull by the horns. Announcing the withdrawal of ₹500 and ₹1,000 notes, Prime Minister Narendra Modi listed several steps that his government had taken so far in its war on black money:

Looks impressive, what’s not to like? Just that, once you discount the hype, it’s not very different from what’s been done by past governments, whether the United Progressive Alliance (UPA) or the United Front (UF).

Show me the money

Consider the figure of ₹1,25,000 crore collected over two-and-a-half years. The government hasn’t provided a break-up, but based on Finance Ministry replies to parliamentary questions, it includes the following:

  1. ₹65,250 ₹67,382 crore declared under the 2016 Income Disclosure Scheme (of which 45% will flow in as actual taxes)
  2. ₹21,354 crore of undisclosed income seized from individuals and businesses (under Section 132(4) of the Income Tax Act)
  3. ₹22,475 of additional income assessed from taxpayers by surveys (carried out under Section 133A of the Income Tax Act)
  4. ₹8,186 crore of undisclosed income held by Indians in accounts with HSBC Geneva, revealed by the French government in 2011
  5. Around ₹5,000 crore of offshore holdings by Indians that an International Consortium of Investigative Journalists investigation exposed in April 2013

All of which adds up to ₹1,22,265  ₹1,24,397 crore, close enough to our headline figure. But how remarkable is this effort?

The income disclosure scheme is a one-off (more about that later), but what about the black money brought into the open via searches, seizures and surveys? The chart below shows the record in previous years (source here):

Screen Shot 2016-12-09 at 11.59.37 PM.pngIsn’t that interesting. Using the same definitions used by the Modi government, it turns out that the quantum of black money exposed in the last two years of the UPA was more than ₹1,30,800 crore. That’s right – the UPA tracked down more black money than the Modi government did, and in a shorter time frame.

As always, there are caveats. Not all the money assessed under Section 133A should be strictly considered “black”; some of it consisted of income that taxpayers felt was not taxable for whatever reason, but the authorities disagreed. Still, if the Modi government wants to count all those funds under its “black money” haul, it cannot deny the UPA credit for a bigger haul.

Bring back the money

That’s fine, you might say, but hasn’t the Modi government adoped a much more comprehensive approach to black money than the scam-tainted UPA? It’s passed bills to bring back black money, succeeded with its income disclosure scheme and, as Modi himself stated, reached agreements with many foreign countries to provide tax information.

Let’s take these one-by-one.

The Modi government has indeed passed bills that raise the penalties for the concealment of foreign income and beef up the handling of benami properties, and we have to see what effect they have. But it’s not clear that income disclosure schemes even work, leaving aside the obvious unfairness of giving tax criminals a break while the rest of us cough up our cash. A similar scheme in 1997 resulted in close to half a million persons declaring ₹33,695 crores of previously undisclosed income, equal to ₹85,153 crore in current rupees and a third quarter higher than the Modi government’s bounty. I think we can all agree that it didn’t make much of a dent in India’s black money problem.

What about black money transferred outside of India, which the Washington DC-based Global Financial Integrity estimates averaged US$51 billion per year between 2004 and 2013 (some of which likely returned as foreign investment via “round tripping”)? In his demonetisation announcement, Modi referred to “agreements with many countries, including the USA…  to add provisions for sharing banking information” that could help make international tax evasion more difficult.

A process has been underway since the 2009 G20 summits in London and Pittsburgh to improve transparency in international financial transactions. This has translated into an effort to include banking information in both existing and proposed Double Taxation Avoidance Agreements (DTAA) that India has (currently with 95 countries), and to reach Tax Information Exchange Agreements with countries that India doesn’t have a DTAA with, mostly tax havens such as the Bahamas, British Virgin Islands etc.

The table below shows that the UPA accounts for much of the progress so far, although this could change over time; the Modi government is currently negotiating another 53 DTAAs.

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That doesn’t mean that the Modi government has been lagging: in May 2016 it finalised an important DTAA renegotiation with Mauritius, the island nation that has been the source of a third of all FDI inflows since April 2000, and is believed to be the main gateway for round-tripping. India will impose a capital gains tax of half the Indian rate on investments from Mauritius starting from April 2017, and the full rate from April 2019. A similar agreement with Singapore, the second largest source of FDI into India (16% of the total), is in the pipeline. The idea is to remove one incentive for round-tripping: saving on capital gains tax.

There is also a broader multilateral effort under the OECD umbrella to facilitate the automatic sharing of taxation-related information. It began with the Convention on Mutual Administrative Assistance in Tax Matters, that India joined in 2012 and now covers 106 countries and jurisdictions. India (under the UPA) became one of 47 countries to sign the Declaration on Automatic Exchange of Information in Tax Matters in May 2014, which led to the establishment of the OECD-led Global Forum on Transparency and Exchange of Information for Tax Purposes that is now at the core of international data sharing. In June 2015, the Modi government took another step forward by signing the Multilateral Competent Authority Agreement on Automatic Exchange of Information, under which 54 countries including India will start automatically sharing financial data from September 2017.

In summary, there has been a robust G20-supported process underway for several years to bring transparency to international financial information, which Modi certainly didn’t start, and had little choice but to go along with.

The bottomline: Modi’s demonetisation drive marks an ambitious break from past practice. But his claim that previous BJP policies have brought in an unprecedented amount of money is just a jumla.

How various regions fare in Modi’s Cabinet

There has been much talk of the politics behind Prime Minister Narendra Modi ‘s 5 Jul Cabinet reshuffle. It hasn’t escaped anyone’s attention that several new appointees came from Uttar Pradesh and Gujarat, both states in which the BJP has big stakes and that have elections due in 2017.

But how important is regional representation in the appointment of ministers? One way is to look at how under- or over-represented various regions are. This map (from the business news daily Mint) shows that Hindi heartland and western Indian states have the strongest representation:

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A good first cut, but this only gives us absolute numbers. And it shouldn’t surprise that the more populous states get the most ministerial positions. One way to check under- or over-representation is to compare a state’s presence in the Council of Ministers with a baseline expectation of how much it should have. One way to do this is to look at the ratio of a state’s share of ministries with the proportion of Lok Sabha seats that it has (a number that is also roughly aligned with its population share).

And here is what we find:

Best represented states in the Council of Ministers (ministry share/LS seat share)

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Surprise! Goa and Arunachal Pradesh are at the top of the list, since the appointments of Defence Minister Manohar Parrikar and Minister of State for Home Affairs Kiren Rijiju give each 3.5 times (or 350% of) their parliamentary presence (proportionate representation is equivalent to 1, or 100%). However small states skew these results because the appointment of only one or two ministers can give them huge over-representation.

Sticking to the larger states, Uttar Pradesh and Bihar now stand demoted. The best represented are Haryana (2.1), Madhya Pradesh (1.9),  Rajasthan (1.7), Gujarat (1.6), Jharkhand (1.5), Bihar (1.4), Uttar Pradesh (1.3) and Karnataka (1.2). The poorest represented are Tamil Nadu (0.2), West Bengal (0.3), Odisha (0.3), Telangana (0.4), Assam (0.5), Chhattisgarh (0.6), Andhra Pradesh (0.8) and Maharashtra (0.9).

The states with the highest representation include those with well-established state BJP units that comprise the party core (with Haryana a notable outlier). Conversely, the states with the lowest representation are mostly those where the BJP is weak (with the interesting exceptions of Assam and Chhattisgarh where the BJP is the ruling party).

Regional representation isn’t the only factor in allocation ministerial positions, administrative ability and identity group balancing being other plausible drivers that could explain some of the deviations from 1 (or 100%). But the broad pattern seems consistent with a patronage model of politics in which political parties need to keep their base happy, motivated and delivering benefits to supporters.

Update

Another way to predict how much representation a state “deserves” would be to look at its contribution of parliamentary seats to the ruling coalition, in this case the 331-member National Democratic Alliance (NDA). The pattern now appears somewhat different:

Best represented states in the Council of Ministers (ministry share/NDA seat share)

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This time the small states are joined at the top of the list by large states in which the NDA has a limited presence. West Bengal and Tamil Nadu score high because they account for two and one ministers respectively, the same as the number of MPs they sent to the Lok Sabha. Among the larger states, the best represented are West Bengal (4.2), Tamil Nadu (4.2), Odisha (2.1), Haryana (1.8), Madhya Pradesh (1.4), Punjab (1.4) and Karnataka (1.3).

Other than Madhya Pradesh, which remains in the overrepresented column, the Hindi heartland and western states now seem more fairly represented, staying close to their weightage in the NDA: Bihar (1.1), Jharkhand (1.1), Rajasthan (1.0), Gujarat (1.0), Uttar Pradesh (0.9). Under-represented NDA states include Chhattisgarh (0.4), Maharashtra (0.6) and Assam (0.7).

From the NDA’s point of view, Modi’s Council of Ministers provides a good balance. No major state other than Kerala gets short shrift (though some in BJP-ruled Chhattisgarh, Maharashtra and Assam might grumble).

Fact checking Modi’s WSJ interview

Prime Minister Narendra Modi gave a wide-ranging interview to the Wall Street Journal to mark the second anniversary of his government. Modi argued that he had restored confidence to India and put an end to the “sense of policy paralysis, bad economic conditions and corruption” of 2012 and 2013.

As usual, there was a grain of truth, and also the exaggeration and sleight-of-hand that we have come to expect from him (look here for a check of other claims by Modi).

Consider Modi’s highlighting of the Pradhan Mantri Jan Dhan Yojana (PMJDY) as an instance of how his leadership had ended “a sense of negativity and a sense of deep inertia in the government machinery”:

If you see my Jan Dhan Yojana, you’ll find that I mobilized the whole government machinery so that in a definite period of time, the country’s poorest could be linked to the mainstream of the economy, its banking system.

Certainly, the PMJDY has accelerated the spread of basic savings bank deposit accounts (BSBDA), and increased their usefulness by adding overdraft facilities and life and accident insurance. But the truth is that the entire architecture of financial inclusion (BSBDAs, Aadhaar, electronic payments, RuPay cards) was created and implemented long before Modi took office. Modi often talks as if he singlehandedly brought the poor into the financial system, but the facts show that India’s financial inclusion programme was already established and growing rapidly.

In the two years before Modi, the UPA opened 44 and 61 million BSBDAs respectively, which under Modi jumped to 147 million in 2014-15 and 67 million in 2015-16 (see table below). If we conservatively assume that another government would have opened 61 million BSBDAs per year (as the UPA did in 2013-14), then the Modi effect looks something like this:

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Modi’s mobilisation of government machinery did have a positive effect: we can quantify it at around 92 million accounts, or 20% of the 457 million accounts opened (as on 30 March 2016). Impressive, yes, but the “policy paralysed” UPA also brought millions of poor households into the financial system. Indeed, there was a downside to Modi’s big 2014-15 push: the number of accounts with zero balance was 45% one year after PMJDY began, although it had declined to 26% by 26 May 2016. The growth in account openings consequently slowed in 2015-16.

If Modi did end “negativity” and “inertia” in the government, the PMJDY is definitely the wrong story to pick.

Modi went on to say:

My country had lost a lot of face on account of corruption relating to the coal scam, the scam involving auctions of the 2G network. But within a short and fixed time period, we have ensured transparency. Auctions are now actually held openly and online in front of media.

There is little doubt that the coal and 2G controversies damaged the UPA and helped Modi’s election victory. Indeed, the Modi government has overseen a spate of auctions to allocate natural resources since he took office. But this is not new: the UPA auctioned 3G and 4G spectrum in 2010, and 2G spectrum in 2012 after the Supreme Court cancelled the flawed January 2008 allocations in February 2012.

Likewise, the Modi government had to auction coal blocks after the Supreme Court (in September 2014) cancelled the allotment of 214 coal blocks made between 1993 and 2011. The Modi government could be commended for its speed, but it didn’t have any choice in the matter either.

What Modi deserves credit for is the passage of the 2015 Mines and Minerals (Development and Regulation) Amendment Bill that requires mining rights to bauxite, iron ore and other minerals to be auctioned. The UPA sat on a similar bill for six years before the Modi government succeeded in passing it.

In defence of his economic policymaking record, Modi also stated the following:

In India, reform in the insurance sector, reform in the defense sector, reform in the Bankruptcy Code had been pending for years…  In defense, in my country, there was no private investment. Today I have allowed it to 100%. In insurance, private investment was not allowed.  I have allowed it… I have allowed 100% foreign direct investment in the railways.

Now it’s entirely true that the Modi government succeeded in doing what the UPA had failed do for many years: to raise the FDI cap in insurance from 26% to 49%. It also passed a comprehensive Insolvency and Bankruptcy Code this year that should help clean up Indian banks’  balance sheets. And FDI is now permitted in railway infrastructure (though not in rail operations) whereas previously it was allowed only in metro rail.

But the claim regarding defence FDI is simply wrong. Consider the UPA’s July 2013 policy on FDI in defence:

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Here’s the Modi government’s current policy:

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The new policy is certainly more liberal than the older one, but it is misleading for Modi to say “today I have allowed it to 100%”. Just as it does today, the government had the power in July 2013 to approve defence investments with 100% FDI if it had wanted.

And the reality? No 100% FDI proposals have so far been approved. Here’s what Defence Minister Manohar Parrikar told parliament in April 2016: “From August 2014 to February 2016, a total amount of Rs.112.35 lakh (Rs 1.12 crore) has come into the country as FDI in the defence sector”. Damp squib.

Finally, Modi stated that:

If you look at the entire post-independence phase of the country, you will find that in terms of money volumes the maximum disinvestment has taken place in the last two years.

An odd formulation, considering that disinvestment began in 1991-92, but Modi is, at first cut, correct. The Rs 48,234 crore raised through disinvestment in 2014-16 is somewhat higher than the Rs 45,697 raised by the UPA in 2009-11.

But that’s too simple: if you’re comparing long periods like “the entire post-independence phase of the country”, you need to account for inflation: the value of a rupee raised in 2004-05 is not the same as in 2014-15. A proper comparison requires us to deflate the value raised from disinvestment with an appropriate, consistent index, in this case the Wholesale Price Index (base 2004-05).

Screen Shot 2016-05-29 at 5.04.36 PM

We find that the volume of disinvestment by the Modi government (in constant 2004-05 rupees) at Rs 26,671 crore is dwarfed by the Rs 33,464 crore the UPA2 raised in its first two years. Even in 2012-13, under the “policy-paralysed” UPA, the value of equity divested was greater than in either of the Modi government’s two years in office.

But the cold reality is that disinvestment has been an embarrassment under both the Singh and Modi governments, and basically reduced to a fiscal deficit padding sham in which a third to a half of funds have come from the state-owned Life Insurance Corporation. The following chart (sources here, here and here) says it all:

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It could be that the NITI Aayog or the Bank Board Bureau proposes a genuine transformation of the public sector in the coming months. But until that happens, Modi would be well advised to avoid flaunting what is a policy embarrassment from every perspective.