The Indian economy, therefore, could have done without such a shock and disruption, but will it give Mr Modi some political advantages? Yes, if he builds on the narrative of how demonetisation was aimed at hurting the cash-rich businesses and traders. For the poor Indian voter, Mr Modi might present himself as a leader who has been tough against black money and illicitly amassed wealth.
The roll-out of the GST from July 2017 did cause disruption, but its overall impact on the economy would be beneficial. Revenue worries would be short-lived and the additional gain on account of higher direct tax collections would be a bonus. Small traders and businesses will not like the GST as it brings them under tax scrutiny. But once the initial pain is over, the GST can be cited as the government’s big initiative to make things easy and simple.
Electorally, however, it may not be a vote catcher. On the contrary, traders and small businesses, which constitute an important constituency for the Bharatiya Janata Party (BJP), may like to punish Mr Modi for the GST and the pain it caused them. The question is whether the recent reliefs announced for the micro, small and medium enterprises in a wide range of areas will be enough to assuage their anger against the BJP.
The legislation of the Insolvency and Bankruptcy Code (IBC) in May 2016 was a big reform. Its impact on the economy will be as transformational as that of the GST. If the new taxation regime strengthened the federal fabric of the nation with the newly created GST Council deciding on the indirect tax rates on goods and services through a consultative exercise, instead of these being decided separately by Parliament and state Assemblies, the IBC struck at the root of India’s twin balance sheet problem — stressed loans of the banking sector and indebted companies failing to clear their dues.
The IBC has the potential of relieving the banks of their stressed assets and dispossessing promoters of their companies if they have defaulted on their loan repayment. And all this is being done through a transparent and court-supervised procedure. While the stressed banks may heave a sigh of relief, promoters who lose their companies will be upset. From an electoral point of view, Mr Modi may not have endeared himself to those sections of big business that have lost their companies under the IBC.
The new monetary policy framework with inflation targeting has set new terms of engagement between the Reserve Bank of India and the government. The newly set up Monetary Policy Committee, with three independent members appointed by the government, focuses on an inflation target that can only benefit the BJP during the elections. Inflation can be the biggest undoing of a ruling party in an election year.
As far as Mr Modi’s welfare programmes are concerned, there are five of them which are likely to benefit him in the forthcoming polls. These are Ujwala, which has provided cooking gas connections to over 50 million poor families, provision of electricity connections to all the villages, even though the facility may not have reached many households in those villages, the Mudra scheme that provides loans to the poor for starting an enterprise, Jan Dhan Yojana that has helped open over 320 million new bank accounts for the poor, and Ayushman Bharat that promises to offer free health care to over 100 million families. Mr Modi will spare no effort to take full electoral advantage of these schemes in the run-up to the elections.
If these schemes fail to work on voters, Mr Modi may fall back on his social agenda, for which his government has already done the necessary spadework. The law on atrocities against Scheduled Castes and Scheduled Tribes has been suitably amended to pacify the Dalits. The National Commission for Backwards has been given the Constitutional status. The hurdles in the triple Talaq Bill have also been overcome to woo Muslim women voters in particular. Even the recent controversy over immigration in the wake of the National Register of Citizens in Assam and the demand to extend the exercise to other states can be used by the BJP to its advantage.
And if all these fail, the BJP can rely on the Ram temple issue in Ayodhya as the Supreme Court is set to give its view on it before the next general elections.
It, therefore, seems that the only downside in Mr Modi’s electoral prospects can arise out of a few aspects of his economic policies. And these could be neutralised by his welfare programmes and the social agenda.
So, what can be Mr Modi’s weaknesses? Apart from whatever challenges the opposition parties can put up from outside, a challenge that can come from within should not be ignored. That challenge to his leadership could come from the Sangh Parivar or the Rashtriya Swayamsevak Sangh. And that could be more difficult to meet than either the weaknesses of his policies or the Opposition. Of course, such a challenge may come only after the polls and depending on the electoral outcome.