Economists split on impact of poll verdict

How much of the government's economic policy impact is reflected in the outcomes of Gujarat and Himachal Pradesh elections?

Economists DNA Money spoke to have different views on this. While some feel economics was a non-factor in the recent state polls, there were others who believe it was a positive vote for the continuance of Prime Minister Narendra Modi's signature disruptive economic reforms like demonetisation and goods and services tax (GST). Yet another set of economists feels that neglect of the agrarian crisis in economic policies led to erosion in the margin of BJP's win in Gujarat.

"Based on what happened in Gujarat, if the BJP government continued with the same economic policies, then in 2019 (general election), they will have to look somewhere else," warned agriculture economist Devinder Sharma.

He said Congress could bite into BJP's vote share in many of the rural areas of Gujarat, not so much because of demonetisation or GST but because of anger among agriculturists.

"Many people would only see the election result as an expression of anger against the wrong implementation GST or demonetisation, but we must go a beyond GST and demonetisation to see the bigger picture, which is related to the agrarian crisis," said Sharma.

D K Srivastava, chief policy advisor, EY India, had a different take. He sees the results of Gujarat and HP elections as the people's verdict in favour of stability and economic reforms.

"The electorate has been able to absorb the adverse impact of both demonetisation and GST transition effects. It wants to see the positive side of the earlier structural changes and wants continuity in economic policy," he said.

The government has been flayed for shoddy implementation of demonetisation and its after-effects, which resulted in slowing of GDP growth to below 6%. After declining for six straight quarters, GDP growth revived in the September quarter of the current fiscal at 6.3%.

The messy rollout of GST, which was meant to ease compliance in indirect taxes by unifying over 15 levies into one and widen the tax-base, has also caused much angst among micro, small and medium enterprises (MSMEs). Many expected this to go against the BJP in the Gujarat election.

Srivastava said the results of the two states showed that people were now "looking forward to continued and stable economic policies".

According to him, the government needed to now focus on extracting the benefits of these reforms to reap their economic dividends.

"The main advantage of the two disruptive changes (GST and demonetisation) for the long term was that the tax-GDP ratio would improve. That is what the government needs to focus on. If that happens then many of the policies would fall in place, particularly it would facilitate the fiscal consolidation effort of the government," said the EY economist.

Interestingly, Arvind Virmani, former chief economic adviser, told DNA Money that economics did not play any role in the assembly elections of Gujarat and HP.

"(Economics) doesn't seem to have played much of a role," he replied to the query on whether demonetisation, GST and slowdown in GDP growth rate played any role in the outcomes of the recent elections.

On whether we could see BJP changing track to adopt a much more populist economic policies after these results, Virmani said, "There are always some selective policies or programmes designed to appeal voter segments, whether they are populist depends on their efficiency."

On the other hand, agriculture economists Sharma said the main lesson for the BJP to take home from these elections was that it could no longer look away from agrarian crisis.

"This election should be a wake up for the government to accept that you can no longer ignore agriculture. In our country, 52% of the population is engaged in agriculture. The message in very clear that if they (BJP) continue to show the same apathy towards agriculture that they have done in the last three years then I think 2019 will be difficult for them," he cautioned.