In this outstanding piece Pratap Bhanu Mehta highlights the BJP’s achievement over the past six months – whilst a lot of people had their heads buried in the sand on account of Covid-19 – of pushing through tricky economic reforms without losing too many votes and with the implicit support of corporate India. Mr Mehta explains how the BJP pulled this off and in so doing buttressed the power of big business interests in India. So how did Mr Modi and his team pull off a series of economic reforms without jeopardising their political interests?
Firstly, the BJP has made a shrewd assessment of the relative impotence – politically speaking – of India’s labour unions: “The relative bargaining power of capital in relation to labour will continue to radically favour capital. This has been the trend for the last two decades. In emerging economies, there will be a race to the bottom as far as sensible protections for labour go. Indonesia has, like India, gutted labour protections. The previous regime of labour laws was deeply broken and it served neither the cause of capital efficiency nor labour protection. So, it is politically pointless to defend the status quo….That migrant labour has been always so radically disenfranchised in political terms that they have little faith that any alternative dispensation would have done better for them.”
Secondly, the BJP has been equally shrewd in assessing that other than in a couple of states like Punjab and Haryana even the farming class is politically poorly organised and poorly led: “…in agriculture, the problem is similar to labour — any position that simply involves defending the status quo loses political support. Whether or not these bills will result in greater prosperity for farmers is an open question. It depends on the follow-up. The political consequences of the agriculture bills are far-reaching in a state like Punjab where MSP is very significant. But the political effects will be largely concentrated in a few states like Punjab and Haryana. In fact, for those not in agriculture, the bills strengthen the government’s reformist credentials. Ideologically, it is not easy for the Congress to mount an opposition to the bills, because their policies were headed in the same direction, even if they might have been more nuanced. Also, nothing in the bills precludes the state from continuing with MSP. So, the whole argument will turn on convincing affected farmers of the government’s intentions.”
Thirdly, the BJP has understood better than any other political party in India how big business works, what it needs and how it can be engaged for mutual benefit: “State and capital relations will remain very politically cosy. In significant sections of Indian capital, there is a deep commitment to the Hindutva project. The government understands that control of the information order requires control of capital; so it will superintend it. Corruption will be more structural rather than transactional. This has the advantage of being able to mobilise all the necessary funds, and yet at the same time giving the impression that transactional corruption has come down. There are three areas of discretion that will continue to be the subject of state-capital negotiations. First, there is no evidence to suggest that the channelling of credit will not, at the margins, continue to be directed to the favourite players. The Insolvency and Bankruptcy Code was a good legislation. But, as Urjit Patel argued in Overdraft, the government undermined its own legislation, largely it seems so that it could still exercise discretion. So the political economy suggests that we are not going to see major financial sector reforms soon. With Atmanirbhar Bharat, there is more scope for negotiation on tariffs in different sectors. It will be interesting to see if these negotiations are governed by an economic or a political economy logic.
Finally, this government is comfortable with greater concentration of capital. The argument that there is a need to create national champions who can leverage scale will be used to justify the dominance of the Ambanis over the Indian economy….”

If you want to read our other published material, please visit

Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.

Copyright © 2022 Marcellus Investment Managers Pvt Ltd, All rights reserved.

2024 © | All rights reserved.

Privacy Policy | Terms and Conditions