Month: May 2019

Prime Minister Narendra Modi led the Bharatiya Janata Party (BJP) to another landslide victory in the 2019 Indian elections. It was even bigger than the 2014 elections. His party now has more than 300 seats in the Lok Sabha of 543 seats. The Opposition can barely muster more than 90 seats, with the once formidable Congress holding a paltry 52 seats. We are witnessing the consolidation of ‘Modi’s India’. As a leading political scientist observes, ‘…I am ascribing the victory primarily to Modi, not to the BJP.’

The recent emphatic electoral victory of the BJP has understandably led to joyous celebrations among millions of Modi’s supporters and his formal political allies in parliament, but such states of happiness are ephemeral. As the excitement of victory wanes, one needs to ask how ‘happy’ Indians are as measured by life satisfaction surveys. These surveys use the metric of the Cantril ladder of self-reported feelings of life satisfaction (0 being the worst, 10 being the best). Did Modi’s promise of ‘good times’ (acche din) and ‘inclusive development’ (sabka saath, sabka vikas), while advancing the cause of Hindu nationalism, boost the collective feeling of well-being among Indians on an enduring basis?

To gauge the state of happiness in India today under the Modi regime, one can turn to the 2019 World Happiness Report by the UN – the seventh such report. It uses data from Gallup to measure, rank and analyse the state of happiness across the world from 2005 to 2018.

India fares poorly. Its rank is 140 out of 156 nations based on an average of scores for the 2016-2018 period. It ranks significantly behind South Asian neighbours, such as Pakistan (ranked 67) and Bangladesh (ranked 125). The trend in the reported happiness index for India is worrisome. India slipped significantly in the rankings and the index itself fell by more than 1.1 points over time (from an overall index of 5.15 in 2005-2008 to 4.02 in 2016-2018). It shares this significant negative trend with several conflict-ridden countries, such as Yemen, Syria and Venezuela.

The 2019 report concludes that, in statistical terms, there is a close association between per capita income, healthy life expectancy, social support, freedom to make life choices, generosity, perceptions of corruption, and aggregate measures of life satisfaction. In the so-called ‘happiness league tables’, India seems to be dragged down by lack of social support and poor performance in healthy life expectancy even as per capita income has grown significantly over time.

There are other surveys that are broadly consistent with the findings of the UN report. Gallup conducted a survey in 2018 which showed that only 3% of Indians were ‘thriving’ (that is, the proportion who rated their current life satisfaction as 7 or more and their future life satisfaction as 8 or more) relative to 14% in 2014 (when the BJP came to power).  The Gallup report attributes this to very high levels of inequality in India and the huge rural-urban divide in which most of India’s agricultural households are in debt.

A 2018 survey of the Pew Research Centre reveals that the time-frame over which Indians are asked to evaluate their views of whether economic and social conditions are improving seem to matter a great deal. When asked if the financial situation of the average Indian is better today than 20 years ago, roughly 65% say that it is better. If, on the other hand, when asked whether the situation in terms of challenges facing India – such as lack of job opportunities – has gotten better or worse over the last five years (a time frame that largely encompasses the Modi government), few (21%) have positive observations to offer.

In sum, while a Modi-led BJP government can savour a splendid electoral victory, the challenge of governing a nation in which the state of happiness (as measured by self-reported life satisfaction) is rather low and has apparently worsened over time is formidable. How that challenge will be met remains to be seen.

‘I have always believed in miracles’ proclaimed a clearly overjoyed Scott Morrison, as he is poised to continue his Prime Ministership after his party won the apparently ‘unwinnable’ election about a week ago. The Prime Minister is entitled to his beliefs, but one wonders whether he can ignore the harsh reality of a substantial growth slowdown of the Australian economy and its sombre ramifications.

In March of this year, media reports were full of references to the fact that the Australian economy was experiencing ‘per capita recession’ – see here, for example. While the economy was not in a recession in a conventional sense (two consecutive quarters of negative overall GDP growth), growth in recent quarters was so slow that it fell below the population growth. Thus, per capita growth on a quarterly basis became negative. Here is how one leading Australian economist puts it:

“National accounts figures show that the Australian economy grew by just 0.2% in the last quarter of 2018…The shocking revelation was that Gross Domestic Product per person (a more relevant measure of living standards) actually slipped in the December quarter by 0.2%, on the back of a fall of 0.1% in the September quarter.

These are the first back-to-back quarters of negative GDP per capita growth in 13 years – since 2006…”

Per capita recession, if it persists, can be insidious, as it puts downward pressure on real wage growth which, in turn, can stymie household consumption growth. Given that household consumption represents 60% of Australian GDP, sluggish spending by households, in turn, puts downward pressure on per capita GDP growth. This is happening against a background of falling property prices in major metropolitan areas which effectively attenuates the role of a positive ‘wealth effect’ on consumer spending. It is also possible that Australia, like other OECD economies, has entered an era of ‘secular stagnation’ typified by persistent sub-par growth.

Despite these warning signs, the notion of per capita recession and its ramifications hardly featured during the election campaign. Yet, post-election, the Reserve Bank Governor has declared his hand. The RBA Governor stands ready to cut interest rates to support faltering growth and has expressed concern that this may not be enough unless there is adequate fiscal support.

The Prime Minister and his team are keen to project an era of continued prosperity built on the back of imminent tax cuts while brandishing the notion of a budget surplus. One wonders whether Scott Morrison and his colleagues in government are on a fool’s errand. Even if tax cuts are expeditiously done (which appears to be a big if), a well-known empirical regularity is that ‘tax multipliers’ are usually lower than ‘spending multipliers’  (that is, tax cuts have a moderate impact on aggregate demand relative to government expenditure, especially on infrastructure) and may not be enough to offset the impact of sluggish consumer spending on aggregate demand. Moreover, given that the Morrison government has pinned its credibility on attaining a budget surplus next year (and perhaps over the term of the new government), it has placed self-inflicted limits on pro-active fiscal policy. Instead of a growth strategy articulated in terms of significant investments in health, education, infrastructure and renewable energy which could stave off the risks of secular stagnation, the government appears committed to attaining a budget surplus regardless of changing economic circumstances.

The ‘miraculous’ election victory of the centre-right coalition suggests that the majority of Australian voters have, once again, entrusted their faith in the status quo. Unfortunately, accepting the status quo also means accepting the grim reality that poverty in Australia is high by OECD standards.

A recent evaluation uses an accepted international benchmark to conclude that more than three million people – or 13.2 % of the population – fall below the poverty line (defined as those earning below 50% of median income and adjusted for housing costs). The report also suggests that Australia has the 14th highest poverty rate among 34 OECD countries – see here for comparative data.

During the campaigns that were held prior to the Federal elections, one heard a lot about taxes and budget surpluses, but hardly anything about ways in which poverty in Australia can be reduced on a sustainable basis. Does anybody recall the major political parties making a bold and compassionate commitment that they will seek to reduce poverty in Australia to one of the lowest levels among OECD nations over the next five years? Such a proclamation would require a serious rethinking of inclusive economic and social policies and go beyond hackneyed statements about a ‘fair go’ society.