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This article was co-authored with Subhash Chandra and first published in Yahoo Finance.
The TOI-Ipsos 8 metro survey which samples an important proportion of the middle class (SEC A and B which make up for top 25-30% of urban households) shows thatdissatisfaction with the Modi Government has doubled from 9% in May 2015 to 17% in May 2016. While 57% admitted that expectations were unrealistic in 2015, the number is down to 35% in 2016 suggesting that more and more middle class voters are beginning to get frustrated with the Modi Government. With unemployment slowly creeping as the no.1 problem, 43% of voters claim that it was the Modi Government’s biggest failure till date. This was of particular concern amongst the relatively low income voters. In fact 51% of voters claim that brand Modi was weaker now when compared with 2014.
In the recent Bengal assembly election, there was a clear swing away from the BJP in urban constituencies with only 12.7% of the vote, significantly lower than the 2014 Lok Sabha election. While the BJP did make gains in Assam and Kerala, this was expected given the severe anti-incumbency against the Congress State Governments.
The middle class which overwhelmingly backed Modi and BJP in 2014 Lok Sabha polls is feeling let-down by the policies of the Modi government.
India’s burgeoning middle class rose from 20% of population in 2009 to 36% in 2014 (Source: CSDS) due to liberalization and faster economic growth after 1991. The middle class disillusioned with politicians and democracy turned out to vote in substantial numbers in 2014 (69% vs 60%). BJP ran a high pitch campaign which attracted middle class voters leading to a 10% increase in BJP votes vs a corresponding 9% decline in Congress votes from this segment.
Middle Class Population, Turnout & Voting Patterns
Why did middle class voters support BJP? It was primarily on account of five reasons:
1. Significant increase in cost of living and perceived rampant corruption within the UPA Government
2. Perceived bias in favour of minorities and lower castes
3. Majority felt employment opportunities had deteriorated rather than improved under UPA II.
4. They were unhappy with anti-poverty and employment guarantee programs of Congress preferring govt. spending on infrastructure rather than subsidies for the poor
5. The dynamic leadership for Mr Modi representing development and top quality governance
On the other hand, BJP promised to bring down corruption, reduce inflation, create jobs, castigated the NREGA / FSB type schemes of UPA and promised a fair and equitable society and not one biased towards minorities and lower castes. It promised minimum Government and maximum Governance
As the TOI-Ipsos survey results showed, middle class dissatisfaction is soaring and this is due to a series of decisions/failures of the Government.
Inflation, Cost of Living and Increase in wealth
1. The fact is no significant tax sops have been provided to middle class and instead new taxes have burdened the middle class voter.
2. Arun Jaitley has effected an increase in service tax rate from 12.36% to 15% currently (21.3% increase) in last two years. This makes everything from telephone bills to watching movies to eating out with families costlier
3. The govt. has not passed on benefits of decline in crude oil prices to end consumers. While oil prices have declined by >50% since Modi took oath, petrol prices in India have declined by <10% only. As per our research, if excise duties were not increased on petrol, Rs. 160,000 crores would have been left in consumer’s pocket which would have encouraged them to spend having a spiral effect on economy
4. Middle class Indians incur significant expenses on school and college education and hardly any measures have been taken to curb the rise in those expenses. In two years, education costs are up by 13%. This could be even higher when considers private institutions only.
5. Senior Citizens from the middle class are struggling with low interest rates on their deposits. Pulses, eggs, meat and spices have all increased at significantly higher levels. Fortunately, healthcare costs are only up by 8% over the last 2 years. However, lack of insurance coverage makes this group even more vulnerable in a low interest environment.
6. While economy is growing at the fastest pace (7-8%) in the world, effects are not visible on the ground. Hiring in most companies is frozen. Salary increases and bonuses have been low. A recent labour ministry survey showed that 2015-16 was the worst job creation in 7 years since when the survey was launched
7. The real estate market too has stagnated for the last 2 years (grew by just 10% in 2 years). Most Middle class Indians have most of their wealth in property. The stock market too has grown only by 13% in two years since Mr Modi has come to power
8. While no major corruption scandals have come to light at the central level, day to day corruption faced by Indians as not come down by much. Overall only 27% of respondents in the Ipsos survey claim that corruption has come down. In Kolkata 47% of the respondents said the Corruption has increased. In the meanwhile CBI investigations on the Sharadha scam are proceeding at a pace convenient to both the BJP and Trinamool
While the PM is seen to have done stellar work in key areas like power, railways (Urban transport in particular) and highways, most other ministries are making little difference to the lives of the middle class
9. Loss making PSUs continue to receive Government support whether it is the Airlines, Telecom companies or the Banks. Mr Modi has announced that he has no plans to privatize or significantly reduce Government ownership. The Government continues to use tax payer’s money to fund these white elephants.
10. Instead of reducing, the Modi govt. increased the budget allocation for NREGA from Rs. 35,000 crores to Rs. 40,000 crores. A scheme which he publicly criticized as an example of Congress govt. failure.
11. While the Government has been tom-tomming the significant growth in FDI numbers, actual FDI is down by half in Manufacturing (own analysis) over the last 2 years which means that the job creators are not necessarily investing in India for now. Skill India too has just begun to take off and the results are unclear as of now
12. Reservations continue to exist and there are no plans to refine the reservation process so that poor upper caste can gain and creamy layer from SC/ST can be excluded from the process. This has sparked agitations in Gujarat (Patels), Haryana (Jats) and Andhra (Kapus)
13. While Swachh Bharat Abhyan has been welcomed by most, there is little or no impact on cleanliness across the country though perhaps the Modi Government alone cannot be blamed for it.
After defeat in Bihar, Mr. Modi has become cautious. BJP still remembers the 2004 polls where it ostensibly lost because poor and lower class felt left out of the India Shining campaign, though actual reason was low job creation. It is consciously attempting to shed its pro middle class and pro upper class image as it got the lowest support from poor class in 2014 (24% vs 31% overall vote share). It feels loss of votes from middle class will be more than compensated by poor class.
This strategy has its own risks because of the demographic changes over the decade. Today only 20% of population is poor. 47% of population is middle class and upper class. So it’s almost balanced. Middle class cannot be taken for granted as it is the largest voting block among various classes.
The Good News for BJP & Modi
The good news is that none of the other surveys show significant losses in vote or seat share for the NDA and this is because of two reasons.
1. Mr. Modi is seen as competent, hardworking and an inspirational leader. Many of his failures are seen either as failures of his team or because the opposition is making it difficult for the PM.
2. There is no visible opposition that is seen at par with the BJP and Mr Modi at this moment and this is unlikely to change anytime soon (TINA).
Further, good monsoon this year and likely healthy monsoon next year (on account of La Nina effect) could have a significant impact on the economy and boost growth and job creation next year. This could drive up employment, reduce inflation and boost middle class incomes significantly.
In sum, the likely increased focus on rural India is gradually alienating lower half of the urban middle class who have very different needs from the poor as well as the vocal upper middle class (professionals and business people). Programmes like Jan Dhan or Pradhan Mantri Yojana nor nationalism is not a key driver for this group. This group is concerned by cost of living, education, day to day corruption, affordable housing and so on. While the BJP enjoys a TINA advantage, things could suddenly change if an AAP like rival emerges out of nowhere. As the share of urban voters only increases, the Government cannot ignore the urban middle class for long. The Congress Government made this mistake and suffered a heavy penalty in 2014.
“The middle class which tends to decide who governs, has an incentive to ally with the poor to exploit the rich. It also has an incentive to support the rich to avoid being exploited by the poor.”
As per Iversen and Soskice in a majoritarian electoral system (of which the Indian first past the post is one), the latter motive dominates. This group could come into play if the government does not begin to pay attention to their real concerns. Time is running out fast for Mr. Modi!