Around the time Barack Obama was re-elected as President of the United States, the BJP happened to get a lot of gratuitous advice from India’s liberal and left-liberal punditry. The US elections “proved” that only “inclusive” politics carries the day. Therefore, it was time for the party to shed its majoritarian instincts and junk the leader whose name was deemed a synonym for division, and who allegedly stood for ideas antithetical to the “idea of India”. It was a hint, as strong as can be, that the BJP should become a faint carbon copy of the Congress Party.

Anyone familiar with the groupthink of India’s self-styled liberals would know that their conclusions are rarely based on the hard logic to square with reality. Rather, a fascination for the syrup laden claptrap clouds their judgment so much that it is good enough only to evoke warmth in the heart. The fact is that the truly relevant lesson from the US is derived not from the 2012 re-election but from the 2008 verdict which first brought Obama to power. When you wreck the economy, all bets are off the table.

That was how in the United States of America what was hitherto considered impossible—a black man becoming President—became a reality. Go back to the tumultuous 2008 presidential race and you will recall that the Republican candidate, John McCain, ran neck and neck with Obama for much of the early days (despite the handicap of association with Bush). And then Lehman happened. There was no more denying that the economy was wrecked. It was the cue for Obama to pull ahead. He did not look back again.

Beyond May 2014

These days, India’s collective attention is riveted on the coming general elections. It is no doubt a landmark election that deserves all the interest. However, if you can cut loose from the daily skirmishes, and step back to try and get a sense of the tectonic forces in play, you are in for a revelation. The year 2014 is set to be a turning point in our history that will mark a decisive break with the past. India’s past was defined by what may be called its “Nehruvian consensus”, a stifling mix of high-minded principles and delusions wrapped in shop-soiled platitudes. Its enduring legacy is a country unable to take its place at the high table after sixty years of talking the talk. (If we are poor today, we can console ourselves with the knowledge that it was by consensus.)

In this article, I look at some of these radical changes in the offing that I believe will go on reshape India’s political and economic landscape.

The Kodak parallel

The tectonic shifts I have in mind are largely to do with the fortunes of the Indian National Congress, the party that has dominated India’s politics after independence. The Congress party is set to ride into the sunset. It won’t vanish overnight but the journey from now on is downhill. A common fallacy of conventional analysis is to look at the accumulated strengths of an incumbent institution that’s wielded power for long and conclude that nothing can go permanently wrong with it. The possibility of a setback or two is conceded, but the overriding conclusion is that setbacks will be temporary, a precursor to a bounce back.

My own way to evaluate an incumbent is to take stock of all the fault lines that are present which tells you how things can potentially fall apart. The Indian National Congress is perched on a fatal fault line that imperils its future in ways that cannot be corrected at this late hour. It has to do with the Kodak parallel.

Eastman Kodak Company was founded by George Eastman in 1888. During much of the 20th century Kodak held a dominant position in photographic film. So much so, in 1976, the company had a near monopoly (89 percent market share) over photographic film sales in the US. Back then, Kodak was the cock of the walk. However, by the late 1990s, Kodak lost ground and faced financial woes following declining sales of photographic film and delay in adapting to digital photography. In January 2012, Kodak filed for Chapter 11 bankruptcy protection. The fatal mistake that Kodak made was to be over-invested in one product line. When changing technology made the product obsolete, there was little it could do other than watch it all slip away. [Wikipedia]

The Indian National Congress is overly invested in one product. It’s called “dynasty” and its market faces a secular decline (no pun). Narendra Modi, the BJP’s prime ministerial candidate, is often heard calling for a “Congress-mukt Bharat” or an India rid of the Congress party for good. History may well be on his side.

Tata Indica Fallacy

Aggressive wooing of minorities has its limits. When the perception builds up that the government is going out of its way to dole out favours to minorities at the cost of the majority, the incremental support gained from minorities is more than wiped out by a decline in support from the majority.

The Tata Indica car was launched by Tata Motors in 1998. As India’s first indigenously developed passenger car (and the first car made by Tata Motors), it attracted huge attention. Within a week of its unveiling in 1999, the company received 115,000 bookings and in two years, the Indica became the number one car in its segment.

Later, with quality issue cropping up, the initial enthusiasm was not sustained and the car lost its market. Nevertheless, taxi-operators seemed to love it because it was spacious and, notwithstanding the quality bugs, was cheaper to buy and maintain. And so, as the Indica went on to corner the taxi market; it lost its footing in the mainstream market. An August 2013 news report about the company’s shrinking market share mentioned three problem areas: “… poor quality, a lack of model upgrades and a perception that the company’s cars are only good enough to be used as taxis.” Clearly, the company has paid a price for the Indica’s identification with the taxi-market.

Reagan Democrats, Modi Congress

Ronald Reagan is considered to be one of the most successful American President’s in the post-war era. This is not a historian’s assessment but the answer given by ordinary Americans to questions about who they would rate as their best president. Reagan became President in 1980 winning a decisive mandate with 51 percent of the popular vote against his Jimmy Carter’s 41 percent. He was re-elected in 1984 with an even bigger margin—58 percent of the popular vote against his rival’s 41 percent.

Reagan’s electoral success had much to do with the support he attracted from a new demographic that analysts called “Reagan Democrats”. It denotes the traditionally Democratic voters, especially white working-class Northerners, who had always voted Democrat but now defected from their party to vote for Reagan in both the 1980 and 1984 elections. Why this came about is not difficult to understand. As President, Jimmy Carter was a failure. When he left office, inflation ruled at 12.5 percent and unemployment at 7.5 percent. The misery index was at a peak and the country had been humiliated by Ayatollah Khomeini of Iran.

Something similar to what Reagan pulled off is playing out in India today. If Modi has gained traction today, it’s because he has attracted a new demographic that may well be called the “Modi Congress”. This is a largely Hindu constituency who have always voted for the Congress. However, in this particular election, with the country in dire straits, and with secularism perceived to have degenerated into a cover for loot of the exchequer and appeasement of minorities, they appear willing to make a clean break with the past.

“Liberal” India is, of course, appalled at the trend. It fits well with their characterisation of Modi as a polariser who repels minorities and (horror of horrors) succeeds in uniting Hindus across the caste divide. A lot can be said against this characterisation but suffice to say that exactly the same things were said about Reagan. In 1980, only 14 percent of black Americans voted for Reagan. In the next elections in 1984, the proportion actually declined to a mere 9 percent. Was Reagan a polariser? Looking back, the question is irrelevant because people of America recognise him as one of their best presidents ever. And they would know better than the garden variety liberal.

Staying with the United States, back in the fifties and sixties, the country saw the large-scale migration of whites from racially mixed urban regions to more racially homogeneous suburbs. It was a response to the huge migration of blacks from the rural South to northern cities (the Great Migration) and to the waves of new immigrants from southern and eastern Europe. This phenomenon came to be called “white flight”.

These are early days but something similar is to be seen in the stark erosion in support for the Congress party. Surveys and opinion polls have been remarkably consistent these days, and they all point to a dramatic collapse (up to 10 percentage points) in the Congress vote share that is matched by a corresponding gain for the BJP (or Modi).

One out of every three voters who voted for the Congress in 2009 will likely jump ship in 2014. On March 13, Shekhar Gupta, editor of Indian Express, was part of a panel on NDTV discussing the results of their nationwide opinion poll pointing to remarkable gains for the BJP even in states like Tamil Nadu and West Bengal. Gupta was categorical that a tectonic shift happening. I have a label to explain at least a part of this tectonic shift. We are seeing the signs of a “Hindu flight” from the Congress.

Secularism faces secular decline

India’s secularists are gripped by the fear that secularism will be in grave danger if Modi comes to power. For a change, I am partially in agreement with them. I too believe that secularism as practised now faces a bleak future, but it has nothing to do with Modi. Instead, it has a lot to do with the secularists themselves.

Any noble ideal—even love for your country—would face a bleak future if people begin to associate it with mis-governance, with scheming and scamming politicians. The arbiters of secularism in India have determined that Mayawati. Mulayam, Laloo, Karunanidhi, Pawar etc. — just a few names from the non-Congress benches—are all “secular”. To the man on the street, it is no advertisement for secularism.

In a recent opinion article in the Hindustan Times, NDTV journalist Barkha Dutt, an establishment pillar whose dislike for the BJP and Modi is no secret, appears to have cottoned on to this paradox at least partially when she acknowledges “…by itself secularism as a political script has few wins at the electoral box office. If there is one thing that the 2014 campaign has brought home with certitude it is this; for the outgoing Congress government mired in the mess of misgovernance and paralyzed by ineffectual leadership to fall back on secularism as its only distinctive offering to the electorate, subverts the value of genuine secularism even further.”

Here’s what she has missed out. Today, the arbiters of secularism in India are so steeped in self-righteousness that anyone not adhering to their gold standard is automatically deemed an unworthy human being. He becomes an “untouchable”. Ultimately, self-righteousness is a prelude to self-moronization. Because you are mortally afraid of conceding even a momentary advantage to any personality or cause that is “non-secular” in your eyes, you must necessarily possess high tolerance for all iniquities committed by “secular” folks. In practice, it is always difficult to calibrate a slippery slope, and pretty soon it becomes a downward spiral. This is the “secularism trap” and a cursory look around tells you India’s secularists have all fallen into it.

How does the secularism trap work in practice? Here’s a useful analogy. Imagine you have money to spare which you would like to invest in the stock market. Because you are mostly clueless about the markets, you approach a stock market consultant who is an “expert” in these matters. He strongly recommends a few names and tells you that these stocks are sure to appreciate in time. It so happens that rather than appreciate, they lose money. You don’t blame the expert because you know that markets are unpredictable. You take his advice again and buy a couple of more stocks. Unfortunately, they turn out be duds as well. By now, you begin to have doubts.

In the meantime, based on your own readings and research, you come to hear of a certain stock highly recommended by a few analysts. You go back to your consultant for a second opinion and you are taken aback by what follows. At the mere mention of the name, he lets out a stream of invective and declares that the top management of this company is a bunch of fraudsters destined for a date with the long arm of the law. However, contrary to his conviction, the company performs very well to become a market leader and rewards its shareholders handsomely. As far as your dealings with this consultant are concerned, it is the last straw.

Rural voters: how different?

The general opinion of India’s liberal and left-liberal class is that voters in rural India are driven by concerns entirely different from those that move urban India. Essentially, the argument holds that rural folks are too fixated on bread and butter issues to be bothered by larger concerns about where the country is headed. For them, the focus is strictly on what the government has done for them, measured by the money put into their hands by handouts and entitlements.

The idea is not without foundation. After all, the 2009 election was won by the Congress party riding mostly on the farm loan waiver and the rural employment guarantee programme. But the question is, can this insight be etched in stone for all times to come? I believe it’s a very important question with major strategic military implications.

Let me explain. If you believe that rural voters are immune to wider concerns about the country and can be repeatedly won over by blandishments alone, then you must also believe this. All that a Chinese General planning an invasion of India should arrange for is to airdrop inexpensive Chinese electronic goods and appliance wrapped in their national flag. When his troops push in, they would be greeted by showers of rose petals from our grateful yokels.

Are coalitions here to stay?

As Modi began his mission, there were two fallacies current among the punditry. The first was the idea that as a “divisive” personality, Modi would fail to win coalition partners. This was always a bogus idea. In a world where everyone salutes the rising sun, the only question that mattered was whether Modi would rise or sink. That the cream of India’s intelligentsia latched on to something palpably stupid is a tribute to their capacity for self-delusion. Because we hate someone, we think others will think like us, and hate him equally.

The second fallacy, which retains currency even now, is the belief that because Modi is an autocratic leader intolerant of dissent and unschooled in the ways of compromise, he will run into rough weather in this coalition era. What is wrong here? For starters, it’s been said that nothing is permanent in life except change. What is possible and what is not possible keep changing with time and circumstance.

True, since 1989, India has been witness to a string of coalition governments at the Centre. During this period, regional parties have gained in stature and they have consistently given the national parties a run for their money in their home turfs. The coalition era began with the decline in the dominance of the Congress and thrived in the absence of an alternative national party to replace the Congress party.

Under Modi, the BJP is poised to make a difference. From a second rung national party with no presence in Southern and Eastern India, the BJP is shaping up as a truly national party. As the BJP gains ground, it will begin to undercut the regional parties. After all, coalitions began under circumstances to do with the vacuum created by the decline of the Congress party. As the vacuum is filled up, count on a steady erosion of vote share of the regional parties.

Here’s another angle to the impending downfall of the coalition era. A common thread linking most of India’s regional parties is that of corruption. If you can skilfully pull at this thread, the whole fabric can be made to unravel without too much effort. The UPA government has exploited this vulnerability and used its control over the CBI to make sure that parties like, say, the Bahujan Samaj Party, stayed in line. All that a new government is required to do is to “uncage” the parrot and the coalition era may well begin to ebb on its own.

Media shakeout in the offing

India’s mainstream media, especially the English language media, is dominated by left-liberal types who harbour a visceral dislike for the BJP. A fair question to ask is, how long can this dominance be sustained? I believe not for very long. When I apply the fault line theory, I see huge cracks in the edifice.

The banking business is about “intermediation” between savers who have surplus money and borrowers who need more money. As the financial system developed and as some borrowers gained size and stature, they were able to circumvent the banks and borrow directly from the savers. Banks had gotten used to fat margins and word went round that you could save a lot of money if only you could bypass them. This process of cutting out the middleman, the removal of intermediaries in a supply chain, is called disintermediation.

Likewise, the media’s job is to act as an intermediary between the news that happens around the world and its consumer, folks like you and I. However, when the media begins to take a proprietary “interest” in the news it delivers, to the point that news becomes subordinate to the opinion of the news carrier, it automatically gives rise to a class of dissatisfied consumers who now lookout for alternatives. Social media, in this sense, was a revolution waiting to happen. Social media is also about doing away with the intermediary and is an example of dis-intermediation in the news reporting business.

Most of India’s newspapers and television channels are privately owned (barring Doordarshan). From the owners’ point of view, these are investments on which they hope to earn a profit. But, media investments are often just a tiny part of their total business. The real profits are earned elsewhere. A simple truth mostly unnoticed is that real gains accrue to big business not from profits but from the valuation the business commands.

Valuations also depend on the external economy because it’s about discounting your future earnings and arriving at the net present value of your business. As India’s economy has tanked, our businessmen have been losers. In 2007, the Nifty made news when it crossed 5,000 for the first time. As late as 2013, it hovered around the 6,000 mark, a notional gain of 20 percent over 6 years. Factor in the annual consumer inflation of 10 percent over this period, and you realise the stock market has destroyed about one-third of your wealth.

Against this backdrop, there are two major fault lines to be seen. The English-speaking middle and upper-middle class in India—the consumer class for the English language mainstream media’s products—is largely pro-Modi. And they have little patience for the highfalutin diatribes against Modi. On the other side, the owners are losing money in the business. To add insult to injury, the journalists they have employed are blatantly slanted towards a party that has done much to make their lives miserable.

If you are a professional manager running a business, can you afford to displease both your owners and your customers, and still hope to retain your job for long? If you have managed to keep the government happy, maybe you will. But then again, it is unlikely to hold true beyond May 2014.

That’s why, when I look at the gathering storm clouds, I believe India’s mainstream media is in for a major shakeout. From now on, it will move relentlessly towards an outcome that would better align its output with the interests of its consumers and owners. For the moment, owners have no incentive to rock the boat thanks to the money thrown their way under the guise of Bharat Nirman. Once the largesse stops, once there’s a new government in town, the day of reckoning will be nigh.

The magazine Caravan has a pronounced left-liberal slant, seen in their partisan coverage of Modi and the BJP. One of their recent cover stories was about an “expose” of Swami Aseemananda, a former RSS man lodged in prison awaiting trial accused of involvement in “Hindu” terror cases. Without getting into the merits and demerits of the story, do note that this particular issue had 15 pages of paid advertisements in total, of which 11 pages were paid for by public sector undertakings (LIC Mutual Fund took up four pages and NTPC three pages). Clearly, it’s a business model with a predefined expiry date, which is, May 2014.

The IQ bottleneck

In a manufacturing process which proceeds sequentially through many stages with different rates of output, the final manufacturing capacity of the plant will be determined by the capacity of the slowest process in the sequence. The amount of water that can be poured out of a bottle is finally determined by the width of the neck. This is a bottleneck, a phenomenon where the performance of the whole system is constrained by its weakest component.

In the same way, an organisation can deploy people of great talent and IQ at different levels of its hierarchy but when things need to be Okayed by top management, the quality of final output will be constrained by the IQ of the top management. If you have worked under a boss with an IQ level not up to the mark, you will have a fair idea of the problem that intelligent Congressmen are up against these days. You cannot present ideas more complex than the processing power at the top. The emperor must be acclaimed for his clothes even when he has no clothes on. A simple way out is to substitute the low intelligence with higher intelligence. But it’s not happening in the Congress party because the top position is an inheritance where merit has no play.

Here’s another aspect to this IQ bottleneck. The lack of opportunity for intelligence to flourish ultimately shows up as an intellectual “ghettoisation” of the party. The smartest minds, the ones with no vested interest in the spoils of power, won’t feel inclined to join the party. Those smart folks who are already in the party busy themselves with stuff other than serving the country like dynasty worship (or personal enrichment). On paper, there’s no denying that the Congress party has more than its fair share of intellectually accomplished politicians, with pedigreed foreign education. But listen to their public utterances these days, and they seem to compete with the village idiot.

In contrast, the right wing in India was for long associated with anti-intellectualism. It evoked pictures of ash-covered, trishul-wielding loonies in matted hair and chanting religious mumbo-jumbo. The right-wing intellectual was one who attributed all useful knowledge in the world to discoveries in the Vedic ages. But look at the calibre of the people who have recently endorsed Modi and moved into the BJP. From Kiran Bedi to General V.K. Singh (R.K. Singh, Hardeep Puri and N.K. Singh are other names), some of India’s brightest ex-bureaucrats have signed up for brand Modi. Clearly, the BJP is going through the opposite process, “gentrification”.

DBT as a game-changer

Vladimir Lenin once said, “The Capitalists will sell us the rope with which we will hang them.” As it turned out he was famously wrong. Modi has made no such statements about the Congress but he seems aware of a rope likely to come into his hand, courtesy the Congress party. It has to do with the Direct Benefits Transfer (DBT) system linked to the larger UID (Aadhaar) programme.

According to the Mint (read here) “The programme promises to transform service delivery in India by transferring government benefits and subsidies directly into the hands of residents through a biometric based identification system (Aadhaar), speeding up payments, removing leakages, and enhancing financial inclusion.” A recent report in a business daily mentioned how Gujarat was pressing ahead full steam with Aadhaar so much so that up to one lakh people were being enrolled every day.

The UID scheme is a brainchild of the Congress party. Moreover, a section within the party has always batted for the direct cash transfer of subsidies to beneficiaries (the hardcore left is not in favour). While the idea is revolutionary for India, the devil lies in the implementation. With its record of incompetent execution, the government’s attempts to put money in the bank accounts of India’s poor have met with strictly limited success. Having rolled out the transfer of subsidy linked to LPG cylinders for domestic use under DBT, it has now been rolled back.

Here’s where Modi can make a difference. In 2004, the BJP campaigned on the plank of “India Shining” and lost. In 2009, the Congress put money in the hand of rural India with the farm loan waiver and the NREGA and laughed all the way to the bank. That’s a lesson Modi would be too smart to ignore. It’s not enough that you come to power and make India shine. The shine must reflect as glitter from all the loose change in the hands of the common people.

Given his administrative acumen, I expect Modi to get cracking on DBT in the event he comes to power. Once a functional DBT is in place, the possibilities are enormous. Here’s a stray example. Privatisation of public sector enterprises is a cause that has few takers given India’s deep-rooted socialism connects. Think of a privatisation deal where the entire proceeds get transferred (under DBT) directly to the poorest of the poor. The poor acquire a stake in privatisation and the noisy bunch of rag-tag leftists who dominate the intelligentsia will be hard put to make the case against it and still retain their pro-poor credentials.

To conclude, back to the US

I began this essay with a reference to the American presidential elections of 2008 and 2012 and the real lesson for India that was ignored. I’ll end with a prediction about the next US elections to be held in 2016 based on the recent Indian experience. America’s Democrats hope to see Hilary Clinton as the first woman to become the US President. It is not an unreasonable expectation. The Republican Party is a divided house and fighting a losing battle against tectonic shifts in America’s demographics. When US voters rejected Mitt Romney in 2012, they said no to a moderate Republican, someone who would have governed from the centre-right without giving too much ground to the fringe.

On the other hand, Barack Obama’s second term has been lacklustre. The US economy is being held afloat for now on a sea of freshly minted dollars. As with India, Obama too has presided over an expansion of entitlements and held back on meaningful reforms that would make American businesses more competitive. By 2016, I expect the US economy to show painful symptoms of “dollar poisoning”. When that happens, be prepared to see a charismatic social conservative rising to the top and blowing away the chances not just of Hilary Clinton but also of moderate Republicans like, say, Bobby Jindal.

Epilogue

I once saw a documentary on BBC telling the story of a pygmy community somewhere in the jungles of Africa. It was the period of a drought and food was scarce. A group of pygmy children are shown foraging for food without much success. Suddenly, there was rejoicing because one of the kids had caught a rat. The excitement was palpable. We see a small crowd gathered around a fire in a ring as a skewered rat is slowly turned over the fire. There is silence and everyone is looking intently at what’s cooking. And then the silence is broken. A young boy whose face bears a wistful smile says softly, “We’ll have to cut very thin slices.”

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Ranjan Sreedharan

Ranjan Sreedharan is an independent thinker (and occasional writer) on the economics underlying politics. Not being a professional economist, he believes in evaluating ideas for what they are worth, without waiting for the data (or the macro-economic numbers) to show up. Back in January 2011, he gave a call that India was headed towards an economic crisis and since then has not seen any reason to change his mind. He works in corporate communications and can be contacted at ranjan.sreedharan@gmail.com