The dramatic shift in the budget towards a rural focus was predicted by most analysts given the failure of monsoons two years in a row and the defeats in Bihar Assembly and Gujarat local elections. The current agitations for reservations in Gujarat, Haryana and Andhra Pradesh were also used to buttress the logic behind the rural shift.
In this article, we understand in finer detail the reasons for this shift and the implications for all parties.
Chart 1-GDP growth (Market Prices), Agriculture Growth and Consumer Inflation
The statistic that may have scared the BJP the most is the fact that growth in Agriculture (GVA) in the last 2 years is actually lower than average consumer price inflation during the same period. If you look at the three prime ministers since 1999, none of them have had negative growth in their 5-year term. There are two big reasons for this - a. The poor Monsoons two years in a row, b. The slower increases in MSPs since 2013.
Chart 2: Seats won by each party in seats with large rural populations
The last time BJP was in power between 1999-2004, it had won 135 seats out of the 430 rural seats (large rural populations). The slow agriculture growth during 1999-2004 meant that the BJP lost about 28 of these seats to other parties. This constitutes 21% of its rural seats. The second point to be noted here is that bulk of the losses have been to the 'others' and not to the Congress party. The third point is the consistency of 'others' in the last 4 elections. It was 181 in 1999 and 183 in 2014 when the BJP swept the election.
Chart 3: Seats won by each party in seats with large rural populations
In Urban India, the BJP lost 16 seats in 2004, most of it to the Congress party.This constitutes 34% of its urban seats. The significant losses in rural India, to 'others' in rural India and to Congress in Urban India means that a coalition of Congress and 'Others' could form UPA-1 Government in 2004. The interesting point to note is the number of seats won by BJP in urban India in 2014 and the lead versus both 'Others' and the 'Congress' party.
So, it is fairly clear that the biggest danger to the BJP in rural India comes from 'others' and these parties will be open to doing business with the Congress as they did in 2004 if they continue to see the BJP as a threat. The question is, given that there have been larger losses in Urban India (34% lost) than rural India (21% lost) in 2004, shouldn't the BJP be focussed on protecting the more volatile Urban vote? The answer is NO, here are the reasons
1. First point to look for is who the BJP gained from in rural India. While it is true that the BJP gained from regional parties like BSP, SP and others in the Janata Parivar, the biggest loser in rural India was the Congress party which lost approximately 131 seats from the 2009 election. BJP gained a 127 seats, both from Congress and regional parties. So, the biggest threat is from the Congress party.
2. Second point to look for is the vote difference. In Urban India (113 seats), BJP won 39% of the vote versus Congress with 20% giving the BJP enough leeway to lose a few votes and still retain most of the seats in future elections. In rural India, BJP won just 29% of the share versus Congress at 19%, giving the BJP very little leeway in terms of loss of Share. Also, the share of 'others' in rural India is 52% versus 41% in Urban India making BJP Seats in rural India both from 'others' and the Congress party
3. A large number of BJP's rural seats are also in States that have had ordinary economic growth (Uttar Pradesh - 58 seats), Strong Opposition (Bihar-20 Seats) or incumbent BJP Governments (Gujarat-18, Rajasthan-18, Madhya Pradesh-22, Chhattisgarh-9, Jharkhand-9, Maharashtra-14). This exposes the BJP even more in the event of small swings against it in the coming elections
4. Lastly, recent losses in both Bihar and Gujarat reinforce the above analysis, while BJP did not do well in the rural part of the States, they sustained their performance in Urban India in spite of the assault on 'others' in Bihar and Congress party in Gujarat.
In choosing its policy initiatives, the BJP has learnt from the Congress party not to overdo MSPs to bribe rural voters as this drives up inflation damaging its chances both rural and urban voters. It has also learnt not to fiddle around with fiscal deficits (see chart below, the Pranab deficit of 6.4%) as this stokes inflation.It is quite evident from the above charts that rural India abandoned the Congress party in spite of high growth between 2009-14 because of high inflation and what they saw as Governance deficit (now with increased media access). Instead, the party's focus on rural Insurance, irrigation and rural infrastructure are meant to deliver greater farm productivity thereby growing incomes without stoking inflation as it also takes care of supply while consumption goes up with growing incomes. In many ways, a conservative but sensible strategy.
In sum, from a Political angle, this is a BRILLIANT budget. Should monsoons turn out to be normal as predicted, the BJP will look very comfortable for UP in 2017 and probably Lok Sabha in 2019. The question to the opposition is how do they counter this move by the BJP? While the alliance between 'others' and the Congress party is a simple way out, it is also a lazy way out. This is something that various Janata alliances have been indulging in between 1967 and 1989. The game actually changed when the Janata regimes and the BJP moved aggressively towards an ideological position (Backward caste reservations and Hindutva) and dislodged the Congress party permanently from many States. It is fairly clear from our budget analysis that there are some crucial areas missed by this Government, the question is, will the Congress party seize this opportunity to build a larger and long-standing narrative that is positive to the people of the country?
PS: Data Until 2013 is GDP, 2014 and 2015 is GVA. Classification of Urban and Rural (large rural populations) is on the basis of census data and in my view not perfect to the 't'.