The amiable old man and his cohorts don't make them feel good anymore. Some 20 per cent of India's population—the most vocal, articulate, well-read, politically aware and difficult-to-satisfy category called the middle class—is angry, disillusioned and disenchanted with the government. Despite Rs 1,000 crore of tax/investment breaks announced by finance minister Jaswant Singh to butter 'em up. Despite the full stop on privatisation and the proposal to dilute labour reforms to raincheck their jobs. And despite the bailout of the gargantuan uti to patch the pockets of its 29 million mostly-household investors.
And they don't look like they're softening. Read their lips, Mr Singh, your government's great gameplan to woo the middle class back in an election year isn't working! That was the job you came in for four months ago, wasn't it, when your party, after the Gujarat bloodbath and the Delhi civic poll debacle, frantically put together a new face with new songs to sing? You said you "wanted to put more money in the housewife's purse". And so you rolled back a few here, bailed out a few there but in the end, the hate you get is equal to the hate you make. The damage has been done (see Who Cares About the Middle Class, Outlook, April 22). Says Delhi's Kishore Thukral, investment consultant and writer, "The middle class is anything but a fool. They know they are just a small part of a grand political scheme to prepare the ground before the elections. Why didn't they do all this in 2000? Why now? We feel like we're being made asses of and we don't like it." Echoes young Rajiv Jha, advertising professional from Patna, "This government has lost its moral right to call itself a party of the middle class. It has lost its credibility."
These two are not alone in their disquiet. Over two-thirds of the middle class genuinely feel that this government has neglected them in its policies, be it economic or political. That's what a survey of 1,618 people in six metros conducted by Cfore for Outlook found. Over 80 per cent think the tax policies are harsh, especially on senior citizens. Almost half of them believe there is hardly any difference between the BJP and the Congress, or even between "rollback" Yashwant and "bailout" Jaswant, and they're not referring to their names!
There's more angst where it came from. Only 10 per cent consider the post-budget sops enough compensation for their eroded nest eggs and wounded pride. Only a slightly higher number believes the bailout has more or less covered the backs of uti investors. Says Thukral: "It's not just the erosion of your savings or the yield on it, it's worse than that. It's a steady erosion of your security, your future, your dreams." Not surprisingly, almost everybody said they'd stick to the tried-and-tested—bank FDs, post office schemes, insurance, ppf—but that's only due to a complete lack of options. Over 80 per cent of them felt even these had lost their sheen with interest rates skidding every few months.
There's a grave lesson for you here, Mr Singh. Because last elections, half of these people had voted for the parties that make up your government. Only one-third of these now say that they'd be loyal in the next. Patna High Court advocates Amit Prakash and Soni Srivastava voted twice for the BJP but have given up now. They say: "Jaswant Singh's moves are just cosmetic changes. He has nothing concrete to offer except some lollipops."
Your government has been keen to prove that the middle class is important. Says Jagdish Shettigar, member, PM's economic advisory council: "The middle class is the opinion-maker. It's our base and we can't afford to antagonise them.Because they were unhappy, even the positives of the budget like the social welfare measures were missed. I feel that any government in its third year can take some hard decisions because the remaining two years are anyway spent in preparing for elections. Unlike the Congress, the BJP is experiencing third year governance for the first time." Adds Kalraj Mishra, senior BJP leader from UP: "The votebank is not the main aim, the idea is to reassure the middle class."
Some of the changed mindset was also prompted by the party's brethren in the RSS. Tarun Vijay, editor of Panchajanya, the RSS mouthpiece, sums it up: "Anywhere in the world, it's the middle class that decides the fate of a government. The BJP rose to power on the strength of the lower- and middle-income groups but got identified with the rich. We saw big cars on the road and big projects getting cleared. All this was contrary to the image of the government." Adds Giriraj Singh, president of the Bihar unit of the BJP, "Though Jaswantji has rolled back some of the stringent tax policies, the wrong message has already gone through to the masses." Even those from a completely different world feel the same. Says Subir Gokarn, chief economist, Crisil: "Why just the middle class? I think everybody in the country is justified in feeling let down. A widespread sense of optimism about your own and your child's prospects for upward mobility is the characteristic of a well-performing economy. That just doesn't exist here." Adds Jacob Mathew, investment banker from Bangalore, "The middle class may have more opportunities but it also pays tax and bears the burden of nation-building."
So the middle class counts. And counts badly. Elaborates Gokarn, "The middle class is not a major electoral consideration. But its collective behaviour with respect to spending and saving has huge economic significance. No contemporary government can afford to alienate it." And here's what Tarun Vijay has to say on this: "One can't say if the rollbacks will translate into votes. But if the government has done this keeping in mind the elections, it will get exposed." Is it any wonder then that your calculated gestures didn't go down very well? Let's remind you here what one-fifth of the population—and many more—have been facing for some time.
- Interest rates have fallen from 12 per cent a couple of years ago to 7 per cent now. Your just-in-case money in the bank earns only 4 per cent. With no signs of a demand revival, the market feels the rbi will signal a further softening of interest rates in October. Calcutta's senior citizens Pratul Dey and his wife have seen their annual income from interest, whether from uti schemes or bank FDs, dwindling from Rs 35,000 to Rs 20,000 in one year.
- Most people who've played the equity market recently have lost money. Investments in growth mutual funds have not paid returns, with some even losing the principal. Elaborates Alok Churiwala of Churiwala Securities, "The middle class never has the stomach for equities anyway. People who invest in securities have to be rich enough to take that risk. There's lot of discontentment on the streets. Jaswant Singh has no magic wand to boost investor confidence overnight."
- Even insurance companies are feeling the pinch. Single-premium assured return insurance policies are either closing down or cutting yields with every passing month.
- The only consolation is if you own the roof over your head. But if you want to sell it as an investment, you'll find that rates are stagnant. "The best way to feel safe about your money is to sit on it," says Dominic Costabir, director at the Hospitality Training Institute, Mumbai, and a hard-working family man. "You can't have a solid tax or investment plan with these guys.I'm thinking of buying a house and getting tax benefits but what if the government suddenly puts an end to this incentive?"
Against such a backdrop, most people found your tax package (mostly reversals of earlier decisions) to be just an eyewash. Says Chennai's N. Haridasan, 53 years old and retrenched: "What Jaswant is doing is a drop in an ocean. He is giving me 5 paise but letting go of Rs 5 crore where it matters." And uti, ifci, idbi? You yourself admitted you had to save them to stop the financial system from going under. Says a senior finance ministry official involved with the exercise: "We had to do and have to do whatever is permissible under the uti Act and the sebi rules. The government will pay off the last investor as long as it takes. Yes, Parliament remains a stumbling block to any good intentions we might have. But the government reserves the right to decide on financial support to any institution in the future. Without going into the rights and wrongs of the system, it may happen again, yes."
The fact is, the government bungled very badly with uti. Which is why the public doesn't think much of the move to transfer the cost of all the bad investment decisions to the exchequer. Says Saumitra Chaudhuri, economic advisor, icra: "While the government cannot completely wash its hands of uti, considering that the present mess is owing to its acts of omission and commission, it should have been less generous. Also, the talk that uti will not do any 'asset bleeding' etc has set off signals that it's back to 'business as usual' and uti will continue to be run for the benefit of the powerful and their friends, all at the taxpayers' cost."
He's right. Sputters a senior finance ministry consultant: "The fiscal cost of all these bailouts is simply staggering, we're looking at an outgo of Rs 20,000-30,000 crore every year. We could have taken the premature closure option, it's been done before. We should've sent a clear message at least with ifci's closure—the cost of closing it would have been less than of reviving it. I don't see any activity towards privatisation, I don't think it's a serious option with the government. The moral of the story is, public sector finance organisations and their chiefs are risky and undependable."
The bottomline: the failure of the system would have hurt everybody and not only the middle class. But the uti debacle has had a deeper impact on the popular psyche than it seems. That popular confidence in it has eroded is clear from the fact that from 43 million investors a year ago, it's down to just 29 million now, 20 million of them with US-64. Assets under management have declined from Rs 77,000 crore in March 2000 to Rs 46,000 crore in July 2002. That's still half the size of the full mutual fund industry though.
Lucknow's leading paediatrician Dr P.P. Gupta managed to take out his considerable investment in US-64 with no loss but lost 20 per cent in the uti mips. He frets: "What has the government actually done? It should move the income slabs upwards with inflation, how do we benefit otherwise? I have lost faith in the government and its institutions. Now no matter what the government tries, it won't be so simple to revive the same confidence." Adds Delhi's S. Chatterjee, a retired central government physician: "Our money is probably better off under our pillow. uti had never been very efficient with investors anyway. I myself have had my cheques encashed by others. Now it's even harder to get a penny out of them. We're all reaping the bitter harvest of our past mistake, of believing that the government will always be there for us." With his only son away in the US for his post-med studies, Chatterjee feels hemmed in by the lack of both physical/emotional and financial security.
What is sauce for the goose isn't always sauce for the gander. "So even as the middle class suffers, the business class continues to prosper because the BJP just wants to protect its own," protest Calcutta's retired Department of Atomic Energy civil engineer D.D. Roy and his wife Supriti. "With government eroding and private sector jobs under the axe, it is next to impossible for people like us to think of gaining any kind of re-employment, even if we're able. It's not the same with the companies though who have cornered the benefits of a falling-interest-rate regime, while we have suffered." Indeed, top-rated companies can now raise three-year money through the placement of commercial papers lower even than the bank rate (at which banks borrow from rbi) of 6.5 per cent or from debentures. It's even sweeter music for the government which is paying 7-8 per cent for 10-year to 30-year funds.
Well, don't we know how many corporates exited from uti while the going was good? How can the government avoid responsibility for this? Explains Gokarn: "Look at the roots of the problems of ifci and idbi. Both are heavily exposed to the manufacturing sector, which has been a wreck. This is not an overhang from the pre-reform days but the result of the investment boom in the mid-'90s, now proved to be largely misplaced enthusiasm. If this was generated by the expectation of continuing reforms, then you must also accept that at least some of ifci's and idbi's problems stem from the failure of government to persist with reforms at a pace which would have increased the competitiveness of manufacturing."
But instead of a coherent economic policy, what we have is stop-and-go, which has now hit disinvestment, something that was at least keeping the stockmarkets running. Doesn't it, Mr Singh, run contrary to your gameplan of rechannelling savings from staid instruments to the insecure world of stockmarkets, so as to stabilise the financial system and reinfuse funds in the corporate sector? Here too, you flopped. In August, bank deposits grew by Rs 10,000 crore. Gross domestic savings were 23.4 per cent of gdp in 2000-01, and household financial savings have grown steadily to 10.9 per cent in 2001-02. The middle class knows, says Amrita Deb, IT professional from Bangalore, that life's going to get tougher, so it's saving more and more. "What we need after 55 years of independence is systemic change, not sops. We'll take care to make our money work for us but you should create an environment where this is possible, where the honest taxpayer can make the right choices and see those choices work through," he says.
Like it or not, there's terrible resentment and bitterness in a vast number of people. Says Jha, "The finance ministry acted like a hired assassin for the middle class who'd voted for the party, thinking it to be their own. We all feel terribly cheated." Apart from believing this government to be a complete economic failure, the middle class is also ruing its political hypocrisy. Says
T.J. Vincent, senior citizen from Chennai, "How can tinkering with 0.5-1 per cent interest change be enough lollipop when voters are looking at the larger law and order issue? When someone like Modi can get 3,000 people killed and hope to be chief minister again, people are not bothered about investment and money."
Opposition party leaders too sound the same warning. Says A.B. Bardhan of the cpi: "It's not only economic, the middle class is also concerned about political issues like Hindutva and the gaurav yatra and so is getting more and more sore with the BJP." Jairam Ramesh of the Congress agrees: "The BJP is eeping certain political issues alive to play the middle class. The foreigner issue for example, or the minorities issue.The middle class, which votes people out of power more than the other way around, looks at governance as well and there is a systematic failure here. Don't forget Gujarat." Some are simply aghast. Says Shiv Pal Yadav, Samajwadi Party general secretary, UP, "The BJP can never come back to power no matter what they try. Were they sleeping for the last few years?"
We understand that any new minister has a political compulsion to distance himself from the most visible "errors" of his predecessor. Since much of the ire against Yashwant Sinha was directed at his moves on personal taxes, you had to act fast to neutralise that resentment. The middle class has seen it for what they are: that no further changes in the personal tax/incentive system will be attempted. But by messing up in disinvestment, the government has proved that it has completely missed the big picture of reforms and reinforced the impression that it is a confused gang and no longer knows what's good for the economy or the polity. Says Chaudhuri, "Not unlike the Communists and sections of the Congress, the BJP finds itself hard pressed to explain on a public electoral platform why reform is good and the 'I'll-give-everybody-a-job-somewhere' public sector bad. And the poorer your own assessment of the public image that you have, the harder it is to go out and speak the truth. The election messiah role is simply unsustainable. The ploy of borrowing future tax streams (deficit financing) to fund the sarkar has been exhausted many long years ago." The past is history, the middle class will soon learn the rules of the game but when will your government, Mr Singh? Will it ever?
Paromita Shastri With Gauri Bhatia, Manu Joseph, Archana Rai, Sutapa Mukerjee, Amarnath Tewary, Ashis K. Biswas and S. Anand