When the Finance Minister Smt. Nirmala Sitharaman presented her first budget in July 2019, this columnist, like many others, had listed a litany of economic woes including the sharp decline in the growth rate of GDP, fiscal pressures, twin balance sheet problems, the woes of the NBFCs, the slow pace of job creation, distress in small enterprises and farms, trade battles and the slowdown in global growth drivers.  Nothing has changed and some of these problem have become even more troublesome. The Government is now more willing to admit the existence of these difficulties and the Prime Minister seems to have taken direct charge of the budget.  Since the Government depends more on natyashastra than arthashastra to guide its economic policy, we can expect dramatic and unexpected measures to boost growth.  But is this what we need right now?

The foundation for long-term growth rests on the confidence that investors have in the stability of the  social and political environment within which they have to function. This is particularly true for foreign investors. In this area there is a major change from July 2019.  The political and social climate in the country has become worse because of the drive to implement the Citizenship Amendment Act (CAA) and related measures like the National Population Register (NPR) and the National Register of Indian Citizens (NRIC) which, despite the ruling party's efforts at explanation, continue to arouse fear and suspicion.

The case against the citizenship related proposals does not rest on their economic impact but their challenge to the idea of secular India embodied in the  Constitution, which over the past seventy years has become a part of many people’s image of themselves.  It is no accident that it is young people, reciting the preamble to the Constitution who are leading this revolt against sectarianism. 

The charge of sectarianism and discrimination has been extensively debated. One way of seeing this is to recognise that the CAA will apply to the so-called illegal migrants who are already here from before 2014. The CAA is essentially an amnesty. Many countries with undocumented migrants who cannot be repatriated have resorted to an amnesty, like the 1986 amnesty in the USA under the Reagan administration.  However the amnesty offered by the CAA is clearly discriminatory as it leaves out anyone who is a Muslim.  How the Supreme Court will judge the matter cannot be predicted.  But one can understand why so many people see the proposals as a violation of the fundamental right to equality.

The move has led to an atmosphere of confrontation between the Centre and many States which compromises the possibilities of cooperative federalism essential for a high growth path.  We have had a first indication of this in the move away from consensus decision making to voting in the GST council. If the climate of Centre-State confrontation worsens, we may see this departure from cooperative federalism in other areas of economic policy.  This will affect investment decisions and economic growth.

The Governments citizenship proposals have also led to widespread protest demonstrations led by students. The somewhat one-sided reaction to these protests by the authorities and the tolerance of violent counter attacks by those who support the proposals will spill over into street confrontations and violence. This will exacerbate a sense of civil disorder and frighten investors, particularly in the northern states where millions of new jobs are needed.

A move to implement the proposals will lead to extensive disruption at the ground level, and consequent economic impact, if we go by the experience of the implementation of the NRC in Assam after 2005. This effort, that covered just 3% of the country's population, took almost a decade, required the involvement of over 50,000 government employees and cost more than Rs. 1,200 crore. 

The Government has now said that it does not intend to implement the NRC at the national level, though this is a part of the ruling party’s election ,manifesto and was asserted forcefully several times by its leaders. Nevertheless the fear is the the NRIC and NPR are meant to serve a similar function and will have an impact similar to the NRC implementation in Assam.

The big problem is the impact on poor people who may not have the required documents and whose lives will be disrupted by the process of proving their right to Indian nationality. The  Rights & Risks Analysis Group (RRAG) conducted a small survey of those excluded from the NRC in Assam to find out the amount spent by each excluded person.

The 62 respondents who were able to quantify their expenditure incurred for attending hearings before the NRC authorities claimed to have spent an average of about Rs 19,065 to attend NRC hearings. That is about 15% of our average per capita income and a much larger proportion of the income of the poor.

According to the survey many of them  had to “mortgage agricultural lands, sell their cattle/livestock, and agricultural products like betel nuts/ paddy/ betel nut gardens/ jackfruit garden, sell their only means of income like auto rickshaw, while many took loans to meet the expenses for the NRC hearings.” Apart from this here was the logistical challenge of travelling for hearings before the NRC Seva Kendra five  to ten times at far off places. The survey did not include those who had to defend themselves before the Foreigners’ Tribunals which required representation by lawyers and cost between Rs 100,000 to Rs 150,000.

Poverty levels in Assam declined rapidly from 52% to 34%  between 1994 and 2005, but since then, while the NRC exercise was under way, the state has lagged behind with the  2012 poverty level being just 2% lower than 2005 while most other states showed declines of 10% or more.  The national economy was in a boom period at this time. So could this poor economic performance be because of the disruption brought about by the NRC process in Assam?

The government must make up its mind on whether development is its priority or not. High growth and a $5 trillion economy in five years look quite difficult even now. But if it insists on moving ahead with its citizenship proposals it will lead to so much Centre-State confrontation, social strife and disruption of poor peoples lives that it may as well abandon its development goals.  The ruling party must accept that the idea of India as a secular and liberal democracy has matured over the past seventy years and is too deeply embedded in the self-image of many of its citizens and in the international image of India to be abandoned without cost.