Mr Modi, bad marketing has its costs and the govt will have to pay for it

narendra_modiVivek Kaul

Over the last one month some speaking engagements have taken me out of Mumbai. While travelling, I have spoken to people from different strata of society—from drivers to waiters to economists to businessmen to investment bankers.
There seems to be a great belief among people that the Narendra Modi government is likely to make some difference in the life of an ordinary Indian over the next few years. I maybe merely stating the obvious here, but it will soon become clear why I am doing that.
The marketing and communication that has accompanied Narendra Modi’s ascent to become the prime minister of India has been brilliant. Also, for the first time the message of economic development has been sold to people. The belief that this marketing and communication has created has stayed even after Modi has been in power for close to nine months.
But along the way some bad marketing has also crept in. Take the case of various leaders of the Bhartiya Janata Party(BJP) even taking the credit for bringing down oil prices.
As a recent editorial in the Business Standard pointed out: “The president of the ruling party, Amit Shah, for example, repeatedly took credit on the campaign trail for lower prices, as did the Union home minister, Rajnath Singh. Even the prime minister has mentioned lower fuel prices, though he has specified that it is because of his “luck”.”
In my conversations over the last one month I have realized that many people particularly in the lower strata, seem to believe, that the Modi government has brought down petrol and diesel prices. This is an impact of the bad marketing on part of the BJP. When I put this to a friend who works for a foreign brokerage house, he replied: “you market what sells”. “And if people are believing in it, that means it’s selling.”
Nevertheless that is just one side of the picture. The price of the Indian basket of crude oil on May 26, 2014, the day the Modi government was sworn in, was $ 108.05 per barrel. It fell by around 60% to $43.36 per barrel on January 14, 2015. This was the period when the BJP leaders were busy claiming credit for the fall in oil price, whenever an opportunity presented itself.
What they did not tell people was that only a very small part of this fall in price was passed on to the end consumer through a cut in the price of petrol and diesel. Take the case of price of petrol in Mumbai—the price fell by only 17.05% between end May 2014 and mid January 2015. The price of diesel during the same period fell by around 14.9% in Mumbai.
The primary reason for this discrepancy has been that the government tax collections have not been up to the mark. Take the case of indirect taxes(service tax, customs duty and central excise duty). For the first ten months of the financial year between April 2014 and January 2015, the total amount of indirect taxes collected went up by 7.4%, in comparison to the last financial year. The budget had assumed a 20.3% jump in indirect tax collections. And that hasn’t happened. A little under one third of the indirect tax target still remains to be collected.
This slow growth in indirect tax collections has forced the government to increase the excise duty on petrol and diesel multiple times since October 2014. In the process it hasn’t passed on the total fall in the price of oil to the end consumer.
There is nothing wrong here, a government needs to constantly look at its finances and make decisions accordingly. The trouble is that since mid January oil prices have started going up again. Between January 14 and February 13, 2015, the price of Indian basket of crude oil has gone up by 34.7% to $ 58.43 per barrel.
This increase in price has forced the oil marketing companies to
increase the retail price of petro and diesel by 1.45% and 1.3% respectively, since February 16. If the oil price keeps going up, then the oil marketing companies will have to keep increasing the price of petrol and diesel. And this will put the BJP which had been claiming that the Modi government brought down the price of petrol and diesel, in a tough spot.
Those who believed that the government was responsible for bringing down the price of petrol and diesel, will now ask—if the government can bring down the price of petrol and diesel, it can also ensure that their prices do not go up.
If this belief starts to gain hold, then the government can be forced to hold steady the price of petrol and diesel, and in turn compensate the oil marketing companies for the under-recoveries they suffer in the process. This will lead to a lot of other problems, most of which the country has already suffered during the ten years of Congress led UPA rule.
Indian politicians have not marketed economic reforms ( allowing listed companies to sell a commodity at its right price is also economic reform) at all to the citizens of this country. In fact, the spin that they have given to economic reforms has hurt this country.
Instead of claiming credit and saying that the Modi government brought down prices of petrol and diesel, the BJP politicians should have been telling the country why it is important to sell things at their right price. As Mihir S. Sharma writes in his book
Restart—The Last Chance for the Indian Economy: “India has paid for politicians unable to talk openly about how economic reform is not just necessary, but beneficial, and not just beneficial, but right.”
Such communication isn’t very easy to dumb down, but that does not mean it cannot be done. It’s just that nobody has bothered to try till now. What makes the process even more difficult is the fact that every time a ruling party loses a state election, it gets blamed on economic reforms or the fact that the other side promised freebies, which the ruling party did not.
Take the case of the recent elections in Delhi, where the BJP was wiped out. Political pundits took no time in saying that the BJP lost because the Aam Aadmi Party promised freebies. As Sharma writes: “From [Narsimha] Rao all politicians have inherited the ability to attribute every electoral reversal to economic reforms.”
What we have seen till now is economic reforms by stealth. What is essentially needed is some proper communication on behalf of the government, where economic reforms can be explained in a simple way to the common man. That is the kind of marketing that is needed. And it would be great if the Modi government can get around to doing that.

The column originally appeared on as a part of The Daily Reckoning, on Feb 17, 2015