Photographer: Dhiraj Singh/Bloomberg

Modi Irks Long-Time India Backers to Grow Base Ahead of 2019

  • Small businesses protest jewelry tax, foreigners in retail
  • Modi's party says moves won't affect electoral prospects

For three generations, Kumar Jain’s family of gold traders in India’s financial capital has been among the staunchest supporters of Prime Minister Narendra Modi’s party. Now they’re thinking of looking elsewhere.

Modi in March imposed a 1 percent excise duty on jewelry, prompting protests from thousands of manufacturers and artisans across India. Jain says the extra burden is dealing a financial blow and will cost Modi the support of most of the country’s roughly 3.5 million jewelers, designers and artisans.

QuickTake India's Aspirations

Kumar Jain
Kumar Jain
Photographer: Dhiraj Singh/Bloomberg

"Not just us, but the entire industry is upset with the government," said Jain, the owner of U.T. Zaveri jewelry store in Mumbai’s Zaveri Bazaar, the biggest bullion market in India. "If the government doesn’t support us, how can we support them?"

Small retailers like Jain who once formed the base of Modi’s Bharatiya Janata Party are feeling abandoned as he moves to consolidate support among rural voters ahead of the next national election in 2019. Besides the levy on jewelers, he has also removed barriers for foreign companies like Wal-Mart Stores Inc. to get a bigger slice of India’s $600 billion retail market.

At the same time, Modi announced plans to double farmer income in five years with investments in irrigation, food processing and rural roads. The political calculation is simple: Villagers make up 70 percent of India’s 1.3 billion people, and Modi needs their support to stay in power.

‘Strategic Shift’

"It’s a strategic shift even at the risk of estranging their traditional support base," said A.K. Verma, director at the Centre for the Study of Society and Politics. "The BJP is concentrating on 2019 -- they don’t want to take any chance."

Prior to the 2014 national election, Modi struck a different chord. He criticized the previous Congress party-led government for moving to open multi-brand retail to international investors, saying in 2012 that it was "giving a new definition of democracy -- of the foreigners, by the foreigners and for the foreigners."

Yet the vote redrew India’s political map. With inflation soaring and citizens seeking change after 10 years of Congress rule, Modi’s BJP won the biggest majority in India’s lower house in three decades. In doing so, it attracted a range of new voters and expanded its reach into parts of India where it previously had little support.

Pro-Poor Government

The excise tax on jewelry will only affect businesses with revenue of more than 60 million rupees ($901,000) in a financial year, meaning it won’t impact small retailers, Finance Minister Arun Jaitley told lawmakers last month. Excise duties are already applied on items like soap, toothpaste and razors, he said.

The BJP says its strategy hasn’t changed, and only a small group of traders are temporarily upset at some policies, according to G. V. L Narsimha Rao, a party spokesman. He said the moves wouldn’t affect the party’s electoral prospects.

“Our government has a very strong tilt toward the poor, farmers and marginalized groups," Rao said. “That doesn’t mean the government takes a decision to cause discomfort to any particular section. The government takes decisions in the national interest."

Core Voters

Many in the party feel differently, however. Praveen Khandelwal a former BJP treasurer in Delhi, said the party is now turning its back on those that helped it expand since its formation in the 1980s. Mom-and-pop shops would spread the BJP’s message among dozens of customers who stopped in each day.

"There is a change in the mindset," said Khandelwal, secretary-general of the Confederation of All India Traders, which says it represents about 60 million small businesses like shopkeepers, street vendors, taxi operators and artisans. While there are at least two farmers for every small trader, agriculture contributes less per head to the overall economy.

"The expansion of the BJP can be attributed to the trading community," Khandelwal said. "You can’t take the risk of putting your own core voter on the anvil and ask for the support of others."

Food, Cigarettes

Besides the jewelry tax, Modi’s supporters were irked by moves to allow 100 percent foreign direct investment in online sales as well as marketing of food made in India. Local traders fear that they won’t be able to compete against global retail giants such as Wal-Mart, Alibaba Group Holding Ltd. and Carrefour SA under the new rules, which may also exempt foreign food retailers from procuring products from local small enterprises.

Zaveri Bazaar in Mumbai.
Zaveri Bazaar in Mumbai.
Photographer: Dhiraj Singh/Bloomberg

Cigarette makers also shut their factories last month to protest an order for health warnings to cover 80 percent of a cigarette pack. The Associated Chambers of Commerce and Industry of India said it may put more than 45 million jobs at risk.

When Modi first took office, he emphasized measures that would kickstart India’s economy, including proposals for a national sales tax and easier land acquisition. That ended up backfiring, with his opponents accusing him of favoring big business over farmers. They also blocked the goods-and-services tax in the upper house of parliament, hurting his standing with foreign investors.

‘Betrayed’

A landslide election defeat last November in Bihar, India’s third-most populous state, prompted Modi to adopt a more farmer-friendly tone in the budget. He’s hoping that will pay off both next year when India’s most-populous state of Uttar Pradesh goes to vote, and in the 2019 national polls.

At the gold and silver market in Zaveri Bazaar, the strategy amounts to a big gamble. Jewelers unhappy with the excise tax are displaying black flags in their shops as a mark of protest. Many like Suresh Hundia said they won’t vote for the BJP in the next election.

"When the Congress government tried to impose the tax in 2012, the BJP had supported us in rolling back the duty," said Hundia, owner of Hundia Exports Ltd. "Now they have betrayed us."

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