Perhaps the most pernicious influence on economic policymaking in recent years is now on the verge of exiting the present government. If Mamata Banerjee and her cohorts leave the United Progressive Alliance (UPA), the result will be a more rational coalition. There is no doubt that other alliance “partners” will demand their pound of flesh. A careful evaluation of costs, however, will reveal that whimsical obstruction of policy and blackmail at the drop of a hat are more expensive than paying off parties that provide outside support to the government. The latter option will smooth the path for policy continuity.
Having said that, it is important to trace the roots of the present mess. It is not that Banerjee discovered bad economics overnight. She was for long a member of the National Democratic Alliance government that raised fuel prices a record number of times and engaged in liberal economic policies to an extent the UPA can only dream of. Two factors have been at play. One, the UPA itself unleashed the floodgates for populist politics that led to ruinous economic policies. Two, Banerjee is competing in a politically very tough state. She is competing on the Left’s political terrain and has to outdo it in populism. The results are for the country to see.
The result has been the setting of a template that is hard to dismantle. If today, the Manmohan Singh government has re-discovered the virtues of fiscal prudence and pro-growth policies, that does not mean other political parties will follow suit. If anything, they remember the UPA’s win in the 2009 general election was due to a populist binge. They have imbibed the right political lesson. There is no need for them to learn the right economics: after all, a majority of India’s political parties are territorial creatures and have no need to develop a national perspective. It is this pernicious legacy that haunts Singh as he takes corrective steps.
Tactically, it would have been better if these decisions had been taken 12-18 months earlier. At that point, no party would have dreamt of facing the electorate. Today, the Samajwadi Party and Banerjee’s outfit can compute the costs and benefits of elections now or in the months ahead. Even if the Singh government manages to survive, these calculations will remain fixed in the minds of these parties. Irrespective of the sweets the UPA now distributes, these parties will try to game the election schedule now.
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