Fiscal recklessness and policymaking in India

The apex court has frowned at political populism
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First Published: Wed, Jul 10 2013. 06 49 PM IST
Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint
On the eve of elections, it is common for political parties to promise the moon to voters in their elections manifestos. Once voted to power, these promises are tailored to match political goals, very often close to another round of elections. Contemporary accounts of policymaking in India demonstrate this clearly.
Last week, the Supreme Court cried a halt to this practice. In a case from Tamil Nadu, a petitioner challenged the state government’s distribution of freebies to voters and argued that election manifestos be brought under the purview of the model code of conduct that kicks in close to elections. The court, in turn, held that: “Although the law is obvious that the promises in the election manifesto cannot be construed as ‘corrupt practice’ under section 123 of the Representation of the People (RP) Act, the reality cannot be ruled out that distribution of freebies of any kind, undoubtedly, influences all people. It shakes the root of free and fair elections to a large degree.”
After the order, the Election Commission (EC) is expected to hold consultations with political parties on the subject.
Of immediate relevance here is the long-standing controversy over reining in the discretionary spending habits of governments—experience shows that this is something that, when left unchecked, has led to the economic bankruptcy in many countries.
India’s experience in these matters has been less than happy. The country’s tryst with containing profligate government spending began after the external payments crisis of 1991—the reason for which was rooted in the deteriorating fiscal scenario in the 1980s. This culminated eventually, drawing from fiscal experiences in the US and the European Union, in the imposition of rule-based constraints on fiscal spending by the National Democratic Alliance which passed the Fiscal Responsibility and Budget Management Act (FRBM) in 2003.
The Act, after much chopping and changing, envisaged limiting the government’s fiscal deficit to below 3% of GDP by 2008-09. The United Progressive Alliance was well on course to meeting the deficit target, with the deficit standing at 2.5% of GDP in 2007-08, but it soon ballooned to 6% in 2008-09, reaching a high of 6.5% the very next year. This huge jump was justified in light of the global economic slump when counter-cyclical fiscal policy stimulus was deemed essential to putting the economy back on the path to growth. Since then, there has been no looking back: fiscal recklessness is now part and parcel of policymaking in India. The excuses change, but the end result remains the same. High fiscal deficits, high inflation, the inability of the central bank to bring down interest rates and emasculated growth are visible to all. What is clear from India’s experience with rule-based fiscal policy over the last 10 years is the tendency for the executive to over-step the very rules it laid down when it came in the way of marching towards populist goals. For the current government, dishing out populist welfare schemes has obviously been the most favourite recourse as far as improving electoral prospects is concerned. Its issuing of an ordinance—an extraordinary legislative power designed for use in emergent situations only—to enhance “food security” at a time when there has been bumper grain production says enough about real intentions and is a good example of this trend.
One solution to this welfare conundrum is to adopt a revised framework that would make it binding on the government to strictly abide by FRBM rules. But given the current scenario where the legislature wields overwhelming influence over spending decisions, it is quite unlikely that such a legally-binding setup will be enforced by the executive or the legislature for that matter. This in all likelihood is an illusory solution.
What are the options available to stop this economically ruinous trend? Framing another law will only lead to a dead end as the FRBM Act shows. Under the Constitution, Parliament is “sovereign”. But Parliament as a corporate body has interests and incentives that often deviate from what prudent practice demands.
A more viable option will be for EC and the higher judiciary—the apex court and the higher courts—to devise a coordination mechanism to monitor policy pronouncements of governments—Union and states alike—close to elections. EC already enforces the model code of conduct with some efficiency. The code is enforced six months prior to polling. A joint EC-judiciary mechanism could extend this period to a year. This way, the danger of one institution gaining overweening power over elected representatives and government can be avoided. This need not necessarily cramp the space of governments to administer and govern the country. Under this mechanism, policy decisions could be examined and reviewed to see if they are geared to electoral ends. Normal policymaking can go on as before; only the excesses will be checked.
Should policymaking close to elections be subjected to judicial review? Tell us at views@livemint.com
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First Published: Wed, Jul 10 2013. 06 49 PM IST
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