In a sense, the second United Progressive Alliance (UPA) government bears resemblance to the confused coalitions of the mid- and late 1990s. These regimes were beset with jockeying for crumbs between coalition partners—something that paralysed the policymaking process. Then, as now, there were allegations of corruption against powerful constituents (the fodder scam comes to mind). It is as if India faces a return to economic and political uncertainty every decade.
Lest someone looks at this family portrait and says there is something rotten in our politics that makes this possible, here is a clarification: The genetic basis of this recurring confusion is entirely different. The first UPA government did have the bad coalition excuse, but its second avatar is something very different.
Governments that come to power in New Delhi, subject to their needs of survival and aims for a future return, attempt to get three things right—economic growth, price stability and, increasingly, security. Once this tripod is in place, other, more ambitious goals—such as those related to foreign policy and long-term prospects of the country—kick in. Each has a different strategy to achieve these; in some cases, one leg wobbles while the others are stable. But overall, most governments are aware of the constraints within which they have to function. And it has worked.
The UPA’s “system”, if one may call it that, is different. Instead of being content with promoting a balance between growth and price stability and letting the markets take care of distribution, as had been the case after 1991, its ambitions are of a different order. Somewhere, its managers concluded that 8-9% annual growth is a “given”. If this were true, the big question was how to use this happy fact politically? The answer, to use an American euphemism, was: spread the wealth around. This came naturally to a party whose DNA was set in the middle of the last century.
As a result, the drivers of future growth—key reforms on labour laws, further liberalizing the financial sector, foreign direct investment in the retail sector (important from an inflation-management perspective), among a host of others—have been ignored. The good growth seen in first 10 years of the 21st century came from the reforms initiated in 1991. If growth is to be sustained in the next 10 years, these reforms are vital. These reforms have been ignored almost in toto. Strong growth is a public good— creating opportunities on its own where few are available in its absence even with strong government intervention. Instead, the temptation to directly redistribute resources was too strong to resist.
The strains on this strategy are already visible: even as the government continues to spend billions of rupees in plain redistribution, inflation has gotten out of hand. The Reserve Bank of India has been forced to apply hard monetary brakes. Even the most optimistic observer does not believe that India can touch the 9% growth mark in the next two years, leave alone figuring a way to turn double-digit- growth dreams into reality. With lower growth, any sensible government would reduce this sort of spending. And if budgetary noise is anything to go by, the incumbent has made promises of fiscal consolidation. Whether this economic sense is adhered to is a different matter: The political managers of the lead party of the coalition, the Congress, may certainly prefer to go in for a scorched-earth policy. Social sector expenditure may continue unabated, and a future government forced to pick up the tab. The next three years will show which way matters proceed—towards sanity or towards a ruinous political calculus. Indications are, however, that the latter course will be chosen.
Had this been a matter of one government carrying out experiments in longevity, it could have been excused. As mentioned earlier, every regime in New Delhi spares a thought to its survival. But this one goes well beyond that.
The Congress remained in political wilderness for close to a decade from the mid-1990s to 2004. Even the P.V. Narasimha Rao government was considered an aberration as it experimented with a “neoliberal” agenda. This was a period of exile for the other, non-governmental prop of the Congress system: the intellectuals who bestowed legitimacy on populist governments. A decade of strong growth and decreasing poverty made them and the party nervous. Gone were the sinecures; heavens forbid, what if the markets actually worked? The present-day onslaught on the so-called “market ideology” is part of the new strategy to somehow make failed ideas of the past relevant again. A strong dose of redistribution, coupled with carefully planted doubts about poverty numbers and the benefits of markets, is expected to work magic. The party’s strategy in the past and for the future shows that the missing reforms are not due to lack of political space, but due to lack of belief in the markets.
Today, matters are in a flux. Growth is slowing, inflation is high, and corruption unabated. This may or may not change for the better. But there was no reason, save pernicious politics, for them to worsen in the first place. That is the legacy of the first two years of the UPA’s second term.
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