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The political economy of incoherence

The political economy of incoherence
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First Published: Fri, Oct 21 2011. 12 44 AM IST

Union Agriculture Minister Sharad Pawar . Photo: PTI
Union Agriculture Minister Sharad Pawar . Photo: PTI
Updated: Fri, Oct 21 2011. 12 44 AM IST
This week, Union Agriculture Minister Sharad Pawar asserted that the authority of the United Progressive Alliance (UPA) government has been weakened. In this vacuum have stepped “other forces”—Pawarspeak for the judiciary and the so-called civil society groups.
He only spoke what is now obvious even to the most casual observer. The Union cabinet has for all practical purposes ceased to work as a coherent group. Ministers often speak at cross-purposes and disagreements often delay, if not derail, legislation. Large swathes of policymaking are now out of the purview of the cabinet, with “civil society” groups being agenda setters. Government decision-making, slow even at the best of times, is now in a state of paralysis.
Union Agriculture Minister Sharad Pawar . Photo: PTI
Pawar also highlighted the government’s fiscal problems, the loss of face and decline in credibility due to corruption in high places. While these issues appear disparate, they are the products of the UPA’s outlook, or rather the political calculus put in place since 2004.
More than anything else, it is a remarkable strategy gone wrong. The political division of labour between Prime Minister Manmohan Singh and Congress Party chairperson Sonia Gandhi in 2004 was expected to sort out some of the trickier problems that had hemmed the previous, National Democratic Alliance (NDA), government. Singh could focus on crafting and implementing policies that would further the UPA’s political stock, if not electoral fortunes. Innovative schemes such as the rural employment guarantee scheme and a modicum of protection for the rights of the poor and downtrodden were part of this vision. These included, among other things, a halt to “land grabs” and imposing limits on mining. It was assumed that with 8.5% growth every year, the government had enough cash at hand to execute innovative, if somewhat expensive, ideas. Victory in the 2009 general elections was attributed to these policies; a formula for cementing future wins was, it seemed, at hand.
Pawar’s statement should remove that illusion. If anything, that “formula” is powering a quiet crisis in India. What went wrong? Consider its economic leg first. Massive government spending from 2007 led to an inflationary environment. The Reserve Bank of India (RBI) has aggressively tightened monetary policy since March 2010. This should have led the government to a pause and made it rethink its loose fiscal policy. In reality, it cannot do that as committed, political, expenditures are part of the original formula. So what is being seen is a steadily worsening mix of fiscal and monetary policy. High interest rates, when spending is steady, can’t do much about inflation, but can certainly hit growth. This is plainly visible now. The government is, so to speak, in twin trouble. On the one hand, the budgeted fiscal deficit target of 4.6% of the gross domestic product looks unlikely. On the other, slow growth and lower tax revenue will put even more pressure on the overall fiscal balance.
This leads directly to the political side of the formula. There are two aspects to it. One, the huge spending binge of recent years, coupled with large transactions involving natural resources (oil and gas, spectrum, etc) in official hands in an inherently corrupt environment, fuelled the kind of forces that Pawar hinted at. Two, slow growth and high inflation, coupled with very visible corruption in high places, are hardly a recipe for political success. Changing the top political leadership is unlikely to dissolve the structural problems that have led to the present situation.
Usually, economic performance is often assumed to be of secondary importance in electoral politics. This was especially true in India, where a potent mix of caste and manifold identities imparts a very local flavour to politics. Not anymore. The country is now one big urban continuum—however one may define urbanity. In this milieu, growth and economic performance matter. That is the weak part of the UPA’s strategy: that rural India will deliver the required votes is a weak assumption in this changing landscape.
There is no doubt that the UPA government can continue with its present course. It can continue spending, or rather throwing money, at its pet schemes in the hope they will deliver. A favourable outcome, however, is increasingly difficult. More worryingly, when the present government departs, it would have left a fiscal black hole for the next government. Given that one can’t defy gravity, some scale-back in spending is likely. After the serious inebriation of these years, the danger then will be that of a social backlash, even if lower spending would be prudent in the long run.
The chaos and incoherence in government and society alike is the product of a profoundly misguided vision, one that visits and revisits India every now and then. The first phase of Indira Gandhi’s ascendancy, from 1969 to 1974, was marked with similar developments— socialist rhetoric, nationalization and, yes, anti-corruption movements. Later, in 1980, she effected a course correction. Little, it seems, has been learnt from that experience. From a Marxian vantage, a farce has been re-enacted.
Siddharth Singh is Editor (views) at Mint.
Comments are welcome at views@livemint.com
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First Published: Fri, Oct 21 2011. 12 44 AM IST