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Economic development as political strategy

Which political interest groups stand to gain, and lose, from an India that is politically free?
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First Published: Wed, Oct 10 2012. 07 09 PM IST
The use of money and muscle power during election time is well documented—the media, which is also heavily dependent on government advertisements, has been known to be paid off to manipulate the public discourse by certain political parties and candidates for public office. Photo: Praful Gangurde/Hindustan Times
The use of money and muscle power during election time is well documented—the media, which is also heavily dependent on government advertisements, has been known to be paid off to manipulate the public discourse by certain political parties and candidates for public office. Photo: Praful Gangurde/Hindustan Times
In his seminal treatise, Capitalism and Freedom, first published in 1962, Nobel laureate economist Milton Friedman wrote that economic freedom was a necessary condition but not a sufficient one for political freedom. Friedman defined political freedom as “the absence of coercion of a man by his fellow men”. Friedman also eloquently wrote that in order for citizens to advocate anything, they must in the first place be able to earn a living.
Canada-based Fraser Institute’s annual ranking of countries on economic freedom places India at 111 out of 144 nations. By this benchmark, Indians are not politically free. Those wielding power and influence can manipulate and coerce their fellow citizens with impunity because of the abject poverty that plagues the vast majority of Indians. It is commonplace for politicians to dole out freebies at election time that include everything from loan waivers to colour televisions and laptops. That citizens unthinkingly barter their vote for short-term material benefits reflects their economic weakness, makes them susceptible to coercion and degrades democracy.
The use of money and muscle power during election time is well documented—the media, which is also heavily dependent on government advertisements, has been known to be paid off to manipulate the public discourse by certain political parties and candidates for public office. Cutting across party lines, local strongmen and Bahubalis are routinely given tickets to contest elections because of the clout they have at the constituency-level. This results in law-making bodies in states and in Delhi that are packed with several individuals who have deplorable criminal backgrounds. The vicious cycle is complete—once law-making institutions are controlled by these elements, they don’t allow laws to be made that could potentially dislodge them.
Indians will be more politically free when they are able to say no to such freebies and are able to stand up to such muscle power. This would require the two-pronged approach of economically empowering individuals so that they don’t need a government dole, and making law-enforcement and justice delivery substantially more effective.
The question then is which political interest groups stand to gain from an India that is politically free, and which interests will be certain to lose? The Congress and the Bharatiya Janata Party (BJP) are India’s two major political parties that have a semblance of a national footprint—but the political interest group that stands to lose the most short-to-medium-term is the Congress party in its current form, and the group that gains the most is the BJP.
The Congress party’s economic worldview is rooted in Nehruvian socialism, and ever since Indira Gandhi cemented her control on the party in 1966 after the demise of Lal Bahadur Shastri, its instincts have been decisively towards centralization and control of economic activity. If Nehru had socialist economic instincts, Gandhi was practically communist. Attempting to arrest the rise of C. Rajagopalachari’s right-wing Swatantra Party, which was largely funded by India’s erstwhile royals and wealthy industrialists, Gandhi abolished privy purses to the royals and proceeded to nationalize industries on an unprecedented scale. By legitimizing her family’s grip on the Congress, Gandhi’s ascent also transformed the Congress from a political institution to a party that is almost irredeemably beholden to one family. Regrettably, Gandhi’s Congress defined a Stalinist template for organizing political parties that has been copied by several regional parties since then.
This has been at a great cost to India’s democracy and economy, for the natural instinct of any political dynasty is to centralize decision-making and control citizens, not to empower them. The Congress party, once a pioneering institution that counted among its ranks some of India’s finest intellectuals and thinkers, has been reduced to an institution that seeks to preserve the Nehru-Gandhi dynasty at all costs.
Liberalization and economic development are not the natural instincts of any dynastic party because their effects undercut the legitimacy of the dynasty— and this is true for all such parties, whether it is the Samajwadi Party, Shiv Sena, Shiromani Akali Dal or the National Conference party. Such parties will never want that the populace becomes truly independent and prosperous—that would be inimical to their political interest and long-term sustenance.
BJP’s predecessor, the Bharatiya Jana Sangh, was opposed to the Congress since 1951. Jana Sangh founder S.P. Mookerjee vigorously opposed the First Amendment to India’s Constitution implemented by Jawaharlal Nehru that curtailed free speech and eliminated the right to property as a fundamental right. The only Union government that the BJP led, from 1998 to 2004, was arguably the most reformist in India’s history.
In his book, India - The Emerging Giant, Columbia University economist Arvind Panagariya credits the A.B. Vajpayee government’s economic policies for India’s sustained GDP growth rate of over 8% from 2003-2007. People have forgotten that present Congress chief Sonia Gandhi mocked the BJP’s finance minister Jaswant Singh’s projection of 8% GDP growth as “Mungerilal ke haseen sapnay.” Under the BJP-led National Democratic Alliance government, companies were privatized via strategic sale, taxation was rationalized, foreign exchange rules were relaxed, capital markets and insurance reforms were executed and the government even proposed to privatize public sector banks and annul India’s strangulating labour laws. Plans to privatize Air India and the oil marketing companies fell through—had they succeeded, the national exchequer would have saved several trillion rupees between 2004-2012. Twenty-two hotels were privatized by the Vajpayee government, and 15 are still run by the government of India.
The fact is the NDA government followed a holistic strategy to drive reforms, a strategy that empowered Indians, while the UPA government’s perverse definition of empowerment actually only serves to subjugate Indians to state power, making them dependent on government handouts. Of late, it has become fashionable to connect the NDA government’s tremendous liberalization efforts solely with former prime minister Vajpayee’s leadership. An Indian Express story recently pointed out how the BJP-NDA government had proposed 100% foreign direct investment (FDI) in retail in 2002, and now the BJP was hypocritically opposing FDI in retail. Without a leader of the calibre of Vajpayee, any BJP-led formation will veer towards swadeshi-stye socialism, we are told by various commentators and analysts.
What these analysts do not realize is that it is in the BJP’s political interest to implement reforms and drive economic development. Indeed, these analysts betray their leanings when they ignore a Manohar Parrikar cutting state taxes on fuels in Goa, or a Narendra Modi unequivocally saying that “the government has no business to be in business, it should play the role of a facilitator.”
When public sector banks are bailed out with tens of thousands of crores of taxpayers’ money, and the exercise is euphemistically termed a “recapitalization”, the media doesn’t talk about the NDA government’s proposal to privatize these banks. The Leftist consensus is so strong in India’s media that the bailout isn’t even news. Almost nowhere in the brouhaha over the diesel price hike is it even mentioned that the Congress-UPA government undid the administrative fuel pricing mechanism put in place by the NDA government that decentralized authority on pricing of fuels to the oil-marketing companies from the government—the Congress-led formation reversed an important reform because it wanted to retain political control over the price of fuel. It is also a fact of history that the NDA government attempted to privatize the oil-marketing companies—devolving price setting authority to oil-marketing companies was a step towards giving them full autonomy and transferring management control to private hands.
Why doesn’t the UPA government want oil-marketing companies to decide fuel prices? Why has the UPA government committed itself to bailing out India’s inefficiently run public sector banks with taxpayer funds? Why does the UPA government only monetize minority stakes in public enterprises and never sell them off with transfer of management control? The answer is clear - the Congress believes in retaining political control over economic activity. All these facts about the Congress and the BJP are conveniently glossed over by the commentariat.
Vajpayee probably understood instinctively that promoting economic freedom was not only in the national interest to build a stronger nation, but also a sound political strategy to weaken the BJP’s old adversary, the Congress party. BJP and NDA chief ministers have also followed this strategy, and have successfully contained the Congress, once India’s preeminent political party, across the country. The most effective political strategy for the BJP and all parties that are opposed to the Congress is, therefore, to push the Congress further right-ward on economic issues, both by delivering economic development in the states that are governed by them and in public debates.
After eight years of inaction, the Manmohan Singh government has allegedly made some movement on “big bang reforms”. That such marginal steps qualify for hyperbolic description only tells us how low our expectations have fallen.
The reality is that any government in Delhi principally led or supported by the Congress party cannot and will not proactively drive economic reforms because it is not in the party’s political interest, while any party that is opposed to the Congress has it in its political interest to drive economic development as fast as it can.
Rajeev Mantri is director of GPSK Investment Group and Harsh Gupta is a Hong Kong-based co-author of an upcoming book on financial derivatives.
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First Published: Wed, Oct 10 2012. 07 09 PM IST