BackThe politics of growth in India
The current bout of populism is a lagged effect of the 2004-08 growth run
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On Thursday, the Haryana government announced cheaper electricity for farmers and domestic consumers. This step by the Bhupinder Singh Hooda government has come soon after the newly elected Aam Aadmi Party (AAP) government ordered an audit into the functioning of power distribution companies in the capital. Earlier, the Delhi cabinet took a decision to give water free of cost to a large segment of the population. Elsewhere too—Maharashtra notably—demands have been made for making electricity available at reduced prices.
It is easy to read this as cascading effect of one government following another in unleashing one ruinous populist measure after another. At one level there is nothing unusual in this: for at least a decade now, political parties have vied with each other in creating redistributive programmes. The United Progressive Alliance (UPA) government’s record is well-known in this respect. Most state governments led by regional parties are no more than plain redistributive machines.
To understand what is happening, it is instructive to compare the growth processes of other countries with India, historically.
Any economy can be viewed as running on two engines: investment and consumption. In democracies, on average, there is greater emphasis on consumption. In any authoritarian system, the emphasis is reverse: consumption is pushed down to what can be called the “revolutionary limit" below which the regime is threatened.
Most developed countries—Germany, Japan, South Korea and those in South-east Asia—first completed the task of capital accumulation. This was done by paying much greater emphasis on investment over consumption. To help workers and other lower-income segments of their population, inflation was suppressed. It was only after the process had reached some logical conclusion that democratization—the political analogue of consumption—was allowed to gather steam. The examples are well-known: Germany under Bismarck, South Korea under Syngman Rhee, Indonesia under Suharto all pursued investment over consumption.
The two great, and polar, exceptions to this rule are India and the US. Both countries have pursued capital accumulation and consumption simultaneously with very different results. Where the US succeeded, India has faltered time and again: its growth phases are mere intervals between long periods of consumption fuelled by redistribution. Capital accumulation has never been allowed to proceed apace. India is, of course, not—and should not—be an authoritarian country devoted solely to the pursuit of capital accumulation.
India’s current bout of populism should be seen against this background. Initially, it devoted considerable effort to growth. From 1956, when the first Five-Year Plan was launched to the mid-1960s, the emphasis on growth was unmistakable. This was also a phase in its history when the state was truly autonomous. The country was, no doubt, a democracy but one where democratic deepening had yet to occur. That phase began in 1967 when a number of Congress governments were voted out in the states and redistribution began gaining an edge over investment.
What makes this round—beginning roughly in 2007—exceptional in contrast to previous episodes is the scale and reach of populist tendencies. In 1971, when Indira Gandhi ushered populism with the slogan Garibi Hatao, the limits were reached quickly. The political crisis of 1975 ended that chapter. The round that began in 1985 under Rajiv Gandhi ended in 1991 with a balance of payments crisis. The coalition governments that presided in the 1990s did not alter the economic struts beyond a point even if their redistributive bent did affect investment and, in turn, growth. What was seen in 1971 and 1985 was inevitable as governments of the day were in no position to hold populist pressures at bay.
Both rounds (under Indira and Rajiv) lasted four years and the extent of redistributive tendencies was limited by what the government could lay its hands on. Indira Gandhi stopped when she realized that short of nationalizing the grain trade, she could not continue with her policies. Under Rajiv, India literally ran out of money.
The reason why the current phase has persisted for so long is because of the extraordinary growth run of the Indian economy from 2004 to 2008. One way to see the current political developments is as a lagged effect of that growth, one that permitted ever present tendencies to promote consumption—strong in any democracy as noted above—to become stronger. The politics of AAP, leaders such as Mamata Banerjee and the UPA is the result of that growth.
This kind of politics cannot last forever. Usually, an economic crisis or a severe downturn is sufficient to effect a course correction. It will be no different this time. The Arvind Kejriwal government in New Delhi is, at best, a sideshow.
Is India’s economic growth hostage to its politics? Tell us at views@livemint.com
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