The links between business and politics in India
There has been much greater continuity in governance from the previous government to the current government than such rhetoric would suggest
I had the pleasure recently of speaking at the second annual Oxford University Press South Asia Conclave in New Delhi, built around recently released, or soon-to-be-released, books on India in the social sciences. Political scientist and commentator Ashutosh Varshney, who is the editor of the Oxford series on India, chaired and convened the event with aplomb and his accustomed intellectual flair. It brought together scholars, politicians, journalists, and other observers of the Indian scene.
I shall confine my remarks in this column to the last panel, Business and Politics in India, on which I served as a discussant along with senior journalists Shekhar Gupta and T.N. Ninan. The panel was built around a soon-to-be released eponymous book, edited by political scientists Christophe Jaffrelot, Atul Kohli and Kanta Murali.
The basic premise of the book is well summarized by the following quotation: “The struggle between the power of wealth and the power of numbers is a perennial one in all capitalist democracies.” In other words, politicians need to win votes, but they also need to negotiate a relationship with business, especially big business, both to help generate growth which will give them revenue that they may disperse, and also more directly for purposes such as campaign finance.
This tension is even more pronounced in democracies with a large number of poor voters, in which the pressure for favouring redistribution over growth is politically irresistible. More formally, the median voter theorem tells us that if the median voter’s income is below that of the mean voter, as is certainly the case in India, the median voter, around whom political parties will gravitate, will support policies that redistribute income away from the mean voter toward those poorer than him or her. This may not coincide with what are typically considered pro-business policies.
The second main claim of the book, which is entirely plausible, is that there has been a gradual tilt towards business in the formation of economic policy in India, starting from the latter days of the reign of Indira Gandhi, through Rajiv Gandhi, further accentuated by the economic liberalization of 1991, and into the present day. My one caveat is that the book suffers from a conceptual error in conflating pro-business and pro-market economic policies. The 1991 reforms are a perfect case in point: By stripping away the licence raj, entrenched big business, which essentially had monopoly licences, was a loser, and the winners were consumers and new business that were allowed to enter and thrive in a more competitive economy.
However, it is the third and principal claim of the book that is most problematic. The authors claim: “With Narendra Modi as India’s Prime Minister at present, it would be difficult to deny the slow but definite transformation of India from a socialist political economy to one that sharply prioritises economic growth and business interests.” Elsewhere, they write: “Modi was the choice of business leaders and he, in turn, caters to narrow business interests.”
Unfortunately, the book’s editors, and by extension the authors, make the basic mistake of looking at Modi’s pre-election rhetoric and assuming, apparently without looking closely at his actual record, that this is what has characterized economic policy since 2014.
Phrases that Modi used in the election campaign, such as “maximum governance, minimum government” and “the government has no business being in business”, suggested a tilt towards both pro-business and pro-market policies. Yet, as we now know, if we did not know it then, there has been much greater continuity in governance from the previous government to the current government than such rhetoric would suggest.
Thus, Modi famously derided the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), suggesting it would be a monument to the failure of the Indian National Congress and Sonia Gandhi. Yet, after coming to power, the Modi government doubled down on MGNREGA and other Congress-era welfare schemes rather than getting rid of them, as one might have expected from a putative advocate of minimum government. Such examples abound in the Modi government’s record. There really is nothing strange about it. As the median voter theorem suggests, political parties are going to hew closely to what he wants—and that is still a fairly large dose of redistribution garbed in socialist-sounding rhetoric.
Ironically, the two largest policy shocks delivered by the Modi government—demonetisation and the goods and services tax—have both been especially unpopular with Indian business. Demonetisation, in particular, was, at least initially, apparently very popular with the poor as it appeared to cock a snook at the wealthy, presumed to be the largest holders of illicit cash. Likewise, the Insolvency and Bankruptcy Code, perhaps the Modi government’s most important economic reform, is not especially popular with defaulting company promoters who were happy with the old system.
The lessons for me are that there is a basic continuity in the Indian political economy and that fears of political capture by big business are at present overblown.
Disclosure: Oxford University Press (India) partially defrayed the costs associated with attending the event discussed in the column.
Vivek Dehejia is a Mint columnist and resident senior fellow at the IDFC Institute, Mumbai. Read Vivek’s Mint columns at livemint.com/vivekdehejia.
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