The political economy takeaways from Thoothukudi

The unfurling developments in Thoothukudi, Tamil Nadu, amidst the shutdown of the Sterlite copper plant in the wake of protests violently suppressed by the police, cast a fresh light on an old problem: the debate between economic development and (what economists call) “non-economic” objectives such as protection of the environment or safeguarding other aspects of human capability and dignity, such as protection from involuntary displacement.

While the existence of a putative trade-off between economic development and such other, competing, objectives is well understood, what has perhaps been remarked upon much less than it deserves in the case of the Sterlite protests is the fact that they are occurring in one of the richest states of the union. Tamil Nadu ranks at, or near, the top not just in per capita income but in a range of human development and social indicators. This suggests that the trade-off is perhaps less steep in such a state than it would be in a much poorer state like Bihar, which routinely brings up the rear in economic and human development indicators.

Put simply, many residents of relatively wealthy Tamil Nadu, or, at any rate, residents of Thoothukudi district, seem willing to accept a reduction in (say) employment or income generating opportunities, directly or indirectly facilitated by the existence of the copper plant, in return for a perceived improvement in health outcomes and other, related, non-pecuniary aspects of human well-being.

It is an open question whether the opposition to the Sterlite copper plant would have been as vociferous had it been located in a much poorer state, such as Bihar, in which residents might feel that they could perhaps ill-afford to shun the jobs and incomes that would come their way, even at the expense of increased risk to human health and the physical environment. At low levels of income, the trade-off between income and human dignity can be very stark and very poignant indeed.

It is also noteworthy that it was the state government of Tamil Nadu which shut down the Sterlite copper plant, not the Union government, and that the party in power in the state is pointedly not one of the two major national parties. Regional parties, such as those governing in Tamil Nadu and a clutch of other important states, have an incentive to care exclusively about voters within their state, without paying heed to the putative “national” interest, at least as expressed by the bosses of the national parties in the national capital.

Thus, the Union government might be concerned that a permanent shutdown of the Sterlite copper plant, knocking out almost half of the nation’s domestic copper-producing capacity, would very likely turn India from a net exporter to a net importer of copper, and that this would be bad news for India’s already beleaguered trade balance in the midst of a surging dollar and slumping rupee. But the trade balance and exchange rates would be of, at best, secondary or tertiary concern to the state government, which could not be strong-armed by Delhi into falling in line in the national interest. Hypothetically, had the Sterlite copper plant been located in a state governed by one of the two major national parties, the outcome could have been different.

What is more, episodes such as Sterlite will not be isolated cases where the interests of certain states may be at cross purposes with those of the union. As my co-author Praveen Chakravarty and I have argued in these pages and elsewhere, India, at present, is characterized by wide, and widening, spatial inequality—both among and within the major states. The interests and incentives of relatively wealthy regions will differ from those of relatively poor regions, but the political economy will play out differently within states than among states. Thus, the Constitution empowers both the Union and state governments in different and shared areas of jurisdiction, but pays short shrift to genuine devolution of power to sub-state regions, such as districts or municipalities.

The upshot is that if residents of Mumbai are unhappy with how the city is governed (and financed) by Maharashtra, there is not much they can do, as Mumbai is rarely, if ever, electorally decisive in state elections. But if residents of Tamil Nadu are unhappy with Union government decisions that bear on their state, they can continue to vote for one or the other major regional party, and be reasonably confident that their state government will be batting for residents of the state—or, at any rate, the electoral plurality that voted them into power—and will not be beholden to Delhi.

The political economy lesson is clear: In a spatially unequal India, expect to see regional parties become increasingly important over time—both retaining strongholds where such parties are currently in power, and, perhaps, even breaking new ground in states currently dominated by the former or present putatively hegemonic national party.

The corollary is that if the 2019 Lok Sabha elections fails to produce a decisive winner, and if either of the two main national parties needs to forge common cause with an enlarged circle of regional allies in order to stake a claim to power, one can, and should, fully expect such regional allies to extract their pound of flesh and more. Some may see this as a formula for paralysis at the Centre, but the silver lining might just be a move, willy-nilly, towards greater and more genuine devolution of power and finance from the union to the states.

India may, yet, end up moving towards that “new idea” of itself.

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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