Opinion| Will bad politics edge out good economics in 2019?
It may be the perfect moment to effect course correction in public welfare spending
The outcome of the recent round of state elections have not only injected enormous uncertainty over the course of the 2019 general elections showdown, but also holds out posers for the future economic narrative as all political parties have begun to flirt with populism.
The impressive comeback by the Congress party led by Rahul Gandhi was fashioned, as the party likes to portray it, around the promise of loan waivers in the three states of Chhattisgarh, Madhya Pradesh and Rajasthan. Similarly, the landslide return of the Telangana Rashtra Samiti (TRS) in Telangana is being attributed to a government policy entailing funding of input costs. And, over a year ago, Prime Minister Narendra Modi had, despite steadfastly opposing loan waivers till then, promised a package for farmers in Uttar Pradesh—a verdict the Bharatiya Janata Party (BJP) won in an unprecedented landslide.
And then last week, the Union commerce and industry ministry decided to tweak the rules for e-commerce. The new norms will put the brakes on the likes of Amazon and Flipkart, something the traditional brick and mortar shops—traditionally a key political constituent of the BJP who feel alienated after the rollout of demonetization of high-value currencies and the goods and services tax—have been lobbying for the last one year. At the same time it runs the risk of alienating foreign investors who are always averse to mid-course corrections in policy.
Connect the dots and it is clear that the compulsions of electoral politics is beginning to define the economic narrative. And every political constituent recognizes this compulsion and is beginning to mount pressure on the politicians.
So far the farmers and traders have been accommodated. The middle class, too, sooner if not later, will find its voice; yes, they have been rewarded with low inflation and perceptible drop in levels of corruption, but feel neglected now that other segments are receiving freebies.
Politics is always about managing such trade-offs in society, something that eventually shapes the winning narrative. Most often it is rarely about what you do; instead it is what you are seen to be doing. Hence, to simplistically assume that the promise of populism can generate a wave in favour of a particular political party is misplaced. It is always about managing the perception.
Take, for instance, demonetization. While no one was convinced about the economic logic, the political intent—of tackling big-ticket corruption and black money—was compelling to the voter, especially in Uttar Pradesh.
This said, the reality is that rural India desperately needs to be revived; and that it is not just about farm distress. There are enough indicators—declining rural wages, shrinking rural demand, food inflation in negative territory and rising inequality—suggesting that it needs a reset. But pump priming may not be the solution; at best it will provide short-term relief (like the ₹60,000-crore farm loan waiver in 2008), but not a sustainable solution.
It may actually be the perfect moment to effect a course correction in public welfare spending. The Ujjwala scheme for cooking gas, which weeded out the rich from the subsidy regime by seeding consumers with their Aadhaar number, may well serve as the blueprint.
Ironically, the Modi regime has at its disposal the recommendations of a high-level expert group headed by former finance secretary Sumit Bose, which it may have overlooked or chosen to ignore.
Drawing from the findings of Socio-Economic Caste Census (SECC) of 2011, it found that of the 179.7 million rural households, 107.3 million faced deprivation. The expert group recommended the creation of a social registry combining the SECC data and the Temporary Identification Number (TIN), a unique number to help identify each household, to create a database of the beneficiaries.
The idea was to undertake customized social assistance on the basis of the ranking of beneficiaries by deprivation criteria—prioritizing those in extreme poverty. Implementing it will be an example of good economics and good politics.
But then, are India’s politicians listening?
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics. His Twitter handle is @capitalcalculus.
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