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Business News/ Politics / Policy/  Will a coalition govt in 2019 harm the Indian economy?

Will a coalition govt in 2019 harm the Indian economy?

In India or elsewhere, coalition governments have not harmed economic performance, and could even help drive growth, shows a 'Mint' analysis

BJP leader and Prime Minister Narendra Modi has already dismissed the Congress’ proposed grand alliance for 2019 Lok Sabha elections as a failed idea. Photo: Ramesh Pathania/MintPremium
BJP leader and Prime Minister Narendra Modi has already dismissed the Congress’ proposed grand alliance for 2019 Lok Sabha elections as a failed idea. Photo: Ramesh Pathania/Mint

New Delhi: Multiple opinion polls suggest that anti-incumbency sentiment is on the rise, which could thwart the ruling Bharatiya Janata Party’s (BJP’s) attempt to win a majority on its own in 2019 Lok Sabha elections. According to the latest poll conducted by Karvy Insights and India Today, the BJP is likely to win 30% of votes in the 2019 elections, and secure 245 seats, 27 short of a parliamentary majority. Previous polls conducted by Lokniti-CSDS also suggest that the BJP’s popularity is on the decline although it continues to remain the most popular party in the country.

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The collective weight of the evidence suggests that large coalitions could once again become the norm in Indian politics, come 2019. Whether it will be a BJP-led coalition or a Congress-led, it is still too early to tell.

The return of coalitions also means the return of coalition criticisms. Prime Minister Narendra Modi has already dismissed the Congress’ proposed grand alliance as a failed idea.

Critics argue that coalitions are unstable, create policy gridlock and slow growth. The implication is that strong, majority governments are decisive and better for the economy.

But is this true?

Coalition governments do not seem to harm economic performance either in India or elsewhere, a Mint analysis shows. Coalition governments have hardly hindered India’s transition to a high-growth trajectory since the 1980s. If anything, the pace of economic reforms has accelerated since the polity became more fragmented in the late 1980s.

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Taken together, the UPA and NDA are associated with the fastest growth in Indian history (growing at a CAGR of 6.4% across their tenures). Conversely, in the first five Lok Sabhas where Congress dominated (almost 70% of seats), growth was significantly lower (CAGR of 3.6%). More than just growth, there also seems to be greater economic stability in coalition times. The standard deviation of growth (a measure of volatility) between 1989 and 2014 has been lower than earlier. Only the old GDP (gross domestic product) series data has been used in this analysis.

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On other key economic indicators, there is no discernible difference. For instance, current account deficits (barring the current account crisis in early 1990s) have remained in a similar range in the pre-coalition and coalition era.

Globally too, there is little evidence of coalitions hurting growth. Coalitions are prominent in rich countries, especially in Europe where the proportional representation system generates fragmentation. Germany, Switzerland, Austria and Finland have all been ruled by coalition governments for the last 20 years, shows data from the Comparative Political Data Set (CPDS), maintained by the University of Berne.

In 2016, half of all OECD (Organisation for Economic Co-operation and Development ) and European governments were ruled by coalitions. Analysing the growth rates of coalition and non-coalition governments in the OECD between 1996 and 2016 reveals no obvious pattern, but the fastest growing economy in the OECD (Ireland) during that period did flourish under significant coalition rule.

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Some political scientists argue that coalitions can actually cause economic growth. Christophe Jaffrelot has suggested that coalition governments generate more inclusive policies because the coalitions represent a wider array of groups and communities. In his book Coalition Politics and Economic Development, another political scientist, Irfan Nooruddin shows that coalitions, because they represent different groups, create constraints on the government’s ability to change policy suddenly and arbitrarily. These ‘credible constraints’ result in policy stability, attracting longer-term and more stable investment, he suggests. One casualty of the coalition era has been the parliament, which has seen much greater logjam than before. The number of bills passed has decreased significantly from 360 bills in the first Lok Sabha (1952-57) to 179 under UPA-II (2009-14).

That apart, coalitions seem to have a solid record in economic management.

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Published: 29 Aug 2018, 09:17 AM IST
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