Take heart: Coalition governments have led India’s reforms story so far

People worry that coalitions crimp governance, given how conflict and compromise could arise from accommodating diverse interests. (Hindustan Times)
People worry that coalitions crimp governance, given how conflict and compromise could arise from accommodating diverse interests. (Hindustan Times)

Summary

  • Stock-market investors should not miss the impressive record of coalitions in driving India’s economic growth. Nor the fact that even single-party governance can fail on major reforms. It takes political nous, not a brute majority.

India’s stock market bared a case of frayed nerves on Tuesday, with election results denying any single party a majority in Parliament and necessitating coalition rule. People worry that coalitions crimp governance, given how conflict and compromise could arise from bargaining by and accommodation of diverse partners and interests. Such worries are exaggerated. 

Our experience shows that coalitions can yield good policymaking and governance, even as they appear fractious. The record also shows that the virtues of single-party rule are often overstated. India has had coalition governments since 1989, although the National Democratic Alliance (NDA) regime of the last 10 years was run by a single party, as the BJP had a majority on its own. Governments since then have heralded, expanded and presided over India’s economic reforms to produce the economy’s best period of growth in history.

The Narasimha Rao government was in a minority when it launched the country’s economic reform programme in 1991. It did away with industrial licensing and mandatory clearances from a monopoly watchdog, opened up trade, liberalized the exchange rate, joined the World Trade Organization and overhauled the securities market. 

Also read: Narasimha Rao can truly be called father of economic reforms in India: Manmohan

The United Front government that ran the country over 1996-98 was short-lived and given to internal squabbles, but it dematerialized shares, allowed foreign investors into debt, brought in a structured exploration and licensing regime for hydrocarbons, set up a statutory regulator for telecom and reduced personal income tax rates to levels that still hold. 

After that, Atal Bihari Vajpayee led two NDA coalitions that took reforms forward. The Centre rationalized customs and excise rates, laying the ground for value added taxation later. It initiated highway development and built rural roads, bringing the hinterland closer to commercial hubs. 

It reformed telecom policy to ease regulatory shackles over technological potential, dissolving rigid rules to transform the sector from a low-volume, high-margin business to a low-margin, high-volume one. A successor coalition of the United Progressive Alliance (UPA) took that reform forward, issued more telecom licences to intensify competition, brought down telecom tariffs and made services widely affordable. 

Also read: UPA finally walks the talk on reforms

Greater tele-density and lower charges expanded digital networks for a boom led by information technology. The UPA also baked inclusion into policy, with laws to institute the right to information and a distress dole in the guise of a rural job guarantee, apart from forest dweller rights. For infrastructure, it innovated with public-private partnerships, which yielded modernized airports in Delhi and Mumbai, several large power plants and networks of tolled highways, among other projects. 

The UPA initiated Aadhaar and laid the foundation for UPI services and other aspects of our digital public infrastructure. It also got rid of a global tech-denial regime by signing a nuclear deal with the US in the teeth of stiff opposition. It sustained an impressive compound annual growth rate of 6.8% over its 10 years in office.

Also read: Mint Quick Edit: Stock market jitters: Over-bearish on a coalition government?

The de facto single-party regime of the last 10 years dodged tough decisions, first on land acquisition and then on farm policy reform. Among its big successes, while bankruptcy easing and inflation targeting may have had the party’s signature, the GST rollout came about only because a coalition-style search for consensus was employed to win other parties over. Evidently, it is political nous, rather than a brute majority, that gets things done.

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