The economy is highly relevant to poll outcomes but isn’t it a two-way street?

Asked in an interview last week how relevant the current economy—and how people felt about it—was to India’s Lok Sabha polls, finance minister Nirmala Sitharaman replied that it is relevant.
Asked in an interview last week how relevant the current economy—and how people felt about it—was to India’s Lok Sabha polls, finance minister Nirmala Sitharaman replied that it is relevant.

Summary

  • As India’s finance minister has indicated, economic growth matters as a welfare enabler, above all. While politics has settled this point, how politics itself could shape our economic destiny is open to contest.

Asked in an interview last week with Hindustan Times how relevant the current economy—and how people felt about it—was to India’s Lok Sabha polls, finance minister Nirmala Sitharaman replied, “It’s very relevant because, probably for the first time, people have seen issues pertaining to their economic well-being being taken up and implemented. The word ‘beneficiary,’ laabharthi, is everywhere in the country." The FM went on to cite instances of how people had benefited from various central schemes, such as for housing, cooking gas, piped water, toilets and loans for tiny businesses. “The economy matters to the common man." Asked about inflation as a factor, she said it was within the central bank’s tolerance band, outlined a set of measures taken by the government to contain food prices, and raised a rhetorical question on the bank’s policy stance to play down price tags as a worry. To observers who lay store by an old American line, “It’s the economy, stupid," the Indian FM’s answer might sound unsatisfying. If so, the local context would urge a rethink.

From a political perspective, data on economic growth and its drivers is far less salient than what it achieves by way of budget expansion for the upliftment of multitudes in need of government aid. We have more than 800 million Indians on our rolls as beneficiaries of free food handouts. Whatever the poverty line, this number suggests that welfare help needs to cover a majority of Indians. Since the needy are so numerous, a dashboard of macro variables tracked by investors would fail to reflect what matters to most voters. Before the Bharatiya Janata Party (BJP) led by Narendra Modi came to power in 2014, rightist critics of Indian policy spoke of “premature welfarism" as a drag on our economy’s emergence. Modi’s slogan of “Minimum government, maximum governance" was taken to presage minimal intervention in a market economy, a capitalist turn away from public grants and do-gooder outlays. The rollout and enlargement of various schemes by the Modi administration did surprise analysts who were expecting a break from the socialist template put in place by Congress rule, but it was a call of judgement in sync with an imperative of politics: The benefits of progress must palpably be delivered to the electorate. The classic constraint on this approach is the inflationary pressure that fiscal excesses can result in. However, a central bank mandate for price stability issued in 2016 by the Centre was designed—at least partly—to stem voter discontent on this front.

That economic performance pales in front of the BJP’s saffron ideology as a vote-puller is another argument often made. The party’s confidence in victory, though, might not have been the same without its welfare emphasis. Fiscally speaking, this looks like the default setting to govern a country of so many have-nots. What’s left contestable is the role that inequality plays in our economy and the well-being of citizens. India’s demographic profile is a portrait of disparity. A flatter pyramid would let India emerge as a larger market, reducing the risk of an economic plateau caused by uneven avenues for upward mobility, but we have not been able to find a path that flattens the pyramid without flattening growth. Welfare packages, while vital to this aim, might not suffice. Do social conditions need to be supportive? If so, politics and economics may be inextricably linked not just from one election to the next, but also in determining the prosperity we eventually attain.

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