India is going through a period of not just political uncertainty, but economic instability as well. But are the two connected? Prime Minister Manmohan Singh made a prestige issue of clinching the nuclear agreement with the US in the teeth of opposition from the Left, at the risk of shortening the term of his government.
At the same time, inflation, as measured by the official wholesale price index, had exceeded 11% after a gap of thirteen years, interest rates were hardening, and oil prices the world over had touched record highs.
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| Paranjoy Guha Thakurta |
Politics and economics are often sought to be separated. But the two disciplines are intimately interlinked. Yes, politics intrudes into every household, in power relations between spouses and among siblings. So does economics, by determining what individuals eat and how they live. To those who argue that bad politics constrains economic reforms, one of Prime Minister Singh’s favorite remarks is that there is no difference between good economics and good politics.
To return to the questions formulated earlier: Is there a connection between the country going through political turmoil and economic upheaval? Or is it just a coincidence? While it is true that political stability is invariably welcomed by industrialists, it is also correct that political uncertainty is not necessarily accompanied by a slowing down of economic growth.
India is by no means unique among democratic nations in having coalition governments. This country has borrowed and adapted from the United Kingdom a form of democracy often called ‘first-past-the-post, winner-takes-all,’ which has its own set of advantages and disadvantages. In France, which has a system of proportional representation, and in Germany, which has a combination of proportional representation and constituency or seat‑based direct elections, coalition governments have been more a rule than an exception after the conclusion of the Second World War in 1945. In both these countries, coalition governments have not usually brought about political instability.
For instance, there is in Germany a legal provision that an incumbent government cannot be voted out of power without simultaneously voting in an alternative government in between general elections. In recent years, for obvious reasons, many have suggested that India could adopt a similar system to avoid frequent elections that are expensive to conduct. Those opposed to this suggestion have argued that even if political instability results in frequent elections having to be conducted, this is a ‘small price’ to pay to ensure the existence of a vibrant and dynamic democratic polity. These arguments and counter-arguments came to the fore in discussions on Indian politics for the simple reason that between May 1996 and October 1999, the country for the first time witnessed three general elections in quick succession.
If the experience of countries like Germany and France shows that coalitions and instability do not necessarily go together, Japan and Italy are proof of the fact that even unstable coalition governments do not automatically result in declining economic progress. Japan has had a series of coalition governments since 1976, when the Liberal Democratic Party lost its monopoly on power for the first time after the Second World War. That certainly did not prevent Japan from marching swiftly ahead of most of the world to become arguably the strongest economy in the world after the US, till the slowdown of the 1990s robbed it of some of the sheen.
The Italian experience is even more remarkable. In the 50 years since the World War ended, Italy had an equal number of governments. Thus, governments in Italy lasted on average barely a year. Yet, Italy today is among the most industrialized countries in the world. This, if nothing else, should make us wary about drawing any facile conclusions about the effects of political instability on the economy.
In India, the country’s gross domestic product grew by more than 7% a year, two years in a row, for the first time during a period of considerable political instability: GDP went up by 7.3% in 1995-96 and by 8% in 1996-97. Between April 2005 and March 2008, for the first time in the more than the six-decade-long history of independent India, the country’s GDP grew by an average of over 9% each year, three years in succession. The structure of the country’s polity was as stable or as unstable as it is at present, the difference being that the next general elections are scheduled to take place on or before April 2009. The months before any election comprise a period of political acrimony. The situation is no different this time round.
The final point that needs to be made relates to economic growth itself. An economy can grow fast but the fruits of this growth can be unevenly distributed and benefit only a small section of the population. Economic growth has to be inclusive if it is to yield political dividends. Jobless growth is politically disastrous. This is what the BJP realized after its ‘India Shining’ slogan had little or no positive impact on the electorate and may even have backfired on the party. This is the dilemma before the UPA government at present. It is wary of crowing about its economic achievements at a time when double-digit inflation has eaten into the incomes of the poor who (unlike the rich) go out to vote in large numbers.
The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media—print, radio, television, Internet and documentary cinema.
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