A question that is often posed these days is whether there will be a significant change in India’s economic policy regime should a Third Front kind of coalition come to power in New Delhi. The answer to that question is “yes” and “no”.
Yes, because there are certain important aspect of economic policy that are almost certainly going to remain unchanged irrespective of the complexion of the coalition that rules the country for however short or long a period.
No, because there will be elements of economic policy changes–often defined loosely as “reforms”–that will not take place, especially if the Left is a part of (or an outside supporter of) an amorphous coalition that could include the political parties headed by two mercurial and temperamental ladies with single names, Mayawati and Jayalalithaa.
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| Paranjoy Guha Thakurta |
Politics and economics are often sought to be separated. But they cannot be. The relationship between the two is close and symbiotic. Economic policies are influenced by political considerations and economic issues–such as inflation–provide some of the most potent political slogans. It may be contended that one cannot just run away from politics as it intrudes everywhere, even determining power relationships within a family, between husband and wife, sister and brother. Economics too matters for everyone, for it determines what we eat and how we live.
It is often claimed that bad politics is responsible for the slow progress of economic reforms. Dr Manmohan Singh has said time and again that there is no difference between good economics and good politics. Be that as it may, it would be worthwhile to further examine the relationship, if any, between political uncertainty and economic policies. It seems logical that uncertainty of any kind, including political, is not good for economic development. Yet it can be argued that a period of economic adversity spurs the political leadership to take tough decisions that it may not otherwise take.
Over the last 13 years, as the coalition dharma to run governments in India became entrenched, there has been considerable political uncertainty. But it is far from clear whether this political instability has been all that bad for the economy. Between 1996 and 1999 the country’s gross domestic product (GDP) grew by more than 7% a year three years in a row for the first time during a period of considerable political instability—in this period there were four prime ministers, three governments and three elections. Between May 2004 and March 2008–again for the first time in India’s history–the country’s GDP grew by an average of over 9% each year four years in succession, but there was no change in regime this time round, with a stable UPA government in place.
The main point that needs to be made in this context 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. Economic growth has to be inclusive if it is to bring political returns to incumbents. Growth without creation of employment opportunities is akin to committing political suicide. This is what the BJP realized after its “India Shining” slogan had backfired. This is the dilemma the UPA currently faces. What is the use of boasting about the GDP growth rate when inflation has impoverished large sections of the population? And who does not know that the poor vote in larger numbers than the privileged?
The world’s largest democracy elects the political representatives it deserves, who in turn shape the country’s economic policies. While both the UPA and the NDA coalition governments sought to change economic policy priorities, these attempts met with mixed success despite the fact that there is considerable convergence between the economic policies espoused by the Congress and the BJP. Even as the consensus within the country’s two largest political parties on the virtues of liberalization, privatization and globalization have broken down from time to time, there has been a remarkable agreement cutting across the entire ideological spectrum on what needs to be done–that is, improve the working of the social infrastructure (education and health care) and the physical infrastructure (electricity, roads and water).
It can be argued that because of a growing political consensus on many policy issues, the overall direction of the economy would not change even if there is political uncertainty. On the question of unstable coalitions being bad for the economy, it is worth recalling the experience of a few countries. India is by no means unique among democratic nations in having coalition governments, some of them short-lived and unstable. Japan and Italy are proof of the fact that even unstable coalition governments do not automatically result in economic regress.
Japan had a series of coalition governments since 1976, when the Liberal Democratic Party lost its monopoly on power for the first time after World War II. That certainly did not prevent the nation from marching swiftly ahead of most of the world to become an economic powerhouse. Italy’s experience is even more remarkable. In the 58 years that followed the end of World War II, it saw as many as 54 governments come and go. While each government lasted just over a year on an average, Italy’s economic development was not seriously hampered.
The point being made here is that there are examples of countries that have witnessed political turmoil without it being accompanied by economic chaos. As far as India is concerned, clearly there is no simple relationship between multi-party coalition regimes, political stability and economic development.
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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