The politics of growth

Economic growth may not win you elections yet but it still matters

A critical question as India approaches the 2014 general elections is the state of the Indian economy and what implications it may have on her polity. To summarise, the Indian growth story has stumbled in the last couple of years primarily due to the policy paralysis in New Delhi and the profligate public spending; the situation has only worsened due to the global economic slowdown. If media reports are to be believed, the government has come in for criticism from Congress party’s top leadership for its faltering economic performance. Perhaps spurred by these concerns, the government has initiated some reforms including permitting Foreign Direct Investment (FDI) in retail and rationalisation of subsidies on petroleum products. However, even these  limited measures set off a political firestorm in New Delhi with Mamata Banerjee preferring to exit the ruling United Progressive Alliance (UPA) while the Bharatiya Janata Party (BJP) has demanded a rollback.

BJP’s intransigence — particularly on FDI in retail — has surprised a few observers as the party is generally thought to be pro-reform, at least within the Indian political context. The BJP-led National Democratic Alliance (NDA) government had cultivated a pro-reform image with some genuinely brave steps like divestment of public sector units in non-core sectors. So what gives? Is this merely gratuitously oppositional politics much too common in India or does it signal a fundamental shift in the party’s economic outlook?

Writing in The Economic Times, senior BJP leader Yashwant Sinha has argued that the criticism of BJP by the chattering class — or the defenders of the faith as he puts it — is unwarranted. Perhaps even most interestingly, in Mr Sinha’s opinion, reforms don’t win elections: he cites the example of his own party’s poor performance in metropolitan areas like Delhi even after its ‘impressive’ reformist record. In Mr Sinha’s formulation, electoral battles in India are political wars — defined by caste and community alliances — with economics playing a secondary role. What adds gravitas to Mr Sinha’s views is not only his status as a former finance minister but because he has been perceived as someone favorable to a more open economy.

Remarkable for its candour, Mr Sinha’s arguments explain why BJP has largely given up on reforms; indeed, its economic positions lately are often indistinguishable from the Communist Party of India. BJP is betting big that just like the Congress party in 2004 was able to lampoon its India Shining campaign and ride the aam aadmi slogan to New Delhi’s throne, BJP’s embrace of populism, coupled with the usual caste and community alliances, will lead it back to power. Congress, in contrast, appears to believe that economic growth matters politically — perhaps for no other reason than to fund populist schemes. Nevertheless, in its recent rally in New Delhi, Sonia Gandhi explicitly argued that FDI in retail would lead to expanded job opportunities. It is perhaps the very first time that Mrs Gandhi has linked reforms directly to growth and better job prospects.So here we see an emerging dynamic: BJP, the original votary of open markets has almost entirely retracted its steps, while the Congress party which has never been comfortable with the language of economic growth is taking some halting steps towards embracing reforms.

But the critical question remains: Will economic growth really matter in 2014? Will it swing the elections? If growth truly affects political fortunes, it would be an almost unprecedented event in the annals of modern Indian political history.  Right from independence till 1980, India grew at the rate of 3-3.5 percent — the so called Hindu rate of growth — but the Congress retained power with consummate ease except for the period immediately following Emergency (Clearly non-economic factors including Mrs Gandhi’s dictatorial personality were predominant themes in the Jayaprakash Narayan movement). It has to be acknowledged that Congress’ role in the freedom movement played a part in its dominating electoral performance. But it is equally true that except for a brief upsurge for the Swatantra Party, the lack of economic opportunities has barely registered on the political scorecard.

Even when VP Singh became the Prime Minister in 1989, he was propelled by the anti-corruption crusade as well as the Ayodhya movement. Similarly the NDA governments owed much to astute political management, fortuitous political circumstances, and the personality of former prime minister Atal Bihari Vajpayee.

Elections, especially at the local level, have been often won or lost on economic issues like inflation or a corrupt government. But they are negative factors, only the symptoms of economic distress whose effects are directly felt by all the voters.

Growth portends much more: rising incomes, greater employment opportunity, upward mobility, and a sense of optimism. However, even basic economic arguments, such as the unemployment rate or the number of jobs created are completely absent from our political conversations. The only time a government attempted to fight elections based on an agenda of positive economic growth — howsoever airbrushed it may have been — was 2004. And the NDA government was slapped pretty badly by the voters. Since then, the political discourse (and it appears thinking within the BJP) has been dominated by the theme that good economics is not good politics, and populist schemes and economic resentment win elections.

The 2014 elections can potentially be a watershed moment in the Indian political history. Just like the voters of 1960s and 1970s accepted economic distress as their inviolate fate, the voter of the 21st century has taken economic prosperity and expanding opportunities for granted. And that remains true not merely for the urban voters plugged in to the new economy but even for the poor who certainly have benefited from populist schemes funded by the economic boom. But as the economy contracts and opportunities dwindle, as revenues decline and government is forced on an economic diet, there is a growing sense of resentment and disquiet, which will only deepen if the economy remains in a tailspin. Poor economics may eventually extract a political cost!

Essentially there are two models of political mobilisation. One which emphasises patronage and pelf and has dominated Indian politics for the last 60 years. This is how elections in Punjab and Bengal were won, and is captured perfectly by how Jaganmohan Reddy has emerged as a potent political force in Andhra Pradesh. The other model, still nascent, emphasises growth and economic opportunities and effective governance.

Despite two decades of growth, reforms have suffered from a lack of political patronage and direct popular support. This is precisely why despite the usual platitudes, the second generation of reforms have never taken off. 2014 may just begin to change that. Of course, patronage would remain the dominant political currency for the foreseeable future but there may be those who vote for a better economic future and not just better designed handouts. These voters will not decide who rules India — at least not yet. But how substantial is the number of these voters and how invested they are in the political process may not only affect the fate of the two principal political adversaries, it may well decide the future of India’s growth story.

Photo: Viktoria B