The title of this book is somewhat intriguing, if not provocative. The debate over the relationship between politics and economics has been going on for a long time, especially after the overreach of structural adjustment programs (or ‘reforms’ for short) under the aegis of the Washington Twins . For some years, the assumption of self-styled messiahs (read, economists) was that economic reforms will not work if they are vitiated by politics. It took them some years to admit that “reforms”, so-called, will not work unless they are ‘owned’ by the people, i.e. accepted politically. Even in India “reforms” began to have a “human face” and the semantics adopted in Plan documents changed over to “inclusive growth.” Whom do they include and how?
Those indeed are the issues for the political economy of reforms. In one of his earliest contributions Prof. Dani Rodrik of Harvard (Understanding Economic Policy Reform, Journal of Economic Literature, March 1996), noted the remarkable degree of collaboration between economists and political scientists. He also noticed the persisting “habit of attributing myopia or irrationality to political actors.”
The social dynamics of reforms is complex, particularly in democracies. There are ‘winners’ and ‘losers’; and, in any given situation, there may not be full equilibrium. Economists will have to lean on politicians to broker peace among them. Unfortunately, the elite, especially the neoliberal economists, harbour a dismal view of politicians.
In his Overview, Dr. Jalan takes the stand that the main problem is not the so-called “policy paralysis” or lack of macroeconomic policy reforms, but simply that India’s administrative system has become ‘non-functional’ and non-responsive to the interests of an average citizen. He goes on to blame it on our failure to deliver essential services such as education, water and health.
He refers to pervading corruption and how it affects public weal. If we leave out the minutiae, one may well argue that a great part of the failure in the delivery of services is due to the excessive concern over fiscal deficits and the austerity measures attached to them. If administrative failure was the cause, why was improvement in administration per se not made a part of the reform process?
As Pulapre Balakrishnan argues, “economic policy needs to be more focused on the domestic economy than it has been in the past two decades.” “Over this period, the attention has largely been on the interface between India and the rest of the world.” As a result, it prevented ‘inclusive growth.’
Coalition effectDr. Jalan spends much time on the rising number of regional parties, emergence of coalition governments and the leverage the regional parties and leaders had on the Central government. The answer to this syndrome is given by Lord Meghnad Desai. Desai’s contribution is valuable when he makes the point that, within India, there is a fight for social equity along with economic equity and this gives rise to tensions in a democratic polity.
‘Mandalisation’ set in motion the ascent of regional castes and Dalits and they are entering the political process to advance their social status. The clamour for posts (reservation), projects and benefits stems from this process and politicians have to come to terms with them. Economists cannot wish them away. There was failure of leadership at the highest level (Prime Minister!) due to the very peculiar set up he presided over. It led to lack of effective leadership and to the shifting of responsibility to “coalition compulsions.” Indeed they were policy failures. Large value corruption was one of the outcomes and “policy paralysis” was another.
Rural-urban divideDipankar Gupta offers an incisive, if disturbing, scenario of the rural urban cleavages in the country. He demolishes the accepted wisdom of India being largely rural and emphasises the closing of the gap between the rural and urban sectors. There is massive migration and rural areas are getting urbanised. This gives rise to consumerism and rising levels of expectations. He adds, “Liberalisation has let loose the market, but it has also released ambitions that need services to back them up.” There is inadequate health care for them. Nor are we able to provide quality education to them. His account is one where politics has to trump economics and for the right reasons!
Poonam Gupta’s study of voter expectations is wholly based on the Lok Sabha elections held in 2009. It notes the decline of independent candidates and how candidates can succeed only if they come under party banners. It finally takes the view that “the voters have increasingly been rewarding good performance and good policy choices.”
Ashima Goyal’s contribution is interesting and raises significant issues. As she says, “India’s opening out was flexible but was sometimes used as a substitute for harder domestic reforms.” (Pulapre also raises this issue in his contribution.) Though India changed its policies in response to repeated global financial crises, the policy was decided by an elite relying too much on free markets. “A richer domestic debate combined with current frontier thinking can give India a chance to design policies that bring out the best of both governments and markets while suiting conditions on the ground.” In Goyal’s account there is no clash between politics and economics — neither trumps the other and both have to live together!
Samuel Paul, in a chapter on corruption, says anti-corruption reforms call for changes in multiple dimensions of governance, but there are many barriers to such changes.
Those in the private sector who lament about the poor governance in the Government have good reason to worry about lack of governance in their own fiefs. Ram Mohan handles this. He says, “In India, reforms in corporate governance have had the effect of creating forms of governance without making a difference in content.”
Inclusive growthPulapre Blakrishnan’s contribution on “governing for an inclusive growth” is perhaps the best in this collection. His basic premise is that economic strategies pursued since 1991 have not encouraged inclusive growth. Reliance on export sector has failed us to serve that objective. “Greater integration with the world economy … will not necessarily contribute to inclusive growth even if were to ensure an accelerated one.” The export dream crashed after the Great Economic Recession of 2008 and the prospects for exports are unlikely to improve in the coming years.
Thus, the strategy of depending solely on the world market will not work. He has a horror of “turning the entire Indian economy into some kind of back-office to the rest of the world.” He pleads for a shift in strategy to turn inwards. He is firm in the belief that governance is ultimately a political outcome and “it is politics that will determine the possibility of inclusive growth in India.”
Monetary policyThe chapter on monetary policy by Deepak Mohanty is a factual (manualised!) summary of monetary policy developments and adds no value to the main debate of the book. Mohanty portrays a bonhomie between the Bank and the central government over policy making. However, many of us are aware of the recurring tensions (undeclared wars!) between Mint Street and North Block over interest rates and loan issues. Mohanty glosses over them. It is indeed an area where politics (North Block) tries to trump economics (RBI).
After reading this book, it is difficult to say whether politics trumps economics or not. However, it is evident that economists as policymakers can ill afford to ignore politics or politicians.
