Monday, September 17, 2012

A Good Report... /Power & Politics/The Sunday Standard/September 16, 2012

A good report in New York won’t necessarily ensure victory in New Delhi

Excess is bad. Excessive romance with reforms is turning out be worse. During the past two decades, money-minded market movers have not only defined the politics of economics, but also dictated the narrative of governance. For them, it is conspicuous consumption and visible economic power, and not eradication of poverty, that are real growth symbols. They feel that our elected representatives always abhor good economics because it is bad politics. It is only in India that bookworms-turned-economists decide the definition of good politics and pompously prescribe prescriptions for economic revival. They are determined to destroy the concept of a welfare state which strikes a balance between liberalisation and the equitable distribution of prosperity.

Last week, Prime Minister Manmohan Singh finally woke up from his deep slumber to prove his Cassandras wrong. Within 48 hours, he approved FDI in retail, foreign investment in aviation and disinvestment in profitable PSUs. This came immediately after a massive rise in diesel prices and the rationing of subsidised LPGs. All these proposals had been pending with him for the past two years. But he had refused to move. When he finally did, it was mainly to counter the foreign media’s acerbic attacks and to influence rating agencies. His brave words of wisdom were meant less to dispel the impression of an underperformer or a leader of a paralysed government and more to do with keeping his foreign, and not domestic, constituency in good humour. Unfortunately, unlike his many predecessors, including Indira Gandhi who treated motivated foreign opinion-makers with the contempt they deserved, Manmohan and his team start shivering when confronted with any scathing attack from the non-voting classes based in India and abroad. According to senior Congress leaders, many ministers believe that Team Manmohan is convinced that a successful flirtation with New York will ensure victory in New Delhi for him and the Congress.

But his emphasis was once again on good economics which was perceived as bad politics, not only by a large section of his own party but even by his powerful allies. Unlike in the past, the Congress party is totally isolated on an issue which should have been seen as a step in the right direction. It is another story that the Prime Minister was pushed by aggressive New Age reformers like Commerce Minister Anand Sharma to bite the bullet. But the packaging of the revived reforms also reignited the ongoing war between good economics and good politics. Big Bang Friday was yet another example of the Prime Minister taking the right decisions at the wrong time. Plagued with a rising fiscal deficit, the government is left with no other option but to tighten its belt and rationalise subsidies. Since the past few years, UPA II has been forced to announce various welfare schemes that take away over 20 per cent of its revenue. It has also been forced to be liberal with the corporate sector, which has hugely benefitted from massive tax concessions. The government has forgone revenue of over `5 lakh crore as dole to India Inc. This growing profligacy is eroding the government’s credibility. During the past eight years, the government hasn’t shown any serious concerns about the rising cost of governance. The nation is being governed by the largest-ever Cabinet since Independence. In addition, the Prime Minister has accommodated two dozen fellow travellers from the corporate sector and retired civil servants by giving them Cabinet status. In the name of protecting consumer interests, a large number of regulatory institutions have been established which have added more to the woes of the same people they are expected to protect. New departments, commissions, panels and expert groups have been created to advise the government on various issues which haven’t been resolved.

Unfortunately, huge monetary concessions to the corporate sector have been termed as good economics. Here lies the total disconnect between good politics and good economics. Our reform-minded politicians have failed to conceive a framework of good politics which leads to correct economic decisions. Since the only objective of our politicians is to retain power at any cost, they would also like to make their electoral constituency rich and educated. Investment in education, health, rural connectivity, drainage systems and agro-industry can turn good politics into better economics. It will spur demand, and also help the local political leader to encourage crony capitalism at the village level. Chief ministers like Narendra Modi, Shivraj Singh Chouhan, Sheila Dikshit, Bhupinder Singh Hooda and Oommen Chandy have resorted to the good politics of inclusive growth by encouraging domestic investment in core sectors to generate employment. They have invented schemes that make good economic sense and rewarding politics. They have won repeated mandates not because they were fighting for FIIs and endorsement from the Pink papers. They had devised an agenda, which included little for the rich and more for the poor and the middle class. All these states have registered high GDP growth in which the social and infrastructure sector has made huge contributions. Even the Congress leadership has realised that it can’t allow good economics to replace good politics. The Congress dilemma would be to find a Vishnugupta who can play both Chanakya and Kautilya to prove a good politician can also be a good economist and not vice-versa.; Follow me on Twitter @PrabhuChawla

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