Commentators, both domestic and foreign, who’ve been castigating India for “policy paralysis”, and for failing to re-ignite economic reform, better take a close look at what has just happened in Europe.
The Dutch government collapsed after it failed to enact an austerity programme. In France, a president who pursued austerity was kicked out. In Britain, a government pursuing austerity lost badly in local elections. Most dramatically of all, Greece, the vaunted home of western democracy, is spiralling down into economic and political catastrophe. Recently, voters, weary of austerity and a failed political class opted instead to vote for far left and far right political parties. Unable to form a government, Greece may face another polls, maybe in June, which will further increase political and economic instability.
Closer home, the corruption and brutality of the Chinese Communist Party has come into sharp relief as the Bo Xilai scandal widens. Pakistan remains as politically fragile as ever, and matters are little better in Nepal or Sri Lanka. Ironically, in our neighbourhood, Bangladesh offers a beacon of relative success — but that for a very poor country starting from a low base.
What’s the lesson for us in India?
First, the Indian model with all of its well-documented failures, and all the self-goals we’ve inflicted, has stood up rather well.
It’s certainly true that the political economy of our current dispensation has held back important economic reforms. But it’s also true that the flip side of “policy paralysis” is the fact that we’re not about to make any major U-turns, such as roll back existing reforms. We’ll plod ahead, as we always have. And, yes, it may well take an economic shock — perhaps in the form of a ‘run’ on the rupee, or a wider foreign exchange or balance of payments crisis — to jumpstart ‘Reforms 2.0’. Yet, there’s no danger whatsoever of anything on the scale of the ‘Greek tragedy’ unfolding in India. There’s simply too much inertia in the system — a more apt term than paralysis — that our Westminster-style democracy buys us. Second, economic reforms, if it is to succeed, must command wide popular support. In the words of minister of rural development Jairam Ramesh, reform-minded governments must build a “politically durable” consensus around reforms. The debacle in Europe speaks to this very point. Why is Greece imploding, and why is even Italy on the brink? Because in both countries an unelected technocratic elite pursued an economic reforms package imposed from the outside. When voters got a chance to express their views, they did — by kicking out the politicians who’d foisted policies on them that they didn’t like.
Were these voters irrational? That’s the popular view among elite opinion. But as Paul Krugman wrote in New York Times, “Europe’s voters... are wiser than the Continent’s best and brightest,” for rejecting the failed economic model on which the austerity package is based.
How about Indian voters? State elections, despite frequent claims to the contrary, don’t provide good bellwethers of national trends; there are simply too many local factors at play. So we won’t know until 2014 what the Indian electorate thinks of the economic policy management of UPA 2. And, of course, elections are fought on issues much more varied than just economics. And the quality of an incumbent government has to be measured against the best available alternatives. In a democracy such as ours, economic policy must be filtered through a robust and competitive political system that must enact those policies into law, and implement them through its administrative apparatus.
Most observers, seeing the failure of mainstream political parties to pursue the next wave of economic reforms, automatically assume that the politicians must be stupid. That was certainly the tenor of the commentary after the government’s about-face on opening up foreign direct investment in retail to foreigners. But that’s too pat and patronising a conclusion. Democracy may have a plot, but it rarely has a script.
Perhaps these observers ought to leave it to the Indian voters to decide whether they think the government’s policies are stupid or sensible. After all, that’s what happens in Europe and America, right?
Vivek Dehejia is an economics professor at Carleton University in Ottawa, Canada
The views expressed by the author are personal