Good economics may not be poor politics
The credibility of economic measures depends on the credibility of the government. Ramakrishnan TS writes.india Updated: Nov 04, 2012 22:37 IST
The UPA 2’s recent spate of reforms is being intensely debated. While some see these as inevitable, given the increasing fiscal and trade deficits, others, the Opposition and even some allies, oppose them because they feel that the people are disgruntled with UPA 2’s poor track record on inflation and corruption.
A recent CNN-IBN survey indicated that even urban Indians do not welcome subsidy reduction in petroleum products and foreign direct investment (FDI) in retail. This may surprise policy-makers and the ruling dispensation, as they think that the urban middle class is reform-friendly and inclined to pay higher for better services and facilities.
So what made the recent decisions more unpopular than such similar measures undertaken in the past by other governments?
The notion that an average Indian voter is always averse to increase in prices of public goods and services and punishes the ruling dispensation for the same is ill-conceived. The timing of the decision, the credibility of the government and the perception and actualisation of overall benefits in the minds of voters could explain the intensity of resistance of the people than the hike per se and the ability of people to adjust their expenditure.
The timing of a decision is also vital to its acceptability. Sensible governments with a clear agenda on delivery would prefer to implement tough economic measures in the early years of rule when the popularity is still intact. Within six months of assuming office, the AIADMK increased bus fares by about 70% in one stroke in Tamil Nadu in 2011. The dent in its popularity has been minimal. When transport services improve, the anger and disappointment over the price hike slowly disappears.
The credibility of the economic measures depends on the credibility of the government. A government mired in corruption charges and policy paralysis, and dancing to the tune of allies that sacrifice economic sense at the altar of political populism, can hardly push for well-meaning economic measures.
Reforms will become more acceptable if their intended beneficiaries sense palpable benefits accruing to them in a time-bound manner. In Gujarat, land acquisition processes face minimum resistance since the acquired land gets allotted to industries and the benefits accrue faster. The alacrity of the Gujarat government in expediting industrial projects with no room for corruption charges reinforces the belief of the people.
When policy measures pass through the scrutiny of the three riders mentioned above, they become widely accepted and gain political benefits too. Reforms cannot be kneejerk reactions to overcome the exigencies of fiscal deterioration. They should form a larger theme that includes all public goods. The economic distortions in the transport industry has reached its zenith after surrendering the railway ministry to the alliance partners and allowing submission of populist budgets year after year.
If UPA 1 had introduced reforms in the Indian Railways in 2004 to reduce cross-subsidisation, the economic distortions surfacing from capacity constraints would have been mitigated. The present state of increasing oil imports and the resultant trade and fiscal deficits won’t have intensified to this extent if energy efficient rail systems had been developed in the last decade, piggybacking on the high growth rate India witnessed then.
Good economic measures need not have to bear poor political results all the time. Governments can strike a balance between economic wisdom and political aspirations.
- Ramakrishnan TS is a doctoral student of Public Systems Group, Indian Institute of Management, Ahmedabad.
The views expressed by the author are personal.