We are approaching a tipping point. Politicians’ calculus about what is saleable to a transformed electorate is changing, and we are into the post-interval part of this movie.
The 25 years since the seminal 1991 reforms in India can be summed up in that iconic Bollywood dialogue, “Picture abhi baaki hai (The movie isn’t over yet)”. For, unlike many other nations that transformed themselves from Developing to First World in the course of a quarter century, India’s transformation is still very much work in progress. As a result, so is the transformation of the national psyche. The way we see ourselves, and the world, is also work in progress, as is the way politics and politicians function.
For the first half of this period, 13 years to be exact, there existed an unwritten consensus on economic reforms. Through several different dispensations in government, and four Prime Ministers, there was a broad coherence in the direction of reforms. Even the disparate United Front governments of 1996-98 had managed to overcome the many internal contradictions to deliver what was widely hailed as a “dream budget”.
What reforms happened between 1991 and 2004 came about not in a smooth continuum but in fits and starts. But there was not the extreme gridlock in Parliament that the next dozen years would see. Moreover, those first 13 years could be divided into the crisis years and the consensus years.
The fact that the 1991 reforms had been triggered by an economic crisis—the nation had been shocked by the pledging of gold to stave off a repayment default—enabled the shrewd PV Narasimha Rao to attempt out-of-the-box solutions. Those included the recruitment of a famous economist and former Reserve Bank of India (RBI) Governor as Finance Minister and the dismantling of industrial licensing. Although there was precious little by that government thereafter, it was enough to create an aura of India finally awakening.
During the Rao, HD Deve Gowda and IK Gujral years, alarm about the near-default in 1991 had not faded, as it gradually did in the Atal Bihari Vajpayee era despite the 1997 Asian crisis, and every attempt to bring about reforms relied on either overt or covert fear mongering.
Some of those attempts succeeded, as when Commerce Minister P Chidambaram warned of looming defaults in 1992 to push through duty-free imports for exporters. But many did not, such as Industry Minister Murasoli Maran’s daring attempt in 1997 to altogether abolish the Foreign Investment and Promotion Board (FIPB).
During the Vajpayee years, the alarm shifted from the purely economic to national security, in the form of the Kargil war and the hijacking of IC 814. It is debatable whether that helped the canny Prime Minister to build domestic consensus. A counter view could be that they yielded fresh controversies, such as the so-called coffin scam, which created as many bottlenecks to consensus.
But if any era in recent decades can be said to have had a consensus approach, it was clearly the Vajpayee Prime Ministership. To cite just one angle, the Vajpayee government lacked a majority in the Rajya Sabha for almost its entire tenure. And yet, several key bills were passed, for instance, the Fiscal Responsibility and Budget Management (FRBM) Act. There was an unparalleled level of sussing out support or opposition to specific bills in Parliament, combined with multi-pronged efforts to build consensus.
Those happened both in frequent one-to-one meetings with key players and in all-party meetings. Of course, then, as now, all-party meetings tended to be the graveyard of most proposals. But Vajpayee was savvy enough to not only understand that but also use it to his advantage, such as when he deflected increasing Western pressure to participate in the Iraq war by taking it to an all-party meeting.
The broad, unwritten consensus on reforms broke down from 2004 for a couple of key reasons. First, the Congress had drawn the erroneous conclusion that good economics made for bad politics. In fact, the NDA’s unexpected electoral loss that year was not because of reforms but despite them, and due to other compelling reasons.
This happened even as, at the state level, several politicians were beginning to prove that the famous poster from Bill Clinton’s 1992 campaign headquarters, “It’s The Economy, Stupid!”, held just as true in India, demonstrating that high growth in their states led to political gains. They included the Congress’ own three-terms-to-be Chief Minister of Delhi, Sheila Dixit; regional party leaders like the Biju Janata Dal’s Naveen Patnaik of Odisha, now in his fourth consecutive term; and the BJP’s multiple-term Chief Ministers Narendra Modi, Shivraj Singh Chouhan, and others.
A 2011 paper by Poonam Gupta and Arvind Panagariya confirmed this phenomenon of incumbent parties benefiting significantly in elections in states that had experienced high growth. Their paper found that on an average, 85 percent of incumbent parties’ candidates won in high-growth states, compared to 52 percent and 40 percent respectively in medium- and low-growth states.
Secondly, the NDA, shocked to find itself unexpectedly in the opposition in 2004, reacted with levels of obduracy unseen before, exceeded only by the other side when the tables turned a decade later. It did not help that the UPA government was not only hobbled by its unreconstructed Left Front allies for the first five years, but also by a technocrat Prime Minister whose considerable talents sadly did not include that essential one for the politician—salesmanship.
Prime Minister Manmohan Singh also lacked his former boss Rao’s cunning in using the ensuing crises of policy paralysis and corruption scandals for his own—and the nation’s—advantage. That hoary old saying attributed to Winston Churchill, “Never let a good crisis go to waste,” was much the need of the decade. But despite the many great crises thrown up, none save one—the trust vote on account of the civil nuclear deal with the US—saw the challenge being taken up.
It was only a decade later, in 2014, that the nation got back to having a political Prime Minister who had himself won the mandate. Of course, it also marked other milestones, including the first single-party majority in three decades, which has had its own impact on governance and economics.
Meanwhile, for all those 23 years from 1991 to 2014, the one aspect that characterised politicians’ handling of economic reforms at the national level was top-down, stealthy attempts. Virtually every instance of attempted reforms, successful or not, involved a handful of people at the top negotiating a hostile landscape, from internal roadblocks in their own parties and coalitions, to political opposition, NGOs, business lobby groups, and even the media.
There was no Thatcher- or Reagan-like clarion call to turn the entire ship around. There was not even a macro-level Deng Xiaoping moment, extolling pragmatism if not conviction, except on a few individual occasions and bills in Parliament. The closest thing to that would have to wait, at the national level, until 2014.
The 2014 campaign was, arguably, the first national one where a major party made a pitch for reforms.
Of course, the BJP’s and its prime ministerial candidate Narendra Modi’s campaign was not solely, or even mainly, about reforms. There were far too many other low hanging fruits available to be picked up from the failures of the previous government for that to happen. But to the extent that the campaign rhetoric was about reforms, it represented a seismic shift, treating reformist rhetoric as an asset rather than a liability.
To what extent that rhetoric has been translated into action so far is a subject of much debate. But only the very intransigent keep arguing that there was nothing new or different. For one thing, that rhetoric is being spouted, and some would argue being acted upon, by many more of the actors.
Take, for instance, Finance Minister Arun Jaitley. It is no surprise that he has been spearheading many of the reformist initiatives, both the ones that have succeeded as well as those that have seen deadlock or retreat. This has been the case with most Finance Ministers in the past quarter century, from Manmohan Singh through Chidambaram, Sinha and Jaswant Singh.
But what was significant, though it has barely been commented upon, was Jaitley’s statement in Parliament, “We are pro-business. There is no contradiction between being pro-business and being pro-poor.” That it took a quarter of a century since the beginning of economic reforms in India for this to be articulated speaks volumes.
That justification of reforms, rather than the earlier justifications by warning of gloom and doom, is new. It is also reflected in the statements of many others in government, starting from the Prime Minister himself urging better-off Indians to give up their LPG subsidies, to several of his colleagues in their respective fields.
Mind you, that is not to say that the reforms agenda has fully turned a corner, for there are any number of contradictory developments that can be cited to show that India is still very much a “two steps forward, one step back” nation. These range from odd tax claims to knee-jerk interference in markets and pricing mechanisms.
Attitudes towards public sector reform have transitioned from opposition at every level to relatively easier opening to private sector entrants, such as in banking or airlines. But actual reform of ailing public sector undertakings (PSUs) evokes mixed reactions. For instance, it is now generally accepted that government cannot run hotels efficiently, thus once again the recent listing for sale of several properties. At the same time, an almost identical situation in aviation has not yet overcome the taboo of even mooting Air India’s privatisation, let alone debating it.
While there has recently been progress on the allocation of natural resources—it is now nearly inconceivable to think of handing out mining leases or spectrum on a case-to-case basis—large chunks of economic activity continue to operate in grey zones.
It is no secret that the real estate and private education sectors continue to operate as much with unaccounted money as the legitimate sort.
These last bastions of black money are beginning to face challenges too, such as the recent imposition of excise duty on all but the smallest jewellers. But it will be next to impossible to just coerce into legitimacy all such avenues of cash until there are other, fundamental political reforms, such as on campaign financing. There does not yet seem to be an appetite for that scale of reform. But it will inevitably follow, as did political reforms in other nations when their economic status reached a certain level. Keep in mind that in the World Bank’s terminology, India is now increasingly being referred to as a low middle-income country.
There is much unfinished business on the economic reforms front. Nevertheless, a few years of being toppled from high GDP growth rates, not to mention the recognition that India’s desperate need to create jobs simply cannot happen without more reforms, seems to have had an effect. Don’t be misled by the continuing deadlock on the Goods and Services Tax (GST) in Parliament. That is purely due to political calculations. What real rational or ideological objections there were, have for all practical purposes already been sorted out.
But GST will still have to wait for either the politics or the parliamentary arithmetic to change.
Two and a half decades of even sporadic reforms have had an enormous impact on the country and its politicians. Vastly larger numbers of Indians now travel both domestically and overseas, and even those who don’t are privy to information from around the world in ways that could not have been imagined in 1991. Nearly 1,000 television channels, hundreds of millions of internet connections, and close to a billion mobile phones have dramatically altered the landscape of information dissemination.
Some politicians, and parties, have been better at recognising the impact these have had on firing the aspirations of the hundreds of millions of younger citizens who make up the country’s vaunted demographics. They are adapting to this in different ways. But others remain oddly oblivious to these changes and keep attempting to repeat successful political strategies from decades ago, despite ever-diminishing returns.
And thus precariously balanced, we are approaching a tipping point. Politicians’ calculus about what is saleable to a transformed electorate is changing, and we are already into the post-interval part of this movie. Compared to the transformation achieved in a quarter century among decision makers in other nations, more cohesive or less democratic, we may take a little longer. But the signs are already there.