Thursday, May 27, 2010

Modest ambitions (May 28, 2010)

A narrow political approach and bad economics constrain the UPA

By Swapan Dasgupta

t may well be another case of “irrational exuberance” that could haunt the country in the coming years. For the moment, however, the choreography of the first anniversary of the United Progressive Alliance (Mark II) has broadly followed a supportive script. True, there were some unexpected hiccups that dampened the festivities — the second Dantewada massacre by Maoists, the Air India crash in Mangalore and the prime minister’s non-inspirational responses to media questions last Monday — but overall, the Congress party can look back on the sixth year of a Manmohan Singh government with quiet satisfaction.

The hallmarks of rising comfort level were all there: high approval ratings for the prime minister, mildly encouraging prospects for the Congress, the Bharatiya Janata Party’s continuing disorientation, high growth rates, hopes of food inflation easing, a possible thaw in relations with the most troublesome neighbour and, most important, a mood of subdued optimism that contrasts so sharply with the gloom and doom in the West. Particularly heartening for the dynastic loyalists, the country appears reconciled to the fact that when Singh calls it a day — not that there is any pressure on him to go back to his books — it will be the turn of a middle-aged Gandhi.

Of course, there were the negatives: non-performing ministers, garrulous upstarts, corruption, rising inflation, infrastructural bottlenecks, caste tensions, left-wing extremism and a thoroughly inefficient State. In other circumstances, some of these negatives could well have constituted a lethal cocktail and created political uncertainty — recall that the Congress by itself is well short of a Lok Sabha majority. It is a commentary on either the low credibility of the Opposition or the good political management of the government that nothing in the past year has really rocked the UPA boat.

On the internal security front, the government has been very lucky. After 26/11, the jihadis appear to have taken a strategic break and left the disruption to the Maoist insurgents waging war in the most inaccessible parts of India. It is a moot point as to whether the Congress general secretary, Digvijay Singh, could have risked describing the guerrilla killers as “misguided ideologues” had the attacks spilled over into districts which enjoy better connectivity. However, by combining the robust, no-nonsense approach of the home minister, P. Chidambaram, with the so-called healing touch approach of those claiming the blessings of the Gandhis, the Congress seems to believe it can have the best of both worlds.

The confusion over where the UPA stands in relation to the Maoist menace is not a stray case of miscued cleverness. A hallmark of the UPA, in both its incarnations, is the constant endeavour to reconcile disharmonious tunes. Future historians may view this as a case of creative tension involving the Centre-Right and the Centre-Left or even as an aspect of the Gandhi-Singh dyarchy that has worked remarkably well. There are times when the prime minister and, indeed, the cabinet are brusquely overruled by the Congress president, but, equally, there are occasions when the priorities of the chief executive are accepted without demur.

Although the prime minister began his innings in 2004 promising big ticket domestic reforms, his orbit of responsibility appears to have shrunk over the years to a free rein over foreign policy. Manmohan Singh stood his ground on the Indo-US nuclear accord and the party was mobilized to buy him a majority after the Left withdrew support. Likewise, the misgivings of the Congress over Singh’s proposed bonhomie with Pakistan have been put on hold for the time being. But sceptical noises can easily resurface if the initiatives falter or the jihadis derail sadbhavna with a terror strike.

Limiting Singh’s sphere of policy initiatives to diplomacy may well become the UPA’s most costly miscalculation. Before he was anointed prime minister by Sonia Gandhi’s “inner voice”, Singh had proved his mettle as a bold finance minister, a man who carried out P.V. Narasimha Rao’s drive to unburden India of outdated ideological baggage. When he took on the big job in 2004, there were expectations that he would continue where he had left off and take the Indian economy to new creative heights.

It may sound unkind and contrary to conventional thinking but the underperforming economy has turned out to be Singh’s biggest letdown. Such an assessment doesn’t ignore India’s continuing high growth rate and the government’s success in warding off the ravages of the global meltdown. Yet, judged in terms of what was possible, the inability to reach double-digit growth and the continuing muddle over the fiscal deficit, it seems a case of missed opportunities. India did not perform badly under the UPA but the economy underperformed in relation to its potential.

The UPA’s biggest strategic miscalculation lay in diverting government resources away from investment in asset-building infrastructure and into welfare. In political terms, this may have paid handsome returns. There is, for example, evidence to indicate that the pre-election waiver of farm loans, which cost the exchequer nearly Rs 70,000 crore, and the generous pay hikes to government employees (at a time when the private sector was undertaking pay-cuts and retrenchment to meet the effects of a global slowdown) helped the UPA in the polls. The national rural employment guarantee scheme, which bore the signature of Sonia Gandhi, and the first national advisory council may not have yielded similar instant gains. Indeed, the Rs 35,000 crore NREGS continues to suffer from faulty implementation and misappropriation. In just too many cases, the real beneficiaries are not the intended beneficiaries.

It may be some time before the cumulative effects of these mega welfare schemes are fully gauged. The preliminary conclusions are, however, not all that appetizing. First, mega government expenditure has fuelled inflation, from near-zero per cent at the time of the polls to around 9.9 per cent now. Secondly, reckless spending on sops and freebies was a factor in the government’s inability to control the fiscal deficit. Thirdly, by sucking money out of the system for handouts, the generosity of lady bountiful raised interest rates, deprived the productive sectors of cheap credit and blunted India’s competitive edge. Upgrading India’s infrastructure took a back seat to populist politics.

That the corporate sector managed to overcome these constraints and still produce healthy balance sheets is revealing. It suggests that with a more conducive macro-economic environment, India would have emerged as a big beneficiary of the crisis in the West.

The UPA, it would seem, has institutionalized the very non-Indian habit of living beyond one’s means. By eschewing prudent economics for short-term populism, the UPA did not merely undermine the country’s creative potential, it established an insidious culture of never-ending entitlements. The epidemic of reservations along caste, religion and gender lines is a natural consequence. The experience of Europe indicates that such a transformation creates a bloated bureaucracy, promotes high taxation and, in the long term, acts as a deterrent to entrepreneurship. In India, the situation is compounded by the fact that a dysfunctional State has now been accepted as a natural state of being — the reason why the prime minister has shelved his previous commitment to administrative reforms. An inefficient State has now been taken as a permanent reality.

The fundamental shortcoming of the UPA is that its political approach is constructed on modest expectations — the need to win the next election. At a time when the global centre of gravity is shifting eastwards, towards Asia, India needed a challenging, long-term vision. Instead, the Manmohan Singh government has preferred to focus narrowly on the present. That is both its strength and its shortcoming.

The Telegraph, May 28, 2010

No comments: