State Election Results: Red flags for reforms?

The CPM-led Left front has comeback to power in West Bengal. Another communist-led coalition has been voted to power in Kerala. These two results have obviously strengthened the hands of the “left-block” in Delhi, which means more bargaining power for them. And the return to power of the DMK—that has promised all kinds of “freebies” to the voters in Tamil Nadu—has only added to the woes of the congress-led coalition at the center.

Market watchers fear that the election results have only weakened the already weak government of the 24-parties coalition led by congress at the center. There is a substance in it: the regional satraps are known to call shots of divergent nature, while the challenges before the nation remained the same as inherited by the congress-led coalition two years back. So, everyone is anxious that the election results should not become an excuse for the leadership to shelve the “reforms”.

In fact, it is the best of the times for us to forge ahead. The International Monetary Fund depicted a rosy economic scenario: “Notwithstanding higher oil prices and natural disasters, global growth has continued to exceed expectations, aided by benign financial market conditions and continued accommodative macroeconomic policies”. It has forecast a global growth rate of 4.9% for the current year. According to its latest World Economic Outlook, the growth rate in India and China is all set for 7.3% and 9.5% respectively. It further hopes that “Cash-rich companies will start investing, which means governments could as well reduce their fiscal deficits.” This good-looking economy simply asks for using it as a foundation to build a better tomorrow—of course, with appropriate reforms.

That said, let us figure out how we are faring today. It is feared that the government is not doing all that is required to structurally transform our economy for achieving an “all inclusive” sustained high growth rate. On the top of it, the coalition partners are pulling the government in all directions—that, too, on “non-issues”. For quite some time, it has been the issue of “quotas” for admission into national premier educational institutions that has “entrapped (India) in the caste paradigm”, as though for ever. And all this out of sheer ignorance: the research findings of one of the IIT’s professor reveal that “one half of the reservations meant for SC/STs remain vacant” and from those that are filled, “one in four students does not complete the program”. Logically, it means our school system is not turning out qualified students who are good enough to pursue professional studies. It is this issue that requires redress. Instead, we ended up in a meaningless controversy that was well summed up by Mehta: “We pity the plumage, but forget the dying bird.”

Then, it is the turn of oil price controversy. The global crude prices are soaring higher and higher. It is commonsensical that unless the prices of petroleum products were raised, the oil companies would suffer huge losses. So, government hiked petrol price by Rs. 4 and diesel by Rs. 2, while leaving kerosene and gas untouched. But all the political parties—both in the power and outside of it—have taken to streets demanding its rollback. On the top of it, they advised government to cut duties. But we all know taxing fuel consumption offers two benefits: One, it generates more revenue for the State to invest on developmental activities, and two, it is likely to reduce consumption, which means reduced “import bill”. In between, we had the episode of Indo-Asean Free Trade Agreement. It was charged that the FTA may lead to “compromising our farmers’ interests” by none other than the coalition partners.

Admittedly, these are all mere “political compulsions” for strengthening vote banks. Similarly, demand for “redistribution of nation’s wealth from the rich to those that do not have any asset”—the slogan that curries greatest favor from voters—continues to be the fashion for political parties, particularly for those who are out of power. True, “inequality” in the society is “morally repugnant and politically corrosive”. But it doesn’t mean that is the reality, for the history speaks otherwise: no government by tinkering with the tax systems, intervention in the labor markets; reforms in property rights, land reforms, massive subsidies, protection from foreign competition, price controls, etc., could annihilate inequality. The Russians did it under the name of communism for 70 years and having gained nothing simply dumped it. The communist China, taking a cue from the experiments of Russia, adopted market-driven economy two decades back to achieve a growth rate of above 8% per annum. History thus sings in chorus: governments’ attempt to annihilate inequality has only resulted in “waste, corruption and inequality”.

Now the question is, “what is to be done then?” The modest answer is: Be wise to learn from Russia that “inequality” cannot be annihilated; but poverty can certainly be eradicated by creating basic infrastructure that sustains higher growth rate, facilitates access to education, healthcare to the teeming population; and creating jobs through sustained industrial growth promoted by public-private partnerships. It is only when the overall economic output goes up that everyone would have something to bite.

Yes, these words do not make a good political speech. Yet, this needs to be sold to the electorate. For that is the only lever for eradicating poverty. Even otherwise, how long are we to carry the cross of “ideology” instead of living in “reality” for bettering it day-by-day.

(July, 2006)