May 15, 2008
Political parties in election mode are strange animals—amazingly careless and profligate. After all, the future is uncertain. So, despite knowing well that the Rs 60,000-crore farm loan waiver would hardly be helpful, the central government went ahead with it. In the run-up to the Karnataka elections, the Bharatiya Janata Party has deemed it fit to offer free electricity to farmers.
And with eight more state elections due over next 12 months, culminating in the general elections in May 2009, we can expect many more populist, and desperate, measures to woo the electorate.Will these token measures win elections? If one looks objectively, what emerges is a mixed track record. However, an objective outlook is rarely a treasured quality when the limited focus is on winning elections. Not that winning elections is not a worthwhile aim. It is, but certainly not at such cost to the economy.
Through happy chance, we have, over the past few years, had unprecedented prosperity. If the politicians stop playing this zero sum game with the Indian public, such prosperity will be a lot more assured and much less dependent on chance. Now, as we careen towards the general elections, the fiscal deficit, which was brought under control after a few painful years, is ballooning yet again. And that is in the context of an uncertain global economy as well as flagging momentum on the domestic front, not to mention high interest rates and rising prices.
Add to this the off-balance sheet items in the central government’s books. A few months ago, they were estimated at around 1 per cent of the Gross Domestic Product. These items make a complete mockery of the Fiscal Responsibility and Budget Management Act. Then, oil, fertiliser and food subsidy bills have been swelling quite rapidly against the backdrop of the sharp run-up in global commodity prices, burning an even larger hole in the government’s balance sheet, but a political class practising vote maximisation as its religion is looking the other way.
This return to populism at a time when the country needs to spend $500 billion (Rs 20 lakh crore) on infrastructure—which, in turn depends on several doses of reforms—does not augur well for the country. The economy is slowing down; the need of the hour is bold reforms—and the operative word here is bold. But with so many elections to be won—or lost—reforms are very apparently the last thing on the mind of politicians.
The result, unfortunately, is going to be a policy paralysis that can only exacerbate the looming economic slowdown. The bottom line: don’t expect any reforms till after the next general elections.