The real paralysis

Print edition : May 18, 2012

THE GOVERNMENT HAS not been willing to appropriate the resources required to compensate for the inequalising effects of growth despite rising profit shares in industry and services and in incomes of the rich. Here, a girl begging in Hyderabad. A file picture.-MOHAMMED YOUSUF

It is reflected in the neglect of hunger, malnutrition and other forms of deprivation and in the inclination against state action in support of the poor.

THE United Progressive Alliance (UPA)-II, the argument goes, is afflicted by paralysis in policymaking, especially on matters relating to the economy. Not without reason. There are few new initiatives that are being implemented with vigour, and many that began during UPA-I, including the Rural Employment Guarantee Scheme (NREGS), languish under the current regime.

But all those who identify the government as being overcome by paralysis are not referring to the same policies. Paralysis of the kind that preoccupies the financial media, corporate India and international investors refers to the failure of the government to deliver fully on its explicitly or implicitly stated commitment to so-called economic reform. When in Washington recently to attend the spring meetings of the World Bank and the International Monetary Fund (IMF), Finance Minister Pranab Mukherjee and Kaushik Basu, his Chief Economic Adviser, realised that the sources of such criticism were not just domestic.

Moreover, the term economic reform means different things to different people: deregulation of various kinds, reduced taxation or more tax concessions, privatisation, public expenditure cuts, measures to curtail subsidies and reduce the fiscal deficit, a lax monetary regime with low interest rates, dilution of labour laws, and many combinations of these.

The fact remains that successive governments since the early 1990s have gone a significant way down this path of liberalisation, privatisation and so-called reform of the fiscal and monetary regime. But there seems to be no end to the demands for further liberalisation. Each round is followed by a campaign for a new generation of reforms, so much so that now it is impossible for advocates to put a number on the next round. Further, since the interests of foreign investors in manufacturing, of different components of the domestic corporate sector, and of foreign and Indian finance capital differ, the specific set of reform policies being emphasised by each sectional interest also differs.

However, faced with criticism from these economically powerful circles, the government has turned defensive. It sometimes accepts that the slow pace of reforms under UPA-II is because of the constraints set by coalition politics or by the intransigence of the opposition.

Many accepted that argument when the Left was supporting the government under UPA-I, but it is less credible now.

Sometimes government officials attribute the slow pace of liberalising reform to the indecision that results from repeated allegations of corruption. That is seen as constraining other officers from taking responsibility for government spending. And at yet other times, just the fact that some set of elections is imminent (which is always true) is cited as reason for tardy implementation of the so-called consensus' over reform. Even Prime Minister Manmohan Singh has at times used such excuses to explain the inability to implement reforms. But, since the consensus among the elite that constitutes the state-capital nexus is that these reforms are good, officials like the Chief Economic Adviser who reportedly advanced such arguments sometimes come under attack and are forced to retract.

Loss of legitimacy

The problem with this version of the policy paralysis argument is that it presumes that the neoliberal version of reform is right and that democracy (in the form of elections, coalition governments, opposition and dissent) is not all good since it constrains or slows such reform. What is missed here is the evidence that reform in India has been accompanied on the one hand by a significant worsening of income inequality and on the other by a fall in the rate at which welfare improvements for the poorest are realised.

Whether it be poverty incidence, malnutrition and hunger, reasonably stable and remunerative employment or a host of other indices of deprivation, the pace of progress has slowed after liberalisation. This association between reform and inadequate advance on the human development front has challenged the legitimacy of the liberalisation process. In the event, sections of the opposition, including the Bharatiya Janata Party (BJP), which advocate similar policies when in power, are constrained to oppose the government in some form when new measures of liberalisation are pushed. The real problem is that neoliberal reform has no legitimacy in the perception of the majority of Indians.

It is not surprising, therefore, that it is not just neoliberal reform but also the economic programmes of the parties that push such reform that have lost their legitimacy. They may be all for the poor on paper, but the evidence on the ground is too stark now for the electorate to ignore. That loss of legitimacy is compounded by the evidence that the growing state-capital nexus has resulted in huge transfers of surpluses in favour of capital, facilitated by associated payments to a section of the political and bureaucratic elite.

Neoliberal reform has served as a mechanism for a drastic, engineered redistribution of income and wealth in favour of the rich. Hence, with two decades of reform behind us, the majority of the people in India are no longer persuaded that it can make much of a difference to their lives. Despite this, the push for reform persists because a vocal section of the middle class that has benefited from liberalisation has joined the elite's clamour in its support, because electoral politics is increasingly influenced by money power, and because the political parties and movements that oppose such reform are yet to gather adequate voter support.

But democracy does impose some constraints on parties and their programmes. There has to be a semblance of concern for the majority, even if action points to neglect. It is for this reason that the UPA has had to declare its commitment to and make a feeble attempt to implement programmes such as the NREGS.

They are even showcased as flagship programmes though some of the UPA's leaders had initially dismissed such initiatives as populist and a waste of money. But the support for such programmes has been more in rhetoric than in practice, with implementation neglected or consciously reined in. Nothing illustrates this better than the fact that real allocations of resources for the NREGS have stagnated or declined in the years when it was reportedly being geographically expanded and strengthened.

This disease of divergence between rhetoric and practice is of course not new. In terms of outcomes, a longer-term paralysis of policymaking in certain areas has characterised governments of the post-Independence period. As a result, India ranks high in the hunger index; malnutrition and stunting are overwhelming despite their being considered a national shame even by the Prime Minister; and six and a half decades after Independence we have not been able to put into school all children in the relevant age group. Official assessments harp on the slow progress with respect to most human development indicators, rather than on the persisting shortfall after so many decades of development.

Rather than recognise this long-term failure in addressing deprivation and allocating additional resources and improving delivery to accelerate progress on the human development front, there has been a slowing down in this area during the reform years. What is disconcerting is that it was in periods when GDP growth had accelerated relative to the first three decades after Independence, as in the 1990s, and even boomed, as during 2003-04 to 2007-08, that success in overcoming deprivation has flagged. One obvious reason for this is that the government was not able to appropriate the resources required to compensate for the inequalising effects of growth despite rising profit shares in organised industry and services and in incomes of the rich.

FINANCE MINISTER PRANAB Mukherjee (right) and Kaushik Basu, Chief Economic Adviser in the Ministry of Finance, in New York, en route to New Delhi, on April 23 after attending the spring meetings of the International Monetary Fund and the World Bank in Washington, D.C.-PTI

Clearly, a combination of fiscal conservatism, a rising tendency to favour capital in the name of private sector-led growth and an ideological inclination against state action in support of the poor was responsible for this setback. There are many elements reflecting that ideological inclination: control over economic policy in the hands of those who are neither able nor willing to fight and win popular support in elections; celebration of a neoliberal economic policy package as technocratically correct despite its hugely adverse distributional implications; justification of engineered shifts in the distribution of income in favour of the corporate sector, finance and the rich in the name of incentivising private savings and investment; and the refusal to treat woefully inadequate progress in the battle against deprivation as a failure while arguing that the inability to push neoliberal reform is a sign of malfunction.

This, then, is the true paralysis that characterises the UPA. It is a paralysis that is visible in governments across the world in the age of finance, including in Europe. In some of them austerity is being implemented by unelected governments, and in all of them ordinary citizens pay the price for a crisis engineered by finance and the rich. But the impact of such paralysis in a country with the scale of deprivation that India reflects is a shame. But that is not the paralysis that most commentators are pointing to today and which was being referred to in Washington. Rather, the paralysis they speak of is the inability of the government to push further ahead with policies that would redistribute incomes from the poor to the rich. What they implicitly lament is the fact that India's democracy still retains some of its early representativeness and vibrancy. The challenge then is not to the Indian state but to democracy itself.

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