Lost in transition

Print edition : November 30, 2012

Prime Minister Manmohan Singh, Congress president Sonia Gandhi and general secretary Rahul Gandhi at the party's rally at Ramlila Maidan in New Delhi on November 4.-PTI

The Congress is at an ideological turning point where foreign-controlled, low-technology projects in retail and other sectors are seen as the new temples of a post-modern India.

When the Congress leadership brought to Delhis Ramlila Maidan a throng of supporters on November 4 to declare support for the governments neoliberal agenda, it unconsciously declared a turning point in Indian politics. There were a number of messages that were explicitly or implicitly conveyed at that event. The most obvious and expected was the implicit declaration that control over the Congress party was being handed over to Rahul Gandhi. He spoke first and made his case for the party and the government, as an anointed leader should.

The second, defined not just by the presence of Prime Minister Manmohan Singh, but by the content of the speeches of Rahul Gandhi and Congress president Sonia Gandhi, was that the Congress leadership backed the Prime Ministers economic policies, including his recent neoliberal thrust. While there were hard choices and burdens on the people, it was good for the country. But the Congress president stressed that this was not an easy task. Recognising that inflation was adversely affecting the ordinary citizen, she was quoted as saying: It is our endeavour that the government should remove your difficulties. But the problem is that we import 80 per cent crude oil consumed and its prices in the international market have gone up almost fourfold in the past decade. We were forced to take some harsh decisions.

But there is some effort to hold back, she seemed to say: Even today we are giving subsidy on diesel, kerosene and LPG [liquefied petroleum gas]. We have to give subsidy on urea also because its price has increased in the international market. Despite all kinds of economic pressures, our government did not increase the price of wheat and rice in ration shops. In sum, protection of the hard-pressed citizen was important, but she had been persuaded that the country had been pushed to a situation where much of that protection must go.

The Prime Minister himself made clear who the persuader was. I can tell you with certainty that the result of the increasing subsidy bill and fiscal deficit could be very bad for our country and our people. It will lead to lowering of confidence in our economy, decrease in investment and hike in inflation. The rate of economic growth will come down and as a result, unemployment and poverty will increase, he reportedly said. He went on to assert that his reforms would deliver a new round of prosperity.

While declaring, as usual, that allowing foreign direct investment (FDI) in multi-brand retail was in the national interest, the Prime Minister reportedly said: The difference between them [opposition parties] and us is on how we want to build the nation. Difference is on whether we want to adopt new policies for our progress or not. We had done a similar thing in 1991 and then also we were opposed. Those who opposed us then were proved wrong. I want to tell you with full confidence that those who are opposing us today will also be proved wrong.

The third message flowing from the event was that the new leader, Rahul Gandhi, had bought into the arguments of the Prime Minister and his circle of economic advisers. He went out of his way to present neoliberal reform as the centrepiece of todays nation-building project. He also seemed convinced that this was the best foil to deflect attention from the recent allegations of corruption. In the process, he perhaps even went too far. The Congress in opposition supported the National Democratic Alliance (NDA) government at the time of Indias engagement in the Kargil war, he said. But the Bharatiya Janata Party (BJP) was unwilling to display the same bipartisanship. It was, instead, opposing the all-too-important reform agenda, including the decision to allow FDI in retail, which was needed to attract foreign capital and support Indias growth story. The true patriot must join the government in appeasing the foreigner, was his message.

Turning point

For a Congress that began its post-Independence journey declaring new infrastructural projects, such as the Bhakra Nangal dam, the new temples of resurgent India, this is indeed a turning point. The celebration of big projects was part of the celebration of the economic strength of a newly independent nation striving to win itself economic freedom, in the sense of freedom from foreign capital. Today, foreign-controlled, low-technology projects in sectors such as the retail trade are seen as new temples of a post-modern India. Inviting and persuading the foreigner to come and set them up was an agenda every patriot must support.

Unfortunately for the Congress, few outside and even within the party believe that this formulation is a sign of a new confidence rather than one of desperation. The Cabinet reshuffle about 18 months before end of term is one among many signs of a last-ditch attempt by the government to regain credibility. The rally, too, was seen by most as a show of bravado before a Parliament session that would be stalled by wrangling over FDI in retail, the liberalisation of insurance and the pension fund industry, and a host of allegations of corrupt practices.

This air of desperation overwhelmed the event. November 4 was a grey Sunday in Delhi, with the light mirroring the mood of a nation running out of patience after a 20-year wait for promised salvation. Inflation-adjusted gross domestic product (GDP) has risen by more than 3.5 times since the launch of liberalisation. But many feel marginalised from the growth that has occurred and inadequately compensated by various forms of state patronage such as employment schemes and food subsidies. Moreover, the evidence is clear. The dynamism the economy displayed over the five years ending 2007-08 has vanished. Inflation is high. And the legacy of the Congress, which requires it to make a show of protecting the common man, is being gradually abandoned.

The net result is that the government is unable to obtain the social sanction it needs for the hard decisions it has convinced itself it has to take. There are many problems here. The first is that the common sense that the government appealed to when arguing that deregulation and liberalisation are the best mechanisms for delivering growth, with efficient markets unfettered by the messy hands of bureaucrats and politicians, is not working any more. For example, the view that increased petrol and LPG prices will bring down inflation by reducing the fiscal deficit is received with derision. So is the view that FDI in retail is the stump of a magic wand that can deliver high growth and prosperity for all.

A protest against the price hike of LPG cylinders in Amritsar on October 12.-PTI

Secondly, the evidence is now too obvious that the government is by no means a distant spectator allowing the market to work. Rather, many of its policies in sectors such as finance, telecommunications, civil aviation and power are seen as interventions aimed at furthering the interest and profits of big capital, Indian and foreign. If the state is a means for accumulation by private capital, ordinary citizens cannot be persuaded that they have no right to expect the state to adopt a much less expensive bundle of measures that protect their interests.

Finally, state functionaries themselves are far more suspect today than they have been in the past, with allegations of large-scale misuse of power for personal aggrandisement, epitomised by the controversies over the allocation of land, 2G spectrum and coal blocks. State functionaries are seen as promoting the interests of not just private capital but also as in some or many cases their own. Even though the government dismisses such allegations, the sources of some of these allegations and the evidence that the government has consciously ignored them for long have damaged its credibility. In sum, if the NDA failed at the polls when it opted for the India Shining slogan, the UPA government seems set to be damaged by its call for austerity on the grounds that it will deliver some shine in the future. Shades of Europe seem to have coloured the subcontinent as well.

Why this trun now?

What explains this turn at this politically crucial juncture, first on the part of the Prime Minister and his team, and then on the part of the Congress leadership? One reason for the Prime Ministers stubborn pursuit of a neoliberal agenda is undoubtedly his refusal to accept that a strategy he claims ownership of is showing signs of having lost steam after delivering a short spurt of high growth. Moreover, it now threatens to precipitate a stagflationary crisis. Manmohan Singh has little by way of political success and influence to show for himself. He remains a functionary assigned a task even when he holds the highest political office in the country. If he must go down in history, it can only be on the grounds that he led India to developed country status. He claims he chose a strategy to do that. He, therefore, seems reluctant to give up on the grounds that it has failed. If he does, he will be seen as a failure. If he does not, he will still be a failure. So perhaps the best option is to keep at it.

A second related reason could be that by pushing the strategy he has pursued he has walked into a trap. Enamoured by success, he has attempted to accelerate the neoliberal transition and has been held back only in a few areas where democratic politics reined him in. In the process, he has made India home to a huge volume of foreign capital, despite being a nation that records a deficit in the current account of its balance of paymentsor spends more foreign exchange than it earns. That capital must be paid a regular return in foreign exchange and given the right to exit as foreign exchange when it so desires. This potential threat of a foreign exchange drain was ignored when the good times made India a favoured destination for investors. But that danger looms large at a time when economic performance has slackened and foreign investor interest has waned, making the prevention of such a drain the principal objective of the Prime Minister and his team. The obsession with reform may be just a way of ignoring the problem in the hope that it would address itself.

But the puzzle as to why the Congress leadership has gone along with the Prime Minister remains. One reason may be that the Congress president has been persuaded by the government that the stagflation is not the result of reform but the combined effect of global conditions and the absence of adequate reform. So without reform a crisis is imminent, whereas adopting such reform can deliver a recovery in time for the next election. Sonia Gandhis role then is to try and put as much as a human face on policy as possible. But having decided to make way for her son, who presents himself as a convinced neoliberal, she seems to be giving in even on this. The end result is that the Congress is clearly at an ideological turning point. The less sympathetic would say the organisation has lost its will to power.

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