The neo-liberal consensus

Published : Apr 23, 2004 00:00 IST

A strange feature of Indian federalism is that State governments run by regional parties, which claim to represent regional aspirations, have invariably followed the same economic agenda as that of the Central government.

POLITICS, in the time of economic liberalisation, seems to suffer from apparent paradoxes. Although coalition governments at the Centre are now deemed to be an abiding feature of Indian politics, and although regional parties now enjoy a greater degree of leverage with the Union government than before, these parties do not seem to have been able to determine the direction of economic policy formulated at the Centre. Instead, regional parties, with varying political orientations, have pushed the same economic policy formulations advocated and prescribed by the Centre. State governments run by the Bharatiya Janata Party, the Congress(I) and regional parties have pursued similar policies. Instead of a plural economic agenda, which one would expect from the sharing of political power, the tendency since the 1990s has been to pursue of straitjacketed policies in the name of liberalisation.

The message is that the nature of governments does not matter, that politics is irrelevant, that ideologies do not exist and, importantly, that there is no alternative to liberalisation A one-size-fits-all approach to economic policy that advocates the same set of liberal policies for all States, irrespective of the people's aspirations, is a striking feature of the situation. The significant paradox is this: Although regional parties emerged with the promise that they would address regional aspirations, despite the mounting evidence that liberal policies have severely strained State finances and despite their proximity to the Centre and ability to leverage it, they have continued to implement policies that impinge on their ability to address the concerns of the constituencies that they claim to represent.

Regional parties have emerged owing to a complex set of circumstances; they were essentially seen as a result of the decline of the Congress(I) over the years. Initially many of these parties proclaimed that they intended to fulfil the unmet aspirations of the people of their respective States, particularly those relating to development. The "insensitivity" of the Congress(I) to regional aspirations and the perception that the States were being denied their share of financial resources mobilised by the Centre were also key issues that led to the formation of these parties. For instance, since the issue of Centre-State relations first figured in its election manifesto of 1967, the Dravida Munnetra Kazhagam (DMK) in Tamil Nadu has repeatedly raised the issue of Centre-State financial relations, claiming that they proved the unequal nature of federal relations in India. When N.T. Rama Rao formed the Telugu Desam Party (TDP) in Andhra Pradesh in 1982 he raised the question of "Telugu pride", implying that the Congress(I) was undermining the interests of Andhra Pradesh. The Biju Janata Dal (BJD) in Orissa, led by Naveen Patnaik, was formed after the death of Biju Patnaik who is generally regarded as the founder of modern Orissa. All three parties have been a part of the National Democratic Alliance. The DMK was until recently a part of the NDA, the TDP has been a key ally since the last Lok Sabha elections, and the BJD has from its inception chosen to ally with the BJP in Orissa. Why is it that these parties choose to follow - or, in the case of Andhra Pradesh, even take the lead in pursuing - the policies initiated by the Centre even when they threaten to erode their popular base substantially? Or, is it just that regional parties are using their bargaining power in the era of coalition politics to register opportunistic short-term gains?

THE case of the N. Chandrababu Naidu government in Andhra Pradesh is a good example of this paradoxical situation. The ruling TDP has provided crucial support to the NDA government. Earlier, it also participated in the short-lived United Front government. Being a part of either governments does not seem to have made a difference to the way economic policy is formulated in Andhra Pradesh. The TDP is regarded as the most "reform-oriented" State in the country. Since the mid-1990s Chandrababu Naidu has initiated economic reforms that have transformed the State. He has dealt directly with the World Bank and negotiated huge loans that have been controversial. All the key aspects of the classical liberal agenda are in place in Andhra Pradesh (Frontline, June 18, 1999).

Andhra Pradesh has been a laboratory for testing State-level reforms in India under the watchful eyes of the World Bank. Between 1998 and 2002, the State government signed three structural adjustment loan agreements with the World Bank, totalling $1.14 billion. The World Bank loan for the Andhra Pradesh Economic Restructuring Project (APERP) initiated far-reaching reforms in almost every sector of economic and social activity in the State.

The conditionalities that the government accepted have resulted in a substantial reduction in subsidies of all kinds. The popular subsidised rice supply scheme was among the most important casualty of the reforms. The measures also included the revision of "user charges" for social and economic services provided by the government in areas ranging from water to health and education. The "restructuring" of public sector undertakings has meant the outright privatisation of nine State undertakings, disinvestment in eight others, and the closure of 22 units; 11 others have been "restructured". Almost 22,000 workers in State enterprises have lost their jobs; they were eased out through what is euphemistically described as VRS (Voluntary Retirement Scheme). Awaiting a similar fate under the second phase (2002-03 to 2006-07) are 16 State-owned corporations, 43 cooperatives and nine other industrial units. Andhra Pradesh recently became the first State of the Indian Union to amend the provisions of the Contract Labour Act, which will facilitate industrial units to hire temporary or contract labour for their "non-core" activities. The government is also committed to implementing legislation that will help industries by removing the "rigidities" in the labour market.

The emergence of the TDP can be traced to the social churn caused by the Green Revolution in Andhra Pradesh, particularly in the coastal areas. The commercialisation of paddy-based agriculture in the 1960s and 1970s led to the emergence of a rich peasant class, which also provided the base for the growth of an entrepreneurial class. B.V. Raghavalu, secretary of the State committee of the Communist Party of India (Marxist), points out that the growing economic clout of the Kammas in coastal Andhra at that time was not matched by their access to political power. The internal squabbles in the Congress(I), which had enjoyed a monopoly of power in the State, and the mass upsurge between 1979 and 1982 when the State was rocked by a series of popular agitations provided the ideal setting for the TDP to fill the vacuum created by the decline of the Congress(I). The TDP's slogan to uphold "Telugu pride" became popular in a setting in which N.T. Rama Rao's political plank rested firmly on welfare measures for the poor. These measures had three main components - the supply of rice at Rs.2 a kilogram, clothing under the Janatha Vastra scheme, and the prohibition of liquor.

Although Chandrababu Naidu has dismantled all these programmes, he has replaced them by other schemes, particularly on the eve of elections - issuing ration cards, providing house sites, schemes for artisans, schemes targeted at the minorities, and other development programmes. Says Raghavalu: "Instead of launching universal programmes the TDP government has scattered resources on schemes that aim to please a variety of sections. The attempt is to woo people who have been affected by the government's liberal policies."

It is significant that many of these programmes were built into the World Bank's strategy of restructuring the economy of Andhra Pradesh. Even as it launched a major structural adjustment programme that would have an adverse impact on the poor, the Bank also launched a set of anti-poverty programmes. Raghavalu says that by doing this the Bank has provided "safety valves" for the government by making a provision of Rs.3,000 crores for several welfare programmes. The funds have enabled the formation of 4,65,000 self-help groups with each group consisting of 20 women, under the Development of Women and Child in Rural Areas (DWCRA) programme. Raghavalu argues that "in some measure the Bank's funds have been used by the TDP to develop its own organisational network among women".

The APERP allocated almost Rs.500 crores to the Integrated Child Development Scheme. The primary education programme received more than Rs.500 crores. It is generally accepted that the TDP enjoys a privileged relationship with the NDA government because its support has been crucial to the latter's survival. For instance, Andhra Pradesh managed to get 48 lakh tonnes of foodgrains allocated from the Centre for drought relief, which was far higher than what any other State could secure. World Bank loans are normally routed through the Centre, and the Central government normally withholds about 15 per cent of the amount since it guarantees the loans sought by the States. The Andhra Pradesh government managed to get this practice waived by the Centre. The TDP government was recently sanctioned an additional loan of Rs.1,200 crores by the World Bank with the approval of the Centre. Although the Central government and the Planning Commission had initially raised objections to this loan, doubting the State's ability to repay, they quietly gave the nod as the elections approached.

DURING a decade of reforms, the finances of State governments have turned precarious. One of the key features of the liberalised regime has been its tax structure. The increasingly permissive regime meant that the gross tax revenues of the Union government fell from 9.14 per cent of the gross domestic product (GDP) in 1997-98 to 8.10 per cent in 2001-02. Meanwhile, the combined revenue deficit of the States increased sharply between 1997-98 and 2001-02 - from 1.21 per cent of GDP to 4.39 per cent. In 2002-03 the outstanding liabilities of the States amounted to a whopping 30 per cent of the country's national income. Even as the States' financial situation worsened, the interest rate on borrowings made by the States increased - from 8.96 per cent in 1992-93 to 10.61 per cent in 2002-03. In fact, this happened even as the rest of the economy regarded interest rates as having bottomed out.

Sitaram Yechury, Polit Bureau member of the CPI(M), argues that many of the regional parties are merely pursuing the interests of the "regional bourgeoisie". This, he says, explains why they implement the same policies advocated by the ruling party at the Centre. He insists that the resistance to liberal economic policies does not stem from the differences between the all-India and regional parties. Instead, he says: "It stems from the ideological orientation of parties." Yechury adds that some regional parties, through experience, "have also moved away from their initial enthusiasm for reforms". The Rashtriya Janata Dal and the Janata Dal (Secular), for instance, have taken a more forthright position against reforms, particularly on matters relating to the World Trade Organisation. These parties, because of pressure from below, particularly the peasantry, which forms the core of their mass base, have moved away from their initial enthusiasm. However, Yechury feels that the classical regional parties, which emerged in region-specific contexts, "remain tied to the liberal agenda". These parties, he says, "are promoting the interests of the regional bourgeoisies and vested interests in the regions".

Yechury says that there is "little possibility for contradictions emerging on the question of economic policies per se". However, the widening regional disparities can cause the situation to change rapidly. Yechury feels that regional parties, in order to protect their own regions, are likely to make demands that may come into conflict with the government at the Centre. He says that in the face of the growing fiscal crisis, the regional parties have tried to bargain with the Centre rather than seek a change in policy. He says: "Although all the States are in a financial crisis, each State run by a regional party would like to get out of the crisis by bargaining with the Centre rather than seek a reversal of the policies that led to this situation."

This process of political bargaining has obvious limits. For instance, the TDP's hold on the NDA would depend heavily on not only its own electoral performance but also that of the other constituents of the NDA. If the NDA performs better in the next elections, it may not be so heavily dependent on the TDP for its survival. In such a situation, Chandrababu Naidu may in fact have to reckon with less leverage, which could severely curtail his ability to manage the crisis in the State. That may have lessons to offer for other regional parties as well.

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