The last 10 years had the Congress, for the first time, form an alliance of like-minded parties under the United Progressive Alliance (UPA). It has, for eight of these 10 years, given good economic growth, introduced many rights for citizens including the Right to Information, and spent heavily on social welfare schemes including a Right to Work scheme that guarantees employment to an adult in every rural household, for a minimum period. The national electorate has, in three elections now, shown its preference for coalitions at the Centre, led by one of the two national parties. We can expect similar coalitions from future elections. There are also many regional parties and, except for Uttar Pradesh, they have given good governance in their states.
The Congress, since Independence, has stood for socialism in a mixed economy. Indira Gandhi added socialist to the Preamble to the Constitution; now we are a sovereign, secular, socialist democracy. The Congress's interpretation of socialism is state ownership and control of national resources, a key role for the state in industry and infrastructure, and central planning of the economy including the private sector. In addition, Indira Gandhi emphasised social welfare schemes. Narasimha Rao was the maverick Congressman who focused on controlling the deficit, reducing controls and constraints on the Indian economy, so that enterprises could operate with more freedom. But he continued with state ownership in many sectors, with monopoly or dominance for the state in some of them. The Sonia Gandhi-Manmohan Singh regime reverted to the Indira Gandhi ideology. With a fast-growing economy and tax revenues, they vastly increased the number of and expenditures on social welfare. They could not introduce methods for proper identification of targeted beneficiaries or ensure minimum theft and wastage. Their rights-based approach to welfare did not put priority on growth or macroeconomic balance although, like the NDA, they also opened hitherto closed sectors to private investment in order to maximise investment.
The Congress's emphasis on socialism meaning state ownership, control and regulation of resources has left us with government monopoly over coal, dominance in oil and gas, refining, generation, transmission and distribution of electricity, railways, roads, and continuing ownership in telecommunications, aviation, steel, copper, zinc, etc. Indira Gandhi nationalised banks and insurance, basically to get control over the economys financial resources. Nationalised banks are dominant today and also have a high proportion of stressed assets. When, in the early 1990s, the Congress opened infrastructure investment to the private sector, the private enterprises were allowed debt-to-equity ratios of 66-34% to 80-20%. Thus, the maximum funds came from nationalised banks as debt. Delayed government clearances for land acquisition, environment and forests, fuel supplies, and a changing financial environment for interest and exchange rates delayed or stopped many projects. Nationalised banks are left holding large (over R2,50,000 crore) in infrastructure, as unserviced debts. The Indian banking system is now appearing under-capitalised and uncertain.
State ownership and government regulation have caused inefficiencies and delays in the economy. Statutory independent regulation of many of these sectors has been introduced. They are supposed to be distanced from ministers and bureaucrats. Since these regulatory agencies are staffed by the same officials who ran them in government, they are amenable to political and bureaucratic pressures. The best example is power distribution, mostly owned by state governments, who do not allow tariffs to cover costs. The cumulative loss of state electricity boards in the last 10 years or so is R1,90,000 crore. Similarly, road projects are delayed and bank monies are locked up in them.
To promote social welfare, the Congress party encourages subsidies to the poor and vulnerable sections of society, mostly by distributing physical goods and services to those identified as deserving. It has also written off huge bank loans to farmers, instead of using the money for agricultural investments. Physically distributing free or subsidised foodgrains, kerosene, diesel, yarn, etc, and services like electricity to the target groups is expensive. Procurement, handling, transport, storage, ration cards, etc, provide ample opportunities for falsification and theft. These pricing practices have distorted markets, price mechanisms, and vitiated competition. Since governments have no foolproof methods for selecting the target beneficiaries, the subsidies or free goods and services get to many who are not intended to benefit. Politicians and bureaucrats also take a great deal of the benefit by thieving and by diversion to markets. In many government schemes, over half the government expenditure does not reach those it is meant to benefit.
The Congress's ideology and policies of subsidies, charity from government, and erratic attention to economic growth is the dynastic thinking of the party from the time of Indira Gandhi. Technology solutions to reduce leakage and wastage in social programmers with the unique identity (UID) number, Aadhaar, bank correspondents in villages who can use UID to accept and disburse small amounts as deposits, and direct cash transfers instead of physical goods and services have yet to prove themselves. Aadhaar has now been made a non-starter by the Supreme Court which made it voluntary. Social programmes (RTI, RTE, MGNREGA, expansion of educational institutions at all levels, a skills development programme, etc) do not seem to have reduced general dissatisfaction. High fiscal deficits, high long-term inflation, record current account deficits, static employment growth, a fluctuating rupee, poor industrial growth, declining savings and investment need to be reversed.
The Congress dynasty has also destroyed alternative political leaderships in the party. The Congress encourages old servitors with poor probity. The party does not reward efficient members (for example, at a critical timethe 2013 Delhi assembly electionsSheila Dikshit was abandoned). The Congress's political practice is also to encourage dissidents against their own chief ministers in every state, to keep the CM on his toes.
The Congress needs to rethink its ideology and political practice, though it may not give up the dynasty.
The BJP, in practice, appears to be moving in the same direction as the Congress. Its new leader has become a one-man show. He is intolerant of dissent and eliminates those he sees as rivals. He has strong views on how to accelerate development. He centralises all power with himself. On economic ideology, foreign policy, relations with Pakistan and national security, if he follows the Vajpayee blueprint, he can succeed. But he has to change as a person and become more trusting of his Cabinet and top partymen.
As of now, the BJP appears more likely to win, and to deliver growth for India. But whether this growth can be sustained and how will it fare on other aspects of governance are questions that remain wide open.
The author is former director general, NCAER, and was the first chairman of CERC