1. Column: Before the Budget 2016

Column: Before the Budget 2016

Repressive regimes fail to deliver inclusive and substantive economic growth

By: | Published: February 25, 2016 3:30 AM

The Union Budget, at its core, is a plan of government revenues and expenditures, an accounting exercise conducted within a framework of policy priorities. Certainly, the Budget and its underlying policies can have a huge impact on the economy and even society. Witness the impacts of the massive expansion of rural employment guarantees under the previous government. In the future, the introduction of a full-fledged, broad-based goods and services tax will have significant direct and indirect impacts. But these are, in many ways, quintessential technical issues.

Policymakers may not fully anticipate the social and economic impacts of changes in revenue and expenditure policies, but they can approximately quantify budgetary implications and even—though less precisely—the broader economic costs and benefits.

But to think about India at the time of the upcoming Budget, I want to start at a different point in India’s contemporary situation. Perhaps the words that capture best what I want to highlight are “lawyers beating students”.

The inappropriateness and incongruity of the image this conjures up is quite stark. Of course, there are complicated issues underlying what is happening, involving layers of politics as well as national identity and even national security. What has happened at JNU and subsequently is, however, one in a long string of such incidents, where claims of patriotism are becoming a refuge for actions that have no place in a society that purports to value diversity and democracy.

The important point I want to make is that I do not think what is happening in India is, or should be made into, an issue of economic policy direction. Many of those who voted for the current national government did so because they wanted faster material progress, both for the nation as a whole and for themselves. I assume most people value social order as well, not just because it promotes material progress, but because it provides large, if intangible, benefits in terms of feelings of safety and security. But stifling dissent and free expression goes well beyond the needs of social order, and, in the case at hand, the needs of national security.

By allowing or encouraging a social and political climate in which lawyers beat students, and similar intimidations abound, the government undermines its own project of increasing the material well-being of India’s population at a sustained rapid rate, enough to absorb protesting students, as well as others, into a variety of productive jobs. Of course, repression is undesirable, independently of its economic impacts. But if economic progress is stalled, social unrest will only grow, and fuel a vicious cycle of disorder and repression.

It is true that several countries have grown rapidly with quite repressive regimes. China is the latest example, but Taiwan, South Korea and even Singapore, have not been models of liberal democracy, though the first two have loosened up over time. But India’s initial conditions are quite different than these examples of the “East Asian miracle,” however much their example of rapid economic progress might appeal to the current leadership.

Furthermore, there are enough examples of repressive regimes that have failed to deliver inclusive and substantive increases in material wellbeing to refute any notion that stifling diversity and dissent is good for growth.

Indeed, changes in the nature of the drivers of economic growth make the example of East Asia less replicable and relevant for India going forward. Of course, growth comes from investment, which benefits from stability and certainty, but it also comes from innovation, which has different drivers. As economic growth becomes more knowledge-intensive, and as knowledge-based economic activities continue to grow in importance (even routine writing of software code is different from assembly line factory jobs, in terms of intellectual training and engagement), future growth that is sufficient to absorb India’s demographic bulge in the working-age population is more likely to occur in an environment that protects and values difference and freedom of thought and expression.
From my perspective, all this suggests that the Union Budget recedes in importance relative to political and social matters that may seem to have nothing to do with economic objectives. Fiscal policy needs some tweaking (and it will be great if it is done to allow more room for monetary policy flexibility).

Taxes and spending programs need to be improved in their design and implementation. Priorities need to be set and programs implemented to achieve those objectives. These changes have been happening slowly, if sometimes sporadically, over the years, both within the Budget and throughout the rest of the government’s annual, administrative and electoral cycles.

But all of this good work will go to waste if a social agenda based on historical grievances (whether real or imagined) and rigid and circumscribed ideas of what it means to be a full citizen of a democratic nation is
allowed to dominate. That would be a monumental government failure, beyond any shortcomings in the Budget.

The author is professor of economics, University of California, Santa Cruz

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