1. Can a referendum make sense in India?

Can a referendum make sense in India?

Can a referendum make sense in India?

By: | New Delhi | Published: June 14, 2016 6:31 AM
While traditional economic theory does talk of the government being involved in distributive justice, the scope has changed to being not just an enabler of economic activity, but also a propellant. While traditional economic theory does talk of the government being involved in distributive justice,
the scope has changed to being not just an enabler
of economic activity, but also a propellant.

The idea of a referendum is compelling. The Britons will decide whether they want Britain to remain within the European Union. Earlier, the Scottish voted on remaining with England, while the Greeks said no to austerity. More recently, the Swiss had a referendum on whether a basic income should be provided to all citizens irrespective of their productivity. This is the epitome of a democracy where the majority view holds. It is against this background that this concept can be conjectured in the Indian context.

Normally, when we look at a referendum, it is a vote for or against a certain decision taken by the government. It is true that one cannot have a referendum for every issue and this is to be done by elected representatives. But, unfortunately, when these elected representatives come for the people’s vote at the time of elections, they speak one language, which changes subsequently.

One will always notice that the manifestos of all parties read alike. There can be a political slant, but the economic agenda is a photocopy. Hence, while we may vote for the party based on what is promised, there is disillusionment when the party comes to power when the tone changes to one of people having to ‘make sacrifices’ and that there is ‘no money in the coffers’. Ironically, this would never have found mention when the manifesto was presented.

Now when we talk of political referendums, there will be outside influences. If people from Vidarbha are asked whether they want a separate state, or whether Awadh should be a new territory, people will always say yes, though no one’s life really changes after statehood has been achieved.

The economic agenda of the government can be looked at here, and the question that may be posed is whether the majority of the people would say ‘yes’ or ‘no’ for various issues if a referendum is held? Surprisingly, the results will not be in conformity with orthodox thinking. While traditional economic theory does talk of the government being involved in distributive justice, the scope has changed to being not just an enabler of economic activity, but also a propellant.

The majority population, which will be at, say, 80%, would intuitively find the following issues vexatious.
First, while land reforms are what intellectuals would argue for the sake of development, the 80% would be against it.

Second, compromising environment may be considered to be pragmatic for industrialisation, but no one wants to breathe bad air or live in a toxic environment.

Third, the 80% would want the government to spend on employment programmes, even if it is a dole, when most are not sure of their next meal.

Fourth, as a corollary, everyone will want higher fiscal spending and deficit if it addresses the issues of lower prices of food through subsidy, outlays on infrastructure, health, welfare and so on.

Fifth, a referendum on whether the government should provide freebies will always have a ‘yes’ rather than a ‘no’ vote, as most of them do not have access to these goods and value them more than the urban folk whose marginal utility does not quite increase when the third car enters their garage.

Sixth, the issue of interest rates will always be looked at differently by the majority. We invariably look at it from the eyes of the corporates and growth. But the common man will always say that rates should be high and not low, even as there are pressures on RBI to lower rates. The common man does not believe in ‘inflation’ but ‘prices’, and as long as prices are high, they are affected even if the inflation rate comes down.

Seventh, lowering of small savings rate or removing tax exemptions from the point of view of lowering the scope for EEE (exempt at the time of taxation, interest and repayment) schemes sounds well in the Parliament house, though almost no one would vote for it.

Then there are issues which are discussed in a heated manner, but do not matter to the general public. The first relates to GST. The common man does not care whether or not the GST comes in. The concern is whether prices will move up, which is a certainty as the rate is higher for several services, while other prices rarely come down when the rate comes down. The second is the discussion on who should be the RBI Governor or the finance minister or the Finance Secretary or the head of a PSB—it is of no interest to this 80%, as it does not affect them. The third is what happens at the Doha round or whether Japan has pledged $20 billion in investments is redundant as it does not feature in their scheme of things. Fourth, the corporate tax rate does not matter for the common man, nor do the tax schemes on stock markets. When market capitalisation goes up, does the common man get higher salary or an extra meal or a secure job? Fifth, while an improvement in the global competitiveness index or doing business index helps business, for the 80% population what matters more is whether we move down in the hunger index and whether they are able to move up the poverty line.

This leads to the conundrum of a democracy where the majority view seldom gets a voice in policy formulation. Governments should be cognisant of the majority wishes if they want to remain in power or return to power. No wonder, all governments bring in reforms in the first two years, and then slip to what we call populism to ensure that their place is guaranteed in Parliament the next time. Governments which cater to the first set of issues always get brownie points, though can still lose an election in case they slip up elsewhere. But answering the first set of questions is definitely a necessary condition for reappointment. Several governments have retained power with freebies, because this is where the votes lie. Free power, water, bicycles, sewing machines, TV sets, etc, are what people want, especially when free market forces cannot bring about the ability of the lowest income group to partake the benefits of the GDP growth which we see around.

A question that we should ask ourselves is how policies should be framed? While catering to the first set of issues with affirmation can make the model unsustainable, blindly following the alternative paradigm may not help in the long run. Governments always balance these two sets of issues. While there is urgency in the productive sector for issues like land and environment to be addressed, one must remember that it is a tough call, as one has to actually decide whether the needs and benefits accruing to the top 5% of population can override the lives of the balance. If one revisits the famous Rawls theory on social justice, one will think harder on this subject.

The author is chief economist, CARE Ratings. Views are personal

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  1. S
    Jun 15, 2016 at 10:00 am
    All the issues discussed here relate to economics where most public will have only rudimentary idea and surely the balance of merits and demerits cannot be addressed by a referendum. So whether interest rates can be increased on small savings will have an obvious answer but whether it should be done is a question to be answered by people who are aware of the bigger picture and have more data than laymen can decipher. However there can be some social issues like whether article 377 should be sed or not. Whether there should be a uniform civil code etc. These may be contentious issues but atleast it will be known to the policy makers what these real pulse of the people is, rather than some interpretation that may well be erroneous. Something like a uniform civil code, one may think that all Muslims may be against it and all Hindus maybe for it. But this is por perception and may be with a referendum many issues may just get settled.Say for example whether to cede certain territory to stan as anyway some of it is in their occupation is something that should be communicated to the public at large transparently and opinion should be taken. Why should such decisions be taken by one person-PM and either gain fame or notoriety based on how such decision turns out? In fire fighting situations you can't have a referendum so let the govt of the day decide what questions to ask the people where they are really not aware what people want and then take a well understood decision!

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