The first phase of elections over, analyst talk that these national elections are but a sum of many state-level elections is growing more frequent. This is probably a valid observation, but the caveat should be added that the trend has been visible for some time. What gets less attention is that the same analytical framework can be put on the economy. There?s tremendous bias in economic policy discussion in this country in favour of central dos and don?ts. The Union finance minister looms too large. Of course, with the Centre dominating total government expenditure, possessing abundant fiscal powers as well as the power to take decisions on sectors like finance and trade, this is partly understandable. But, literally, no economic activity takes place at the Centre; it all happens in states and the Concurrent List and the State List have enough instruments to make states key economic policy players in their domain if they want to be. That?s what happened in Gujarat, Karnataka, Tamil Nadu and Andhra Pradesh, for example. That?s what Bengal under Buddhadeb Bhattacharjee tried and failed to do. That?s what Naveen Patnaik?s Orissa and Nitish Kumar?s Bihar are trying to do, with their chances of success, electoral results permitting, considered high.
Half a dozen more good state administrations can do as much good for the economy as a reformist Centre. Indeed, India?s economic future can look bright if a majority of states discover minimally good economic governance, even if the Centre has a fractious and unreformist coalition. The demonstration effect has worked a bit between states?better-governed states have produced incentives for emulation among a few others. But this is not widespread as yet. Maybe, if the recent trend of well-performing incumbents being returned to power at the state level holds good for longer, the demonstration effect will also take hold. A previous comment in these columns had outlined the few, minimal things the new government at the Centre must do: restate fiscal discipline, some politically neutral technical reforms in finance and debt, kickstart big public investment projects and drop bad taxes. If those are done and if more states become conscious of the electoral benefits of good economic policy, it is possible that by the next election cycle, the economy will be in better shape than apprehended by those expecting a chaotic national election result in 2009.