One Step Forward, Two Steps Backwards

Updated: Apr 18 2002, 05:30am hrs
Social scientists will have a sense of deja vu reading the political tea leaves after the Bharatiya Janata Partys electoral setbacks in Punjab, Uttar Pradesh, Uttaranchal and the municipal elections in Delhi.

The partys mood is definitely anti-reform. A similar fate clouded Rajiv Gandhis half-hearted efforts after the Haryana election in 1987 and Narasimha Raos after the Congress lost important assembly elections in Andhra Pradesh and Karnataka in 1994.

What is common to these three episodes is the electoral politics of liberalisation. The respective party leadership then and now pointed their fingers at the reform agenda which alienated their votebanks at the hustings. At the recent BJPs national executive meeting, the partys top brass thus held the union budget for 2002-2003 responsible for the growing alienation of the middle class from the party. So did the Congress worry about its pro-poor image after the electoral routs in 1987 and 1994.

Such pressures are bound to result in a one step forward, two steps backwards stand by the BJP-led National Democratic Alliance on implementing politically difficult reforms. Rajiv Gandhi retreated from reforms in the wake of vigorous opposition from popular political forces like labour. The specifics of his liberalisation agenda became a matter of political discourse after the Haryana verdict. Post 1994, Narasimha Rao took the middle path after drifting away from the technocratic direction of reforms.

The biggest casualty of the standstill on reforms is the Indian economy, which will only muddle through with a sub-par Hindu rate of growth while neighbours like China strut on the world stage as an economic superpower in the making. Flagging reforms will do nothing to reverse the weaker growth impulses that have set in since 1996-97 and persist even now. Thanks to the current political uncertainty, the fate of over two dozen important economic Bills is blowing in the wind as Parliament is in disarray.

The BJPs current mood was of course mirrored in the speech of its party president in Goa, which urged the need for keeping reforms within politically manageable limits. He even wanted a committee of eminent persons appointed to study the impact of reforms launched since 1991, to enable the BJP-led government to assess whether it was pursuing them rightly and earnestly. Clearly, this signals the need for an audit of reforms winners and losers, as the party believes that the middle class its traditional bastion of support is moving away from it.

After the recent electoral defeats, the national executive found a whipping boy in Yashwant Sinhas budget and second generation economic reforms instead of governance-related issues. Its president mentioned the adverse impact of a lower interest rate regime on retired persons and the pruning of tax rebates on contractual savings. In a bid to regain support from the farmers, the party also urged a review of measures like cutting fertiliser subsidies. Even the NDA allies are demanding such a move.

Why are reforms politically problematical One line of thinking has been explored in a joint paper with Professor Ronald Herring Economic Crisis, Momentary Autonomy and Policy Reform in The Post-Colonial States of South Asia, edited by Amita Shastri and Jeyaratnam Wilson, Curzon Press, 2001. Partly, this is because in a genuine democracy, state autonomy is always difficult to come by. Halting and modest efforts at liberalising reforms invariably are halted by societal resistance.

The fate of Narasimha Rao reforms exemplify this view. What gave him space to introduce reforms in 1991 was not an electoral mandate, nor a unified party, but economic crisis. The reform was technocratic in its support base and widely associated with an International Monetary Fund-sponsored programme of fiscal consolidation and structural reform. The fiscal years of 1991-92 and 1992-93 were thus the high point of technocratic direction. But politics reasserted its autonomy against the reform agenda from 1994.

What weakened his reform initiative were events like the revival of Hindu fundamentalism at Ayodhya, communal carnage and the Mumbai bomb blasts which preempted the governments attention. Moreover, Narasimha Rao himself faced internal challenges to his leadership. But the decisive factors were the electoral setbacks in AP and Karnataka which undermined his position within the party and were widely perceived as a repudiation of reforms. He remained publicly committed to reform but drifted into populism thereafter.

Perhaps the closest the NDA government enjoyed momentary autonomy to push through reforms was after the Pokhran nuclear blasts and the imposition of sanctions in 1998. But its efforts were incremental and hedged by political opposition. Important second generation reforms like opening up the insurance sector faced intense opposition from within the ruling party than in the streets. It is paradoxical but true that the biggest opposition to its reform agenda is from the Sangh Parivar itself.

One consequence has been that external sector reform like lowering tariffs, convertibility, encouraging foreign direct investments made progress, while the domestic agenda remained subject to problems of implementation and intra-party opposition. Despite initial successes, big ticket privatisation of public sector undertakings thus faces major hurdles even now. On labour reform, exit is still a four-letter word. The recent nationwide strike of PSU employees included unions affiliated to the BJP.

Under these circumstances, a serious effort was made in the recent union budget to rein in the fisc, with the burden of austerity being shared by most segments of society. Yet the BJP interpreted the electoral setbacks in four state elections and municipal elections in Delhi as a backlash against Sinhas measures! The party is concerned about the plight of the middle class, which has been perhaps the biggest beneficiary of reforms since 1991. Similarly for large farmers who continue to protect their subsidies and escape income taxation even now!

Clearly, the BJP-led government is under pressure for being politically efficient than theoretically reformist. The one step forward, two steps backwards stance on liberalisation relates to the compulsions of the electoral business cycle. The moral of the recent electoral defeats is to pander to the traditional votebanks through populist policies than those which inflict austerity. The BJP now is learning what Rajiv Gandhi did in 1987 and Narasimha Rao as well after 1994.