Political Economy Turns Gloomy

Written by Subhash Agrawal | Updated: Mar 14 2002, 05:30am hrs
The recent Indian budget has evoked censure and disappointment across much of the spectrum, from local businesses, foreign investors and even your average salaried person. In sharp reversal from last year, when the same finance minister was widely acclaimed for putting together a Dream Budget, public disaffection is now palpable. Indian industrialists are upset about the absence of any stimulus for growth, open-market liberals are complaining about a conspicuous absence of privatisation or banking reforms, while Leftists politicians have as usual come down on the neglect shown to farmers and the poor. Amazingly, the Bharatiya Janata Party has managed to annoy just about everybody, including its core constituency of the urban middle class, which is now up in arms against changes in tax and savings rates.

However, given the rush of distressful signals suddenly brimming all over Indias political landscape, public response to the budget is the least of BJPs problems. Set against normal expectations and probabilistic outcomes, Narendra Modis inept handling of the communal riots in Gujarat and his strange comments about action-reaction border on willful neglect. Not only have these riots shaken investor confidence, more crucially they have forever dented the BJPs self-proclaimed track record in maintaining social peace. Sushma Swaraj admitted as much in her recent PTV interview incidentally, she gave a very impressive and dignified performance.

Gujarat and Ayodhya have both opened new fronts for the BJP. The opposition can, or thinks it can, smell blood. Howsoever dexterously Prime Minister Vajpayee yet deals with the vexed Ayodhya dispute, or howsoever hard the BJP tries to shed its right-wing Hindu image, Indias ruling coalition appears to be running out of ideas and glue to hold it together. Though an immediate political crisis or mid-term elections appear highly unlikely, the winners halo around the BJP is disappearing fast.

Objectively speaking, the recent budget may be uninspiring but is not altogether bad. One surprisingly positive development is that Yashwant Sinha did not bow to most of the pressure or lobbying by industry groups over tariff protection or special exemptions. Another is that he has rationalised corporate taxes, with domestic companies now paying a little more while foreign firms paying a little less. The software industry has been brought under the tax net for the first time, howsoever marginally. And peak customs duty was reduced from 35 per cent to 30 per cent. All these are small but sensible steps. And much as it may hurt in the short term, reducing interest rates was long overdue and in fact needs to be deepened. While some of the budget provisions are indeed sloppy, the majority of changes are unexceptional and essentially on the margins.

An uncomfortable fact about the Indian economy, always true but recognised only lately by some of our leading economic commentators, is that so much of economic decision-making is completely outside the pale of any budgeting exercise, and is determined by resolving conflicting strands of social and political demands. Inconvenient but democratic, perhaps too democratic for own good as some might say. Hence the term political economy, a delightfully seductive term which in essence means how to carry people along over policies you feel are in the overall public good, or how to make the larger external environment conducive to such wise decisions. Take privatisation, for instance, where the smallest step or announcement generates countless protests, strikes, public interest litigations, Parliamentary walkouts and all manner of gratuitous speechifying. That is why Arun Shouries real job is not so much to carry out financial preparation or conduct valuation studies or vet proposals, but rather to carefully and discretely massage opposition egos, woo union leaders and generally make key actors see the sense of it all.

The Ayodhya dispute has the potential to seriously damage that larger external environment and to undermine Indias slow but significant attempts to jettison its old inward-looking ways and fuzzy socialism. And this is irrespective of whether or not there is a violent confrontation on March 15. As it is, worried for some time about the increasing divergence of the BJP regime from its RSS moorings, senior RSS leaders have sent out word to affiliated trade unions not to eagerly come to the governments rescue. The RSS has in the past used its union power to keep the Vajpayee regime in reality check, and is beginning to repeat it again. That is why unions affiliated to both the RSS and the Shiv Sena recently announced that they would join a proposed national labour strike on April 16 called to voice opposition to privatisation and government downsizing.

It has often been said that next only to China, India has that immense potential, vast entrepreneurial energy and untapped resources which together can radically transform the country in a single generation. Perhaps true, but possible only in a sustained environment of social harmony and political consensus, a prospect that now looks more remote in India than it did a month ago.

Subhash Agrawal is an analyst of Indian political and business trends and the editor of India Focus, a political risk report for international investors