Inevitable, Karnataka?s result has created a market opportunity for near-term political crystal ball gazing. Is the BJP on the up? Is the Congress on a decline? Are non-Congress/non-BJP parties less important than was thought at one time? All predictions are risky, given the complicated nature of Indian democracy. But one observation is safe and has crucial economic policy implications. Karnataka again demonstrates that the centre of political gravity is shifting to states?the BJP?s national agenda played no role in winning the state. The economic policy implication is that the bias about reforms being read as a central story should be corrected. Major changes are taking place and can do so at state levels, and the economic story needs to be tracked state by state. Gujarat?s success in rural electrification or Maharashtra?s failure in urban reform have pan-Indian implications in that they help us understand what conditions need to be obtained before states can undertake crucial policy advances.
One interesting point that emerges is that states generally return clearer verdicts than seen at national levels. Indeed, the last Karnataka government was the big exception to this rule and now Karnataka joins the ranks of states that are not governed by fractious partners. Clearer verdicts mean more policy autonomy and, therefore, better chances of sustained change. It is not a coincidence that pension reform has begun in states, but is blocked at the Centre. Or that the sale of PSUs is far less controversial in states than a small stake disinvestment in a Central PSU. Or that power reform has more life in some states than it has had in the last decade at the Centre. State governments, including Congress-run ones like Haryana, are keener on infrastructure accelerators like SEZs than the central government has been. Of course, there are exceptions: Kerala?s Marxist-led government has a solid majority, but acts like an economic Neanderthal. In Maharashtra, the Congress-NCP coalition is not breaking up, but policy is broken. MP?s BJP government seems to be wasting the mandate it received. But overall, the trend is that all big-ticket reforms are blocked at the Centre while policy change has got a much bigger chance in states. Karnataka?s new government can add to that trend by starting to tackle Bangalore?s infrastructure problems.
