2024: The case for status quo

An alliance formed solely to oust Narendra Modi is simply not the right vehicle to steady the economic ship

Whoever said that good politics makes for good economics, or vice-versa, needs to have their head examined. Look around anywhere, and you will see neither good politics, nor good economics almost anywhere in the world.

Between now and May 2024, the Indian voter will have many political choices before her, both in state elections and at the Centre. Our worry should be that we may end up electing lousy politicians, driven by lousy economic advice. This article will argue that the best outcome for our economy is status quo at the Centre, not change.

The fact that the Opposition alliance has called itself INDIA should worry us, for patriotism is often the last resort of the ideologically bankrupt. It does not mean the ruling party is above such gimmicks, but the real cause for worry is how INDIA expands into an Indian National Developmental Inclusive Alliance. The dog-whistle words are “Developmental” and “Inclusive”, which are political shorthand for the use of taxpayer funds to hand out more freebies to citizens, whether deserving or undeserving.

We saw how non-Bharatiya Janata Party governments have been opting for the old pension scheme, which provides defined benefits to state sector retirees, as against the new pension scheme, which provides for defined contributions. Pensions in the latter are fiscally neutral, and depend on accumulations over a lifetime of service, not state handouts. The former is unfunded.

We have also seen how, in a desperate bid for power in Karnataka, the Congress offered “five guarantees” to the voter, which could cost the state exchequer anywhere between Rs 50,000 crore and Rs 60,000 crore annually. These five guarantees include paying Rs 2,000 per month to women heads of households, 200 units of free power, Rs 3,000 of unemployment allowance to graduate youth, and 10 kg of free rice per person every month (now changed to cash instead of rice, as not enough rice is available). The Congress party’s No 2 in government, D K Shivakumar, has already said that these schemes will impact outlays on development programmes. In short, the provision of “private” freebies to some will come at the cost of “public” goods to all.

Now that these guarantees have been patented by the Congress, they will be templated for use in other states. Some such guarantees will surely form a part of INDIA’s common minimum programme of handouts before the 2024 general elections.

What is most troubling is the fact that not one, not a single party that is part of INDIA has talked about any kind of reform and economic sense. The only politician putting his finger in the dyke of fiscal imprudence is Narendra Modi. What is at stake in 2024, and in the elections that precede it, is nothing less than economic commonsense and a continued commitment to reform.

In 2004-14, when the Congress — a former party of reform — was the binding factor in the United Progressive Alliance (UPA), there was practically no reform attempted. The UPA-era social safety nets were funded by tax buoyancy that had nothing to do with UPA policies, but the reforms begun earlier under Atal Bihari Vajpayee, and the global growth tide that lifted all boats. Once the tide went out, we discovered that all politicians were swimming naked.

In contrast, 2014-24 should be seen as the only decade in our history where a government attempted reforms consistently without being forced by external or internal bankruptcy. And this happened despite two back-to-back droughts in 2014 and 2015, and the Covid crisis of 2020-22. This does not mean the National Democratic Alliance under Mr Modi got everything right. Not quite. Demonetisation was a needless harm inflicted on the cash-using parts of the economy, though, in retrospect, it can be seen as the harbinger of a dramatic rise in the digital economy.

Whether it is the Insolvency and Bankruptcy Code, the goods and services tax, the elimination of significant leakages in subsidy deliveries to the poor, the cut in corporate taxes, the emphasis on domestic procurement of more and more defence supplies, or the introduction of productivity-linked incentives to boost manufacturing, in no tenure of any government have we seen so much reform being done due to the quiet efforts of one man. And this is not even an exhaustive list.

If the parties that now constitute INDIA had not egged on the richer farmers of north-western India in 2019-20 to help scuttle the agricultural reforms, it would have been another great reform success for India. India needs reform, but INDIA is unlikely to be the vehicle of any reform.

Two reasons why. Even though the Congress party has some reformist credentials dating back to 1991, it could not manage any kind of worthwhile reform in UPA-II, even after winning a bigger mandate in 2009. Now, few people are betting that it will cross 100 seats in 2024, which means that regional parties will dictate what happens at the Centre. None of them is known to be keen on any kind of reform outside their states.

The one reform they could push through, if they are clear-sighted enough, is a constitutional change that will shift the burden of reforms to states and local bodies, with commensurate devolvement of financial powers. But nobody should be betting on that.

The net result is this: A weak coalition with an even weaker core party is a recipe for trouble on the fiscal and reform fronts. This will get worse, if the Opposition, which will obviously be the well-funded BJP, is bent on sabotage of the already-frail INDIA alliance.

The least bad outcome for India is for the BJP to remain in power, possibly with something less than a full majority — though that need not be ruled out. The Indian economy is doing fairly well for now, but it only needs a bad electoral outcome to go off the rails once again, as it did after 2010 under the UPA.

India’s economy may be better served by NDA than INDIA. Political status quo in 2024 is what our well-wishers should be hoping for. Without that, there will not only be no progress on reform, but some regression as well. One can argue endlessly about whether or not democracy has been dented under Mr Modi, but there can be no democracy without economic growth and progress.

The writer is editorial director of Swarajya magazine