If coalitions are inevitable, we need to think of ways in which they can provide more effective governance, says Subir Gokarn.
Like many people, I am concerned about the impact that a number of likely political outcomes will have on economic performance. While the situation is nowhere near as dire as it was in 1991, the challenges that the new government will have to deal with are no less serious. A range of immediate objectives are going to compete with whatever long-term agenda the government may set for itself, leaving it short of the capacity needed to deal with both sets of issues. The concern is that, with all sorts of problems staring it in the face, the government will be further hobbled by the demands and constraints of managing a coalition which, in many ways, will be a first-time configuration.
In these circumstances, two questions arise. One, are such concerns about coalition management valid? Two, given the inevitability of the country being run by flexible and opportunistic coalitions in the foreseeable future, what will it take to turn this situation into a positive force for development from the handicap it is now widely perceived as?
On the first question, the broad correlation between the existence of coalition governments and economic performance clearly does not support a terribly pessimistic view. The Indian economy has done relatively, some would say extremely, well during a period in which it was governed by coalitions. If one were to look at the relationship after 1991, the modest conclusion would be that the four coalition government we have had since 1996 have either not changed the basic direction that the 1991 reforms gave the economy or have actually reinforced the momentum provided by the reforms.
For example, Mr Chidambaram’s so-called Dream Budget of 1997, which fundamentally reformed the tax structure, was presented from a coalition in which the Communist Party of India (CPI) was a part of government while its larger partner in the Left Front, the CPI (M), provided outside support. Similarly, the National Democratic Alliance (NDA) de-regulated the interest rate regime, which took the financial sector reforms begun by the Congress government in the early 1990s to their logical conclusion and made a huge contribution to the growth acceleration from 2003 onwards.
But, the question does remain: how long can a high-growth process continue to feed off the legacy of reforms? If it is indeed running out of steam, can a coalition, particularly one with widely dispersed policy positions, implement further reform measures that will help to sustain high growth? Most importantly, can we get the decisive action needed to deal with the difficult economic situation from a coalition that will be preoccupied with the division of power between its members?
My answer to the last question is that it is possible, but by no means certain. And it is precisely that uncertainty about how the government will go about its task and the time it will take to settle in that poses the greatest threat. Consumption and investment decisions, the latter whether domestic or foreign, will be significantly impacted by any signs that the new government is either unstable or, worse, driven predominantly by narrow agendas, without any apparent concern for the big picture.
This leads to the second question raised at the beginning of this article. If we have to live with coalitions, the least we can do is institutionalise ways in which they can operate with a reasonable degree of efficiency. This is a particularly important consideration in a situation in which the two largest parties appear to have plateaued in their national vote share, state-level influence and seats in Parliament. Until now, there was a reasonable degree of comfort with the coalition format, given that one or the other of these parties played a pivotal role. From now on, we cannot afford to bank entirely on a spontaneous outcome of that kind. We would be far better off if we were to institutionalise some formal requirements on a coalition government.
The most obvious is the requirement that the coalition be an explicit pre-poll alliance, which once declared, is to be judged in terms of the total number of seats that it gets. The “largest single party” convention must give way to the “largest pre-poll alliance” principle. This should prove to be a deterrent to the free agency phenomenon that is so visible in the ongoing elections. Free agency, as the term itself implies, is the ability to accept the highest bid. While it works very well in many domains, notably professional sports, it clearly has somewhat unsavoury connotations in politics.
An important corollary is that a formal pre-poll alliance must have a formal alliance manifesto. Going through the individual party manifestos, one is struck by the freedom that they have to make unrealistic and infeasible promises with the cop-out that these will be overridden by the common programme of any coalition that the party might be a member of. This violates all principles of truth-in-advertising. As voters, we are entitled to know what the party’s policy position will be in a realistic scenario in which it is part of government, not the fantasy of a single party regime. The challenge that parties must deal with is to put a realistic common policy position and agenda together before the election, allow themselves to be judged as a coalition on it and, should they win, be accountable to it.
These are measures that will help to increase the degree of representativeness of a ruling coalition and the level of accountability that it is subject to, within the existing framework of direct elections and the first-past-the-post principle. Perhaps we need to go beyond this and begin to think about amendments to these basic rules of choice. Runoff elections in the event that no candidate gets a majority of the vote and proportional representation with a minimum vote share threshold are alternatives that several countries have adopted. The latter, in particular, seems to be well-suited to a decentralised federal structure in which national parties compete with regional ones.
Of course, these and other alternatives have long been debated for their relevance in the Indian context and none has been able to overcome the dominance of the status quo. But, if even an appropriately amended status quo still comes in the way of efficient policy formulation and execution, meaningful alternatives need to be given due consideration.
The author is Chief Economist, Standard & Poor’s Asia-Pacific. Views are personal
