Bimal Jalan at IIM-A on the inter-relationships between economics, politics and governance in India’s national life
Economics, Politics And Governance
The problem with the Indian economy is not that its market is less or more free, but that its freedom is in the wrong domains
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Also, the delivery of government benefits to special groups has given rise to a whole pro-cess of bargaining and conflict resolution among various int-erests. As a result, middlemen have emerged across the political spectrum. Further, as elections have become more exp- ensive and frequent with uncertain time period during which funds can be collected in different states, there is more tolerance of political corruption as an unavoidable feature of the electoral process.
Thus, contrary to what was envisaged by the founding fathers of our Republic, and contrary to the vision of our planners, the political-economic balance, in actual practice, has turned out to be self-centric, narrow and was-teful. An interesting question is: How did the stranglehold of special interests last so long? Where were the majority who did not gain sufficiently from the economic bargaining pro-cess? The answer is not difficult to find. The simple fact is that the so-called majority is fractured into a large number of sub-groups of individuals who are divided among themselves by several factors (caste, religion, location or occupation), while special interests are united in protecting their share of the economic output. This is why the so-called “haves” are more powerful than the “have-nots” in our society. It is, for example, the trade union of employed persons (the “haves”) which is likely to go on strike when their interests are threatened rather than the vast majority of the unemployed (the “have-nots”) across the country.
At this point, I must make it clear that what I have said so far about the power of special interests in determining political economy outcomes is not an argument in favour of un-fettered free markets, or the need for an economy without government regulations and laws. The issue here is not “markets vs government”. It is that the political priorities are distinct from priorities laid down by economists and experts. Thus, the problem with the Indian economy is not that its market is less or more free, but that its freedom is in the wrong domains. It is common knowledge that in most parts of India, government permissions, regulatory app-rovals, or licences can be purchased at a price. In these domains, the problem is that of excessive marketisation. On the other hand, in other areas where the market ought to be more free (eg, the labour market or international trade), India is strapped in bureaucratic red tape.
Two more caveats are necessary in considering the power of dominant coalitions in determining economic policy outcomes in our country. The point is not that these coalitions always emerge as winners in determining the direction of public policy, or that all politicians pander only to special interests. There are honourable exceptions, and there are leaders who give primacy to the general public interest. But they are likely to be exceptions rather than the rule. They are also likely to face hurdles in successfully pursuing economic policies that adversely affect the special interests of the organised groups. Similarly, there are situations (war, natural catastrophes, religious conflicts) when a unity of purpose emerges among all sections to promote the common good.
Another important assumption in the choice of post-independence development strat- egy was that public sector enterprises would generate public savings, which could be used for higher and higher levels of investment. However, instead of generating savings, the public sector soon became a drain on public savings. Despite commanding the “commanding heights,” public sector savings are now negative by as much as 4% of GDP. These negative savings have led to fast accumulation of internal public debt and lower investment than would have been the case otherwise. In the annals of development history, it is hard to find another example of a perfectly sensible idea — the need for higher public investment for greater public good — leading to exactly the opposite result, ie, higher public consumption with diminishing returns for the public!
Let me now move to the governance structure for the delivery of public services to the people. Eminent economists have advised us on what should ideally be the country’s development priorities, and elected political leaders have taken their own policy decisions on various economic issues according to their political perceptions. These policy and other decisions, once taken, have to be implemented through the multi-level administrative structure at the Centre, states, districts and villages. The basic premise of India’s Plans, as well as the early development literature, was that the required administrative response would be forthcoming in abundant measure. The system of administration at different levels was expected to work in harmony, delivering savings and investments as postulated, and implementing programmes as scheduled.
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