Keep economy above politics
Prime Minister Manmohan Singh has emphasized the need for a political consensus on reforms. “Reforms”, he says, “don’t happen just because there is a professional consensus. They happen when the political leadership of the time decides to back these initiatives”. Finance Minister P. Chidambaram too had earlier felt the need for “political space” to implement the reforms.
If the economy has faltered and growth has plunged in the past two years despite a team of competent economists being at the helm, political opposition to reforms is partly to blame. The UPA itself is divided on what needs to be done. Its concerns for electoral politics prevail over measures needed to put the economy back on track. During much of the UPA’s second term, there was a policy paralysis. Things started moving when Chidambaram took charge a year ago. The Prime Minister talked of “unleashing animal spirits” in the economy.
Though foreign investors’ fears about sudden tax changes were allayed, high inflation did not let the RBI bring down interest rates. As the US economic recovery picked up momentum, the Federal Reserve talked of withdrawing the stimulus, which drove foreign capital from the emerging markets back to the US. As a result, the rupee and other currencies depreciated. The trend has not reversed despite some RBI and government initiatives.
When things go wrong, politicians normally should think of the larger national interest and sink their differences to work out an economic rescue plan. Instead, they play the blame game, stall Parliament, delay crucial legislation and reforms like the goods and services tax (GST). The Congress and the BJP have almost similar economic policies. Yet petty politics divides them even as the growth rate plunges, jobs shrink and the plight of the poor worsens.
The Amartya Sen- Jagdish Bhagwati debate has thrown up a wider consensus among experts: focus first on growth, then on distribution. This means cut down food and fuel subsidies, and other freebies, bring down interest rates, clear projects, lift the ban on mining and settle land disputes.Will the mainstream political class rise to the occasion?