The Hindu Business Line : Right firepower for economy

Democracy, political ownership of the economy and institutional professionalism constitute the Indian economy's firepower. Debunking as they do certain principal assumptions and ideologies, they inspire confidence and deserve to be nurtured and reinforced, says G. Ramachandran.

ELECTIONS to India's Lok Sabha in 2004 offer a valuable opportunity to assess the contribution of democracy, political leadership and governance to the doubling of purchasing power in nominal terms between 1999 and 2003.

The elections provide the Indian National Congress (Congress) and its allies the opportunity to showcase their significantly positive influence on local and regional economies despite constituting the political opposition in the 13th Lok Sabha.

The Bharatiya Janata Party (BJP) and its allies that constituted the National Democratic Alliance (NDA) Government since 1999 could show emphatically how they have supported local and regional growth even while local and regional governance was in the hands of their rivals. More importantly, they could show off how even-handed they have been in dealing with the local and regional economies.

Consider the following. India's aggregate purchasing power — measured by the Business Intelligence Unit's (BIU's) India 500 Plus — rose by 94 per cent since 1999 when the NDA Government was constituted.

The purchasing power of households in 17 States and Union Territories governed by the Congress and its allies increased by 99 per cent. By contrast, the purchasing power of households in States and Union Territories governed by the BJP and its allies increased by 88 per cent.

The relative performance of the States and Union Territories governed by the Congress and its allies, and by the BJP and its allies, reinforces the formidable advantages of nurturing democracy at every level of India's polity and society. It demonstrates the payoffs from politicising growth at all levels of the polity and society so that someone in a leadership position could `own' the practices that spur growth in every locale.

More significantly, the relative performance showcases the strengths of India's principal `economic' and `market' institutions. The Planning Commission, Finance Commission and the banking, monetary, securities, commodity, agricultural produce and corporate regulatory institutions come to mind. These and other institutions have most likely encouraged local and regional growth while maintaining their `national' character most zealously.

The purposeful combination of democracy, political ownership of economic management, and institutional objectivity and probity deserves to be nurtured and reinforced. Democracy, political ownership of the economy and institutional professionalism constitute the Indian economy's firepower. They inspire considerable confidence because they debunk some principal assumptions and ideologies.

Debunking assumptions

Many regional politicians have assumed and argued for long that the party at the helm of national governance has an impact on regional growth. If the party at the helm of State governance were the same as that at the helm of national governance or one that were `friendly', regional growth would be favourably affected. If neither, regional growth would be adversely affected.

The principal assumption is that regional economic growth can be opportunistically pushed forward or pulled back by the party (parties) at the helm of national governance. The inferred wisdom is that it pays to have a congruence of political and governance interests, especially the former, so that the Central Government would favour a State and refrain from punishing it.

Derived data from BIU's India 500 Plus do not support the principal assumption. States and Union Territories governed by the Congress and its allies — the BJP's rivals — have outperformed those governed by the BJP and its allies. States and Union Territories governed by the BJP and its allies could not outperform those governed by the Congress and its allies.

First, it has been possible for the Congress and its allies to pursue their own local economic manifestos, adopt the `right' governance practices and then show how regional economies can reap the benefits of regional focus.

Second, they have overcome any adverse influence, if at all, attempted by the BJP and its allies.

Third, the BJP and its allies could not adversely impact the regional economies governed by the Congress and its allies. A reasonable variant of the third inference is that the NDA did not attempt to punish States ruled by its political opposition.

Debunking ideology

The Congress, its long-term ideological allies and its short-term opportunistic allies, have a history of presenting themselves as champions of the `poor'. They have presented two related arguments in recent times.

The first denies that India is shining. This argument is aimed at showing up the NDA as an inept manager of the aggregate economy. It is also aimed at finding a suitable and viable economic space for the Congress and its allies in their campaign for electoral success.

The second argument implicitly and grudgingly accepts that India is shining but disputes the character of the shine: India shines for the rich and the urban classes but not for the poor and the rural households. This too is aimed at finding a suitable and viable mission for their electoral campaign.

Both arguments are driven by the need to mix ideology with electoral opportunities derived from India's due democratic processes. The recent expression by leaders of the Congress that they would press ahead with an enhanced role for the public sector and herald a new `mixed economy' best reflects how the opportunity to mix ideology with electoral opportunities has been pursued. However, the empirical evidence derived from BIU's India 500 Plus shows that the Congress, its ideological allies and its opportunistic allies have so governed as to outperform States governed by the BJP and its allies. The per capita purchasing power of households in States governed by the Congress and its allies increased by Rs 7,651. The average per capita purchasing power for India rose by Rs 7,024.

The per capita purchasing power of households in States governed by the BJP and its allies increased by Rs 6,264, the lowest of the three (Business Line, March 2).

More significantly, the empirical evidence derived from India 500 Plus shows that the purchasing power deployed on luxury goods and high-end branded goods increased the most in States governed by the Congress and its allies.

By contrast, the BJP and its allies have done as well as the Congress and its allies in promoting purchasing power deployed on basic goods (Table).

Basic goods constitute a very large part of the consumption basket of poor households. Typically, the consumption of basic goods does not rise with incomes. But the consumption of luxury goods and high-end branded goods usually rises with incomes.

The data on purchasing power deployed on luxury goods and high-end branded goods break the back of the ideology-driven denials and disputations of the Congress and its allies. The data on purchasing power deployed on basic goods and simple branded goods show that the BJP and its allies are as focussed on the poor as the Congress and its allies are.

These are, to put it mildly, good for the aggregate economy. The economy has found the right firepower that no longer depends on ideology.

(The author is a financial analyst. Feedback may be sent to indiagrow@sify.com)