It is the politics of policymaking that deserves a closer look than the economics of Mr Modi’s initiative
The decision of Prime Minister Narendra Modi to repeal the three farm reform laws he had introduced last year has been criticised by many advocates of economic reform and liberalisation as a major policy and political setback. Some of the Prime Minister’s staunch supporters, who had hailed the original decision as being as important for Indian agriculture as the reforms of 1991 were for Indian industry, have argued that while Prime Minister P.V. Narasimha Rao was forced in 1991 to introduce “reforms by stealth” because of an economic crisis, Mr Modi’s reforms were products of the courage of conviction.
The irony in comparing Narasimha Rao’s reform initiatives with Narendra Modi’s lies in the fact that in July 1991 Rao was in the first month of a minority government while in November 2021 Narendra Modi is in the middle of the second term of a government with an overwhelming majority in Parliament. More to the point, Rao did not roll back any of his policy initiatives despite a threat to the very survival of his government, while Mr Modi has had to step back despite the absence of any threat to his government. It is the politics of policymaking that deserves a closer look than the economics of Mr Modi’s initiative.
Heading a minority government with uncertain support from even within his own party, Narasimha Rao was able to provide leadership to the historic policy change that threatened the power of several constituencies of vested interests. Rao’s low-profile style combined with his gentle outreach to important Opposition party leaders, especially Atal Behari Vajpayee of the BJP, enabled him to secure the tacit, if not the explicit, endorsement of Parliament. If then finance minister Manmohan Singh’s debut Budget of July 1991 had been voted down by the entire Opposition, the Rao government would have fallen. In the event, the Budget was passed and the government survived.
Over the next five years Rao’s political management of policy ensured that his government’s historic reforms survived and began to show results. So much so that none of his initiatives with respect to industry, trade and fiscal policy were reversed by the successive governments of H.D. Deve Gowda, Inder Kumar Gujral and Atal Behari Vajpayee. Almost all the political parties that had opposed Rao were constituents of one or the other of these three governments.
Much the same can be said about Prime Minister Vajpayee’s policy initiatives. While it is true that his finance minister, Yashwant Sinha, earned the moniker of “Rollback Sinha” for having had to withdraw budgetary policy initiatives due to inadequate support within the ruling coalition, Vajpayee did manage to take forward the economic reform programme. Like Rao, Vajpayee too had established an excellent working relationship with several leaders of the Opposition political parties.
Following the examples set by Rao and Vajpayee, Prime Minister Manmohan Singh also adopted a consensual approach and despite heading a fractious coalition and, on occasion, facing opposition from within his own party, he was able to take the economy and the nation forward during his decade in office.
The net result of such consensual policy making has been that the period 1991-2014 stands out as the “golden era of economic growth” during which there was a dramatic reduction in poverty, a sustained rise in the share of investment and savings in national income, an increase in the share of international trade in national income and an increase in India’s share of world trade. It is worth noting that a lower annual average rate of economic growth was recorded during the era of “majority governments” with “powerful leaders” — the 1950s, 1960s and 1970s — while the highest rates of economic growth and poverty reduction was recorded during the “era of coalitions” — 1990-2014.
The secret of successful policy management in a diverse, plural, sub-continental, federal, parliamentary republic like India lies in building political coalitions irrespective of parliamentary majority. The formula may not always work, but it ensures policy longevity.
This is not just a lesson for the Prime Minister, but for all unilateralist chief ministers too.
The problem with Mr Modi’s controversial farm laws initiative, as many have since commented, was not so much with the policy itself as it was with the manner in which the politics of policymaking was managed. Mr Modi has politically isolated himself from most political parties across the country by imagining that an election constitutes regime change. Merely because the Sonia Gandhi-led Congress Party has been rudderless and remains stunted by its own inadequacies, the BJP imagined that it had not only liberated India from Congress rule — “Congress-mukt Bharat” — but that it would now set the nation on a new course to become a Hindu Rashtra. It is the consequent hubris that has met with its comeuppance thanks to the farmers of Punjab, Haryana and western Uttar Pradesh.
When one compares the political style and record of both Indira Gandhi and Narendra Modi, two powerful PMs with a clear majority in the Lok Sabha and little opposition within their own ranks, with that of P.V. Narasimha Rao, Atal Behari Vajpayee and Dr Manmohan Singh, there is an important lesson to be learnt. It is not an accident or a mere happenstance that the economy performed better and the polity was more stable and secure during the interregnum between Indira Gandhi and Mr Modi than during their respective tenures.
India’s political leadership must recognise that there is a link between how domestic politics is managed and how the economy performs. Both households and firms seek not just stability in policy, but also in the polity. A secure people look to the future with hope and optimism. An insecure people become risk averse and sullen. The growth process of 1991-2014 was driven by an optimism nurtured by the consensual leadership of three great statesmen. It remains to be seen if in the remainder of his term Prime Minister Modi draws the right lessons from the jolt to his leadership given by a few hundred sullen farmers.