The shadow of 2004 hangs over the 2014 elections

By Vivek Dehejia

In this season of brewing political discontent in India, it has already become a cliché to suggest that the upcoming general elections will be the most important in a decade, if not a generation. Yet, unlike some clichés, this one happens to be true.

The two-term incumbent Congress Party, leading the United Progressive Alliance, has presided over the wreckage of an economic miracle that, briefly at least, promised the possibility that India’s growth rate would accelerate sustainably to double digits – and the fight against poverty and destitution would proceed that much more quickly, lifting hundreds of millions of Indians into gainful employment and a steady income.

Instead, mixing a potent cocktail of profligacy and complacency that has been truly staggering, a growth rate that nearly touched double digits has crashed down to half that rate. Rather than accelerating economic reforms, having inherited a thriving economy from the BJP in 2004, Congress embarked on a binge of massive welfare and redistributive schemes – everything from rural employment to food security – that did little to help its intended beneficiaries but did much to line the pockets of crooked officials. An apparently rudderless economic policy, rather than a sustained commitment to economic development, has been the hallmark of the past ten years, punctuated by a string of corruption scams, each, it seems, more monumental than the last.

If opinion polls are to be believed – and, for various reasons, they should be taken with a healthy pinch  of salt – the principal beneficiary of the public’s evident disgust with the Congress Party is likely to be a revitalized Bharatiya Janata Party, and its charismatic, if still controversial, Prime Ministerial candidate, Narendra Modi.

It is incontrovertible that Mr. Modi has galvanized support amongst a large swathe of urban, middle class voters, the main winners to date from economic liberalization and, on the flip side, the main losers of the economic downturn and macroeconomic mismanagement in recent years. These same voters speak, for the most part, with derision of Rahul Gandhi, scion of the Nehru-Gandhi dynasty, who portrays to many the visage of a tired dauphin, devoid of political savvy, unable to grasp the crown and become the fourth generation in his family to sit in the Prime Minister’s chair.

More likely than Mr. Gandhi to play spoiler to Mr. Modi’s ambitions is newcomer Arvind Kejriwal, whose Aam Aadmi Party has burst onto the scene like a Roman candle, and who enjoyed a brief and tumultuous time in power in the state of Delhi this past winter, where their unexpectedly strong showing prevented the BJP from gaining a majority and forming the government. The worry for BJP strategists is that something similar may play out in the national elections.

To round up the putative contenders for power, there is the amorphous, opportunistic agglomeration of parties who periodically form a “third front,” whose raison d’être is that they are neither the Congress nor the BJP, but with no other glue to hold themselves together apart from the ambitions of various regional leaders who fancy themselves residing at 7 Race Course, if even for a few months.

With all of these political forces competing for power, one might expect that a wide range of economic policy platforms would be on offer, giving Indian voters a menu of choices ranging from welfarist to pro-market, with every other hue in between represented by one or another political party. One would be wrong.

While proponents for welfare and redistribution have always been well represented – whether Congress, the left parties, or now the AAP – what is singularly lacking is a political party, such as the BJP, making an unabashed case in favor of the market and pitching for a renewed economic reform impetus.

It is striking that in his stump speeches, Mr. Modi has spoken only in the broadest generalities about economic reform, preferring instead to make his case to the electorate on the strength of the “good governance” and business-friendly (note: not necessarily market-friendly!) policies he has pursued while at the helm in Gujarat. On the politically sensitive matter of labor law reform, for instance, he has ducked the issue, suggesting it is best dealt with by allowing states, not the centre, to decide – which would require a (highly unlikely to be realized) constitutional amendment.

Mr. Modi’s campaign strategy of being vague about specifics might well be politically sensible. There is little profit in spelling out a detailed platform, which would then be attacked by the Congress and others, and much more to be gained by staying on the offensive against the failures of the current government, all the while refusing to be drawn into what he would do differently (apart from govern well) if elected. As even his critics will concede, Mr. Modi is an astute politician, and he most assuredly knows exactly what he is doing.

Yet, there is a deeper reason, I believe, why every senior BJP leader, including Mr. Modi, has shied away from making a more muscular and direct case for badly overdue “second generation” economic reforms to the Indian electorate. That reason is the shadow of the 2004 general elections, which saw the unexpected defeat of the BJP-led National Democratic Alliance and the concomitant political revival of the Congress.

Immediately, a folklore encrusted around this surprising outcome: that voters were punishing the BJP for their seemingly triumphalist “India Shining” campaign – which stressed their sound economic record – and rewarding the Congress for a welfarist campaign built around the interests of the “aam aadmi” (and this was long before Mr. Kejriwal arrived on the scene!).

This account had the character of a morality tale, and was embraced, not surprisingly, by analysts on the left, and Congress itself (in particular the Nehru-Gandhi dynasty and its acolytes), which never really had much ideological commitment to economic reform and, indeed, pursued the original 1991 liberalization at the proverbial point of a gun.

Unfortunately, the defeated BJP’s senior leaders themselves bought into this narrative, and soon recanted their commitment to reform – as did Chandrababu Naidu, an important regional ally, who as leader of the Telugu Desam Party had been the poster boy for market-friendly policies before his defeat.

As has been well explored by a few writers, including me, this interpretation of the 2004 elections is simply false, or at any rate unprovable. A much more plausible explanation for the defeat of the economic reformers is some combination of standard anti-incumbency, the length of the election campaign, poor alliance choices, and sheer bad luck – in the case of Mr. Naidu and the TDP, a protracted drought in Andhra Pradhesh.

As Rupa Subramanya and I argue at length in a chapter of our recent book, the most parsimonious explanation for the BJP’s defeat is a roll of the dice by the political gods, not a vote against their economic policies.

The truth of the matter is that there is no compelling evidence that voters in 2004 defeated the BJP-led NDA at the centre (or the TDP in Andhra Pradesh) because they disapproved of its economic reform agenda, yet that is the interpretation that has stuck, and continues to be endlessly repeated as gospel truth.

The long term consequences of this faulty interpretation have been very damaging indeed. No one could have expected the welfarist Congress to become true believers in economic reform, but, during their time in office under Atal Bihari Vajpayee, it appeared that the BJP was doing more to push forward sensible economic policies than any government except the P.V. Narasimha Rao government for the first few years after the initial reforms of 1991.

Thus, the loss of faith in economic reform after 2004 by the BJP’s senior leadership created a vacuum in the space of economic policy at the centre, leaving the field open for the Congress to pursue one ill-conceived redistributive scheme after another, with the BJP offering little opposition or even – as in the case of the food security bill – claiming (probably opportunistically) that the bill did not go far enough.

With Mr. Modi’s ascent, there was hope that the policy drift in the BJP might have been righted, but, perhaps for good political reasons, he has decided, for the moment, to soft-peddle the possibility of a major tranche of further reforms should the BJP lead the government after the elections. Nor is there any likelihood that the Congress, the AAP, or the motley band of left and third front parties will pitch in any serious way for reform, should they be successful in forming a government.

The best hope, then, for a return to sensible economic policy in India anytime soon is that, if successful, Mr. Modi will reveal himself to be a true economic reformer, rather than a proponent of better governance without major reform – or that whichever political formation comes to power, with or without Mr. Modi at the helm, and with or without the BJP, will awaken to its sheer necessity.

Anything else presages a time of danger for the prospects of India’s continued economic rise.

Author:

Dr. Vivek Dehejia is an economics professor at Carleton University in Ottawa, Canada, and co-author of Indianomix: Making Sense of Modern India (Random House India, 2012).