Don't mistake good psephology for good policy

An election result is upon us.  India’s most populous state and her neighbour have emphatically voted the party in power at the Centre into government. Two tiny states have returned fractured verdicts and coalition governments led by the party in power at the Centre have been installed.  The single-largest winner in these two states is having to sit in the Opposition.  Another state elected the principal Opposition party to power.
 
The polls were seen as a referendum on whether demonetisation, announced in November, met with approval by the people of India. Shortcoming in psephology skills is now equated with shortcoming in appreciation of public policy. The outcome of the polls, it is widely believed — even among critics of demonetisation now mired in serious self-doubt — underlines that demonetisation was for the larger good and the common man could see what policy wonks failed to see.
 
Outcomes of elections cannot be a barometer of the wisdom of economic policy. The merits of public policy choices are quite different from the merits of assessing the capacity to sell evidently unpopular choices at the hustings. The latter is reflective of political acumen. The former requires the capacity to take hard decisions for the right reasons. The inability to gauge the intensity of anger of the man on the street is not the same as the inability to think clearly about what is good policy. 
 
Demonetisation inflicted serious hardship on the common man. The costs it imposed evidently outweigh the benefits — mind you, computation costs and benefits can itself be quite controversial. The courts had refrained from restraining the government although judges are said to have expressed fear of riots on the streets.  There were no serious riots despite acute hardship. The reasons that were said to have motivated the measure appear to have been belied — stashes of slush money in crisp newly printed Rs 2,000 notes are already being unearthed; counterfeit currency in crisp Rs 2,000 notes are being apprehended; and most of the corrupt rich seem to have tided over the crisis with some bearable cost being borne.
 

NOT A CAUSE-AND-EFFECT CHAIN Demonetisation did not hurt the electoral prospects of the ruling party to the extent it would rationally have. Nor for that matter have laws that imposed a near-100 per cent tax on income

Demonetisation did not hurt the electoral prospects to the extent it would rationally have. Nor for that matter have laws that imposed a near-100 per cent tax on income. If winning elections were a relevant barometer of what constitutes good public policy, Indira Gandhi and the Congress’ consistent wins for decades would place all their measures in a great position — it is another matter that today they are being pilloried.  Despite (or perhaps, thanks to) ridiculous tax rates, black money got built up.  The narrative of electoral wins making policy immune from critique was a well-honed Indira Gandhi model.  Opposition leaders saw her as Durga, commentators said she was “the only one wearing the pants in the Cabinet” and yet, India kept slipping in governance, and institutions kept getting weakened to stay “committed” to her approach to policy.
 
Perhaps, Uttar Pradesh politics’ dependence on cash led to demonetisation materially impacting the outcome. Count that among the benefits of demonetisation if it evenly impacted all in the fray. Perhaps, the choice of chief minister after the win is a pointer to what issues really mattered at the polls. Perhaps, demonetisation was an electoral side-issue — a reflection of the disconnect between commentators in the cities and the realities on the ground.
 
None of this can dilute the need for a clear-headed empirical approach to policymaking, with costs and benefits being weighed and a cogent case for a policy intervention being necessary. In the US and the UK, policy thinking is currently on the lines of having to remove more than one past regulatory measure if a new regulatory measure is sought to be introduced. Akin to “carbon offsets” where reduction in emissions of carbon dioxide or greenhouse gases in one process is necessary to enable initiating new emissions elsewhere, regulatory offsets are part of current policy-thinking in other parts of the world. Computing of costs and benefits to show that costs that would get imposed by a proposed regulatory measure is not only counterbalanced by the benefits from that measure but are also compensated for by the removal of costs imposed under past regulatory measures, is a controversial but integral part of governance.
 
Brushing all policy arguments about demonetisation aside with a people-have-spoken argument is a reminder of Nani Palkhivala’s favourite quip about how majority decisions need not be the right decisions. His favourite examples: Christ’s crucifixion, and of course, the quality of elected governments during most of his lifetime.

The author is an independent legal counsel. He tweets at @SomasekharS