Anti-Incumbency And The Reform Agenda
However, few policy pundits have paid any attention to the link between the political performance of some regional parties in this election and the future of reforms. More to the point, how will the so-called anti-incumbency factor play itself out and what will it mean for the future of reforms and liberalisation at the state level?
Irrespective of which national party leads the next coalition government in New Delhi, if regional parties like Telugu Desam in Andhra Pradesh and Haryana Vikas Party in Haryana perform poorly, the political commitment to fiscal adjustment and liberalisation may weaken in some key states. Since much of the agenda of reforms is now heavily dependent on state government commitment, the political fall-out at the state-level of Lok Sabha results is critical to future economic policy.
In television chat shows on economic policy and Lok Sabha elections, most commentators seem to worry mainly about such issues as to whether the next government will open up the insurance sector to foreign investment or whether fresh curbs will be imposed on foreign portfolio investors and such like. When asked what were the three vital economic issues facing the nation today, one chat show artist and Congress Party spin doctor identified financial sector reforms, insurance privatisation and revival of industrial and export growth. Not for him the problems of poverty or unemployment or fiscal adjustment! Indeed, rarely is concern expr-essed in such TV debates about what these elections will mean for the quality of fiscal adjustment and the policy on public services, especially at the state level.
Will the results enable future governments to address the question of public enterprise restructuring and reform? Will state governments like that of Chandrababu Naidu be emboldened to carry forward responsible fiscal policies, be it regarding water rates or power tariffs, or will the anti-incumbency factor encourage bold reformers to play safe? The jury is still out. It may remain out till well beyond the Lok Sabha elections, depending on the results, till the next round of elections to state assemblies, many of which are due over the next two years!
While heavens will not fall if health insurance is not privatised or opened up to foreign investment, all hell can break out in the fisc, at the Centre and in the states, if state governments follow the Akali Dal government example of supplying free power to farmers rather than the Chandrababu Naidu example of levying a fee, howsoever modest. Mr Naidu bit the bullet last year by asking farmers to pay for power and thereby reneged on the assurance of free power that his late father-in-law and political mentor, N T Rama Rao, had given the electorate in 1995. If the Andhra farmers are today angry with Mr Naidu it is because of the poor handling by his government of the problem of cotton farmers and the resultant suicide by many distraught peasants. However, in atoning for that sin and to recover the ground that the TDP is expected to lose, even if marginally, in this election Mr Naidu may well opt for a reversal of his responsible fiscal policies.
Much the same story is likely to be repeated in Haryana. It may be recalled that in 1993, the Bharatiya Janata Party did poorly in the elections to the Himachal Pradesh Assembly because of the reformist enthusiasm of its government there which actually began shedding bureaucratic fat as if on a crash diet. The really difficult reforms, especially fiscal and administrative, are today in the purview of state governments. It is now well recognised that the next phase of fiscal adjustment must involve revenue mobilisation at the state government level. The combined fiscal deficit of the Centre and the states is above 10 per cent of GDP (gross domestic product). If state governments do not start charging consumers of power and irrigation water and will not levy a tax on agricultural incomes, it will not be possible for the overall fiscal and revenue deficits to be brought down.
To empower state governments to be fiscally more responsible it is necessary that the few chief ministers who have walked some steps in the long march of responsible fiscal governance are strengthened by the result of this election to walk further, rather than frightened into walking back. Moreover, even on the issue of increased outward-orientation of the economy, some chief ministers like Mr Naidu have been more gung-ho than others. Which means the future of real economic reforms hinges as much on who takes charge of the government in New Delhi as it does on who wins and loses in the state-level sweepstakes.
If a Prime Minister like Dr Manmohan Singh can work with chief ministers like Chandrababu Naidu, and the voters repose adequate faith in their respective parties to give them the courage to forge ahead with the policies they have so clearly articulated, the nation will be better equipped to face the 21st century.