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Business Commentary/Mahesh Nair

Riding a Tiger

A few months ago during his visit to India, Percy Barnevik, one of the most respected corporate chieftains in the world (he is the chairman of Investor AB, the holding firm of giants like Ericsson, Electrolux, Astra and Saab), had an interesting piece of advice for India's politicians and policy makers.

"Privatise public sectors units and close down sick factories. Cut down government staff and slash government expenditure on itself. Do away with power and water subsidies to farmers. Instead spend the same amount on primary education, and health services. Build roads and bridges in rural India. I don't think you will lose votes if you do this," Barnevik said.

Would the Barnevik formula have won votes? Have economic reforms -- in whatever form and pace -- brought in votes during the general election? What will be the economic demands of the regional parties -- the Bharatiya Janata Party's new allies -- to consolidate their vote banks?

First things first. In India economic reforms by themselves do not win votes. If they did, Manmohan Singh, the former finance minister, credited with introducing reforms, would have had no problems getting a Lok Sabha ticket from the Congress.

Political factors -- regionalism, caste, party, religion -- these are the issues which primarily win votes. All things being equal on this front, only then does economic development nee reforms play a crucial factor in winning votes. As Pranab Mukherjee, a senior Congress leader and former finance minister says, "In rural India every politician promises to remove poverty, have better health, education, water and employment opportunities -- all of which could be categorised as economic reforms at the basic level. And so on what issue does the Indian vote on? On stability, religion, caste, party considerations."

Look at the mandate handed out at the election. Andhra Pradesh Chief Minister Chandrababu Naidu, considered to be one of the most ardent enforcer of economic reforms, got a jolt. His Telugu Desam Party saw a dip in its electoral fortunes, managing to bring home only 12 members of Parliament compared to the 17 MPs he got in 1996.

Chief Minister J B Patnaik's Congress government in Orissa has acquired the reputation of being the frontrunner in economic reforms. Orissa is the first state to drastically restructure the state electricity board and the biggest in terms of attracting foreign direct investment inflow, but Patnaik suffered a setback too. The tally of Congress MPs from the state dipped to 5 from 16 in 1996.

In Rajasthan the BJP's Bhairon Singh Shekawat government, which had established a reputation for being investor-friendly and reforms-oriented, too suffered a major setback, winning only 5 Lok Sabha seats compared to 13 in 1996. The Samata Party's George Fernandes, the loose economic canon ball in the BJP alliance, says that one reasons why Shekhawat fared badly was because "the Bikanerwallahs (snack makers) had been rendered jobless after Pepsi had bought over their small scale operations!"

So when and where do economic reforms bring in votes? Economic reforms -- social and infrastructure development, private investment, more efficient and transparent administrative machinery -- by themselves will win votes in places where these factors did not exist before (provided the political factors mentioned above remain equal). So ideally, constituencies in underdeveloped regions in states like Bihar, Madhya Pradesh, Orissa and Uttar Pradesh are good candidates for economic reforms to bring in votes.

It also important that reforms must be seen to work. The process of economic reforms has to be communicated to the people so that they can understand what it means to them in their daily life. It is one thing for Chandrababu Naidu to have a reputation for having all information about his panchayats on his laptop. But it must be communicated to these panchayats that if the block development officer is not utilising the funds properly they can immediately bring it to the chief minister's notice.

Once an area is developed or is developing, then reforms by itself will not win votes. And this is precisely what happened in Andhra Pradesh, Orissa, Rajasthan or even Tamil Nadu. Do you think it would make any major difference to economic reforms in Tamil Nadu if Jayalalitha comes to power displacing M Karunanidhi? Or Naveen Patnaik dethrones J B Patnaik in Orissa? Or if the Congress replaces the Shiv Sena-BJP government in Maharashtra?

Which brings us to the question of why the regional parties -- especially the BJP's allies -- won so many seats. The BJP on its own won only 17 more seats (179 seats in 1998; 162 in 1996) over the last election while its pre-poll allies contributed 42 more (73 in 1998; 31 in 1996).The reason has got more to do with the increase in the number of BJP's pre-poll allies (12 in 1998; 4 in 1996), and the anti-incumbency factor than with the failure or the success of economic reforms in the states where these allies fought the election.

While the previous United Front government was also a coalition, the difference this time is that the BJP is more dependent on its allies to stay in power than the UF was on any of its constituents. After all, the strength of the Congress which supported the Front from outside was enough to tide over any problem caused by a UF constituent playing hooky. In contrast, as BJP leader Pramod Mahajan mentioned in a recent magazine interview, 'Two MPs leaving the House to attend the call of nature can result in the (BJP) government being reduced to a minority.'

In the context of economic reforms, this would mean that the BJP's allies will have a greater say in the formation and execution of economic policies. Which is why when George Fernandes (his Samata Party has 12 MPs) says that he would like Kelloggs, Pepsi, Coca-Cola and Cargill to pack up their bags, it rocks the boat of economic reforms so violently. Even if existing consumer MNCs are not asked to pack their bags, you can bet that new FDI proposals in this sector are going to be cleared very slowly.

You can also be pretty sure, following Fernandes's public statements, that the forthcoming Budget will not offer any more tax sops to the high income group or to corporate India.

Talking about sops, Om Parkash Chautala of the Haryana Lok Dal, which has promised the BJP the support of his four MPs, has clearly stated that while his support is "unconditional" he would like further electricity, water and fertiliser subsidies for the farming sector. With the likes of Jayalalitha and Fernandes supporting this move, you wonder what will happen to fiscal discipline? Will the BJP, as promised in its manifesto, introduce an agricultural tax to balance the increase flow in subsidies?

The Lok Shakti's Ramakrishna Hegde (3 MPs) and the Biju Janata Dal's Naveen Patnaik (9 MPs) have more pro-economic reforms demands. Hegde would like loss-making public sector undertakings in the state to be closed down and the others to be restructured or privatised. On the contrary, Mamata Banerjee of the Trinamul Congress (7 MPs) would like sick PSUs in West Bengal to be revived!

The question is are these the demands the basis on which these allies have been voted to power? Would the Banerjees, Fernandes and Jayalalithas of India have won less votes if they had applied Percy Barnevik's formula?

Much as I am a fan of economic reforms, I think the brutal truth is that the Indian voter cares two hoots about economic reforms. It is not something on the basis of which s/he will vote an MP to power or out of it.

Has economic reforms been the decisive factor who you voted for?

Mahesh Nair