R Jagannathan
How did UPA-2 pull disillusionment (and potential defeat) from the jaws of thumping victory in 2009? What went wrong? Why didnt anything go right? And why do we think that UPA-1 did better than UPA-2?
As the media gets ready to evaluate UPA-2s performance on the third anniversary of its return to power today (21 May), we shall seek to answer these questions.
At the risk of oversimplifying the analysis, I would say UPA-2 failed by following voodoo politics and voodoo economics, based on voodoo belief that politics and economics can be permanently divorced.The term voodoo economics was coined by George Bush Sr to attack Ronald Reagans economic policies that prescribed tax cuts as the best solution to the countrys problems. In India, of course, voodoo economics is the reverse it stems from the opposite belief that you can go on spending and taxes will somehow come back to the coffers and rescue the economy.
But what we now have is falling growth, falling rupee, falling UPA credibility, rising inflation, rising government expenditure, and a rising sense of unease about where India is heading.
For UPA, it all began with voodoo politics politics without internal consistency, vision or governance. To understand this, we need to go back to 2009, when the Congress party was celebrating its huge victory. The party increased its Lok Sabha seat-count to 206 the highest tally by a national party since 1991 barely 65-70 seats short of an absolute majority on its own. Thats where voodoo politics began in right earnest.
The 2009 results confirmed two things to the Congress party: that heavy social spending is the way to install Rahul Gandhi in power in 2014; and that the country may soon be ready to give one party complete control of government. What started as a brief dalliance with aam aadmi politics in 2004 (which the Congress unexpectedly won) gathered more steam after 2009.
What remained unchanged after UPA-1 was the belief that the Sonia-Manmohan division of power where the former influences all major political-economic decisions and the latter keeps a semblance of administration going without doing much was good enough to ensure a Rahul Gandhi victory in 2014.
In short, far from seeing 2009 as a mandate to govern, Sonia Gandhi and Rahul saw 2009 as an incentive to start planning for 2014. Stated differently, the political efforts for winning 2014 began as early as 2009. This was how UPA-2 squandered its mandate.
We all know how policy-making turns populist whenever parties see elections round the corner, but Sonia and Rahul smelt it five before 2014.
Whether it was the land acquisition bill or the mining bill or the food security bill, the NAC was reactivated to give Sonia the political platform to start planning for 2014 from 2009 itself.
Lessons from the Bihar elections, where the party was trounced by Nitish Kumar and the BJP in 2010, were ignored as aberrations.
The Congress also underestimated the impact of the Lefts bullying in UPA-1 in keeping its own coherence intact. When the Left was seen as the frenemy (a friend and enemy), it gave both Sonia and Manmohan an incentive to back each other up. It also kept the ambitions of the top three in the UPA government Manmohan Singh, Pranab Mukherjee, and P Chidambaram in check.
In UPA-2, both the things that ensured cohesion in UPA-1 disappeared. Sonia and Manmohan seemed to be on different planets, and the Big Three were busy trying to undercut one another on the assumption that the top job may be up for grabs as Manmohan Singh seemed to falter.
To make matters worse, the BJP continued to remain in self-destruct mode, with no leader, no policy ideas, and no plan to capture power in 2014. It is this vacuum created by the BJP that enabled the regional parties to fill the opposition space accentuating the voodoo-politics syndrome.
The BJPs failure has facilitated the emergence of voodoo politics, where governance has been given the go-by on the assumption that the First Familys magic and heavy social spending are enough to give the party a win.
This is why when corruption emerged as a major concern among the urban middle-classes the classes that put the Congress on top in 2009 - the Congress tried to brazen it out with the Baba Ramdev and Anna Hazare movements. Luckily for the Congress, both Anna and Baba embraced voodoo ideas like the Jan Lokpal Bill and bringing back black money as some kind of panacea for corruption. Both scored self-goals and became less of a threat to the Congress.
At the core of voodoo politics is the First Familys reluctance to play a political role in UPA-2, with both Sonia and Rahul surfacing in public only when it suited them. Leaving politics to sycophants and trusted retainers like Ahmed Patel or Digvijaya Singh meant that neither Sonia nor Rahul engaged with politics directly except at election time.
Voodoo politics in UPA-2 was aided by voodoo economics where no reforms are ever deemed needed. This was partly the result of UPA-1s undeserved economic success. Thanks to a successful first term where the economy averaged over 8 percent growth, the Congress developed a naïve belief that everything will fall into place due to our demographic advantage or social spending. One merely has to keep redistributing income (to the poor, the rural areas) and things will work out fine.
At the end of UPA-1, the Congress party wrongly assumed that the buoyant economy was the result of its own policies rather than dumb luck. But this is what really happened.
If the initial buoyancy was pure luck that had nothing to do with the UPAs own policies, what followed in 2008-10 was even more luck. This is how it played out. The UPAs spend-spend-spend policies created rampant inflation and by 2008 (August 2008) the wholesale prices index (WPI) was hitting a 13-year high of 12.44 percent. The Reserve Bank was feverishly pushing up interest rates. If this had continued, UPA would certainly not have won its big mandate in 2009.
This is where dumb luck helped again. When the Lehman crisis broke cover in September 2008, the world economy went into a tailspin and oil prices crashed. Even though GDP growth fell, UPA-1 reaped a huge windfall in the form of a dramatic fall in inflation (despite huge spending) that had nothing to do with any policy effort. By June 2009, inflation, in fact, turned negative (and lets remember, May 2009 was when the UPA won re-election).
The year 2008-09 was the UPAs sweet spot that coincided with election-time.
If you take the combined effect of oil and fertiliser subsidies so far, the farm loan waiver, the post-Lehman economic stimulus, the big increases in social spending, and the proposed spending on the Food Security Bill in the run-up to 2014, the amount spent would not be less than Rs 10,00,000 crore yes, ten lakh crore since the UPA was first elected in 2004.
No government can spend so much most of it wastefully and still avoid the charge of economic mismanagement. Voodoo economics was rescued from its consequences high deficits and high inflation in 2009 by the global meltdown. But the real impact remains on our account books in the form of huge fiscal and current account deficits.
With a fiscal deficit of 5.9 percent in 2011-12 and a current account deficit estimated at 4 percent of GDP (the highest ever, which is sending our rupee crashing), UPA-2 is reaping the whirlwind on its voodoo economics.
The Indian political-economy follows a dialectical pattern where reform is balanced by redistribution in turn. The late 1980s fiscal crisis resulted in the reforms of 1991. When electoral needs forced Narasimha Rao to shift the focus back to spending, inflation soared and growth slowed down during the UF and NDA years which forced them to push the envelope on reforms.
UPA-1 reaped the benefits of both domestic reforms and global growth. But UPA-2 needed to push reforms at least for the initial two to three years to reap the rewards in 2014. This is why it failed. It said a pass on reforms, and is about to pay the price.
By focusing on 2014 in 2009, and refusing to acknowledge the role of luck in 2004-09 in its economic performance and political rejuvenation, UPA-2 compounded voodoo politics with voodoo economics.
The result is stagflation which we have called Rahul-flation in the past since voodoo economics has been unleashed by the need to elect him PM in 2014.
But without reforms and the abandonment of voodoo political-economics, UPA-2 is likely to bite the dust.
Why UPA-2 has failed: Voodoo politics and economics | Firstpost
Nails Down Perfectly What has been Happening in the Country since 2004.
How did UPA-2 pull disillusionment (and potential defeat) from the jaws of thumping victory in 2009? What went wrong? Why didnt anything go right? And why do we think that UPA-1 did better than UPA-2?
As the media gets ready to evaluate UPA-2s performance on the third anniversary of its return to power today (21 May), we shall seek to answer these questions.
At the risk of oversimplifying the analysis, I would say UPA-2 failed by following voodoo politics and voodoo economics, based on voodoo belief that politics and economics can be permanently divorced.The term voodoo economics was coined by George Bush Sr to attack Ronald Reagans economic policies that prescribed tax cuts as the best solution to the countrys problems. In India, of course, voodoo economics is the reverse it stems from the opposite belief that you can go on spending and taxes will somehow come back to the coffers and rescue the economy.
But what we now have is falling growth, falling rupee, falling UPA credibility, rising inflation, rising government expenditure, and a rising sense of unease about where India is heading.
For UPA, it all began with voodoo politics politics without internal consistency, vision or governance. To understand this, we need to go back to 2009, when the Congress party was celebrating its huge victory. The party increased its Lok Sabha seat-count to 206 the highest tally by a national party since 1991 barely 65-70 seats short of an absolute majority on its own. Thats where voodoo politics began in right earnest.
The 2009 results confirmed two things to the Congress party: that heavy social spending is the way to install Rahul Gandhi in power in 2014; and that the country may soon be ready to give one party complete control of government. What started as a brief dalliance with aam aadmi politics in 2004 (which the Congress unexpectedly won) gathered more steam after 2009.
What remained unchanged after UPA-1 was the belief that the Sonia-Manmohan division of power where the former influences all major political-economic decisions and the latter keeps a semblance of administration going without doing much was good enough to ensure a Rahul Gandhi victory in 2014.
In short, far from seeing 2009 as a mandate to govern, Sonia Gandhi and Rahul saw 2009 as an incentive to start planning for 2014. Stated differently, the political efforts for winning 2014 began as early as 2009. This was how UPA-2 squandered its mandate.
We all know how policy-making turns populist whenever parties see elections round the corner, but Sonia and Rahul smelt it five before 2014.
Whether it was the land acquisition bill or the mining bill or the food security bill, the NAC was reactivated to give Sonia the political platform to start planning for 2014 from 2009 itself.
Lessons from the Bihar elections, where the party was trounced by Nitish Kumar and the BJP in 2010, were ignored as aberrations.
The Congress also underestimated the impact of the Lefts bullying in UPA-1 in keeping its own coherence intact. When the Left was seen as the frenemy (a friend and enemy), it gave both Sonia and Manmohan an incentive to back each other up. It also kept the ambitions of the top three in the UPA government Manmohan Singh, Pranab Mukherjee, and P Chidambaram in check.
In UPA-2, both the things that ensured cohesion in UPA-1 disappeared. Sonia and Manmohan seemed to be on different planets, and the Big Three were busy trying to undercut one another on the assumption that the top job may be up for grabs as Manmohan Singh seemed to falter.
To make matters worse, the BJP continued to remain in self-destruct mode, with no leader, no policy ideas, and no plan to capture power in 2014. It is this vacuum created by the BJP that enabled the regional parties to fill the opposition space accentuating the voodoo-politics syndrome.
The BJPs failure has facilitated the emergence of voodoo politics, where governance has been given the go-by on the assumption that the First Familys magic and heavy social spending are enough to give the party a win.
This is why when corruption emerged as a major concern among the urban middle-classes the classes that put the Congress on top in 2009 - the Congress tried to brazen it out with the Baba Ramdev and Anna Hazare movements. Luckily for the Congress, both Anna and Baba embraced voodoo ideas like the Jan Lokpal Bill and bringing back black money as some kind of panacea for corruption. Both scored self-goals and became less of a threat to the Congress.
At the core of voodoo politics is the First Familys reluctance to play a political role in UPA-2, with both Sonia and Rahul surfacing in public only when it suited them. Leaving politics to sycophants and trusted retainers like Ahmed Patel or Digvijaya Singh meant that neither Sonia nor Rahul engaged with politics directly except at election time.
Voodoo politics in UPA-2 was aided by voodoo economics where no reforms are ever deemed needed. This was partly the result of UPA-1s undeserved economic success. Thanks to a successful first term where the economy averaged over 8 percent growth, the Congress developed a naïve belief that everything will fall into place due to our demographic advantage or social spending. One merely has to keep redistributing income (to the poor, the rural areas) and things will work out fine.
At the end of UPA-1, the Congress party wrongly assumed that the buoyant economy was the result of its own policies rather than dumb luck. But this is what really happened.
If the initial buoyancy was pure luck that had nothing to do with the UPAs own policies, what followed in 2008-10 was even more luck. This is how it played out. The UPAs spend-spend-spend policies created rampant inflation and by 2008 (August 2008) the wholesale prices index (WPI) was hitting a 13-year high of 12.44 percent. The Reserve Bank was feverishly pushing up interest rates. If this had continued, UPA would certainly not have won its big mandate in 2009.
This is where dumb luck helped again. When the Lehman crisis broke cover in September 2008, the world economy went into a tailspin and oil prices crashed. Even though GDP growth fell, UPA-1 reaped a huge windfall in the form of a dramatic fall in inflation (despite huge spending) that had nothing to do with any policy effort. By June 2009, inflation, in fact, turned negative (and lets remember, May 2009 was when the UPA won re-election).
The year 2008-09 was the UPAs sweet spot that coincided with election-time.
If you take the combined effect of oil and fertiliser subsidies so far, the farm loan waiver, the post-Lehman economic stimulus, the big increases in social spending, and the proposed spending on the Food Security Bill in the run-up to 2014, the amount spent would not be less than Rs 10,00,000 crore yes, ten lakh crore since the UPA was first elected in 2004.
No government can spend so much most of it wastefully and still avoid the charge of economic mismanagement. Voodoo economics was rescued from its consequences high deficits and high inflation in 2009 by the global meltdown. But the real impact remains on our account books in the form of huge fiscal and current account deficits.
With a fiscal deficit of 5.9 percent in 2011-12 and a current account deficit estimated at 4 percent of GDP (the highest ever, which is sending our rupee crashing), UPA-2 is reaping the whirlwind on its voodoo economics.
The Indian political-economy follows a dialectical pattern where reform is balanced by redistribution in turn. The late 1980s fiscal crisis resulted in the reforms of 1991. When electoral needs forced Narasimha Rao to shift the focus back to spending, inflation soared and growth slowed down during the UF and NDA years which forced them to push the envelope on reforms.
UPA-1 reaped the benefits of both domestic reforms and global growth. But UPA-2 needed to push reforms at least for the initial two to three years to reap the rewards in 2014. This is why it failed. It said a pass on reforms, and is about to pay the price.
By focusing on 2014 in 2009, and refusing to acknowledge the role of luck in 2004-09 in its economic performance and political rejuvenation, UPA-2 compounded voodoo politics with voodoo economics.
The result is stagflation which we have called Rahul-flation in the past since voodoo economics has been unleashed by the need to elect him PM in 2014.
But without reforms and the abandonment of voodoo political-economics, UPA-2 is likely to bite the dust.
Why UPA-2 has failed: Voodoo politics and economics | Firstpost
Nails Down Perfectly What has been Happening in the Country since 2004.
