After a flurry of contentious issues in the past 11 months, 2012 draws to a close. The electoral results of Gujarat and Himachal Pradesh are out and the focus has now shifted to the upcoming Delhi Assembly elections in 2013. The government is on a roll, launching new schemes ev-eryday for the
"aam aadmi" from FDI in multibrand retail and direct cash transfers, to right to food to reservation in promotion, etc. But this should lead you into believing that all's well with the Indian economy.
In its latest policy review, the Reserve Bank has left its key interest rate unchanged, resisting severe pres-sure from the government (read Finance Minister) and corporate houses. This is in contrast to Brazil and China (the BRIC nations), whose central banks have been more aggressive in easing policy to stimulate growth. The RBI, which had last cut its policy rate in April, held the repo rate unchanged at 8 percent and also kept the banks' cash reserve ratio (CRR) steady at 4.25 percent, the lowest since 1974. This suggests that the Indian economy is unlikely to see any immediate revival in the New Year. This in turn impacts the investment atmosphere. State owned banks will continue to struggle on bad loans and non performing assets (NPA). This will give the government little space to tweak subsidies on food, fuel and fertilisers. And to add to these woes, despite all talk of fiscal consolidation, public spending will be very high next year, as 2013 will be pre election year. The government will be on a spending spree to ensure its return to power in 2014.
But, the present financial and economic crisis offers the state, the market and the policy makers an opportunity to rethink their respective roles in the political economy of development. The crisis also calls for a rethinking of the prevailing standard recipes for development and of the 'institutional therapy' that has been driven by the political establishment at the Centre as well as in states. The key lies in transforming state-society relations.
While it is easy to dwell on certain policies, the fact of the matter is that it is not individual policy to be blamed but the old archaic development model we follow in In-dia. Over the past two decades, the Indian state has failed to transform the dividends of growth in to capabilities expansion of its citizens leading to an increased gap be-tween the rich and the poor. But strangely, this cleavage between the rich and the poor is not limited to income alone. It extends dramatically into capabilities.
After 64 years of independence, India still remains a 'patronage democracy', where the Nehruvian state reigns supreme over scarce resources or has a monopo-ly over them. It has the capacity, but, its transformative ambitions are stymied by "a regime of machine politics, fostered by a flabby and heterogeneous dominant coali-tion preoccupied with an anarchical grabbing of public resources?"Politicians have considerable influence over the redistribution of these resources. Voters select lead-ers in election after election who can provide them access to state resources either cheap or free i.e. food, fertilizers, fuel. In other words, leaders follow a barter system, state resources are bartered for vote. We won't be surprised in next few elections, if the political parties start distribut-ing a Nano car to the families which votes it to the power. The problem with the Indian state is less to do with ca-pacity of the state, than the state-society interaction be-ing constrained by political dynamics. In every instance of state failure, what comes to fore is that the state mea-sures continue to be captive to narrow, patronage-driven political imperatives that are highly embedded in politi-cal returns at national and state levels. The state society relation has transformed in to patron-clientele relations.
So what's the solution? Turns out the development model we are follow in India today, is the 70s and 80s model of Taiwan and Korea, where the state interacted with elites and collected the remittances to reinvest in development work. First and foremost, the Indian state needs to rework its strategy. It needs to refocus from capital accumulation to human development. Interact-ing with industrial elites alone will be counter productive to the state. The government needs a cohesive state ap-paratus, which can implement policies and deliver them as well.
This makes the role of institutions more critical than ever before. Institutions need to be strength-ened to decide upon new policies and deliver them successfully to citizens. Second, the state needs to pursue collective goals, rather than subjectively define immedi-ate demands of the elite. Our two national parties need to forge some kind of bipartisanship on national policies, irrespective of who is in power. Third, the government should learn its lesson from last year's Anna Hazare led movement. It needs to develop a state apparatus politi-cally as well as institutionally to connect with civil soci-ety groups, farmers, citizens, Panchayati Raj institutions, than simply concentrating on the elites. Last, it is clear now that we need a new wave of democratic deepening, a state led development in education, infrastructure and health sector. An expansion in the capabilities of our mar-ginalized citizens who can finally work with Information, Communication and Technology (ICT) to increase the awareness of the programmes and policies implemented by government and connect them to the world.
(Abinash Chaudhary is an Associate Fellow with Observer Research Foundation, New Delhi)
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