A review of BJP’s Economics

If it were merely the case of BS hack Mihir Sharma or vacuous Londoner Salil Tripathi pouring scorn on Bharatiya Janata Party (BJP)’s lack of rigorous economic thinking, one could have ignored such criticism with the disdain that it deserves. But it needs to be acknowledged that concerns on what is seen as BJP’s articulation on economic issues have often emerged from respectable intellectual quarters.

A very legitimate criticism that right/right of center political movements across the world have been subjected to is their excessive focus on issues of culture/identity and insufficient ideation on economic issues. As a party closely identified with robust advocacy of cultural issues, BJP too has been at the receiving end of this variety of criticism. Like how the Republicans tend to be caricatured as a party perpetually trapped in ‘Guns, God and Gays’ debate, BJP has been accused of placing primacy on ‘Ram’ over ‘Roti’.

In his perceptive essay “The Absent Liberal”, Ramachandra Guha (a well-regarded public intellectual known for his excessive Nehruvian veneration) cited a very interesting conversation with an Indian economist. That particular economist suggested to Guha that “of the top hundred members of his profession in India, not one would like to ally himself with the BJP”.

Another eminent economist and a passionate proponent of free trade, Prof.Jagadish Bhagwati (who subsequently acknowledged the enormous successes on economic front notched up by the NDA regime) supposedly quipped once, in a rather uncharitable acerbic manner about the BJP’s in-house economic ideologues, “If these gentlemen are economists then I am a Bharatnatyam dancer”

Bhagwati’s barbs were understandable given the  context. In its early days, economic decision making apparatus of BJP led NDA government did flounder, thanks to a combination of blithering in-house incompetence and bureaucratic sabotage. Lateral hiring of cantankerous economists to the party fold didn’t help the cause either.

The BJP led NDA government struggled initially to come to terms with the sobering realities of governance. It was certainly a difficult proposition compared to the facile sloganeering it adopted when it warmed the opposition benches. For instance take the creative slogan that BJP coined to encapsulate its calibrated position on foreign capital, “Computer chips yes, potato chips no”. While this slogan worked well for the purposes of political messaging, it really meant nothing when it came to operationalizing it in the context of governance.

Thankfully the inherent reformist instincts and centre-right sensibilities of the BJP stalwarts prevailed over Swadeshi centric rhetoric of cloistered Sangh thinkers, who have never adequately managed to overcome their paranoia over transnational corporations and capital.

Another quarter that BJP often faces criticism from is the advocates of free market economics. Though this group numerically constitutes a minuscule minority, they wield disproportionate mindshare in domestic discourse, given how overrepresented they are in the op-ed pages of business papers and influential think tanks. This group is sufficiently enthused by the excellent track record of BJP led NDA regime, given how it reduced the role of the government, allowed private enterprises to flourish and accelerated economic reforms. But they also tend to find BJP’s erratic embrace of free market economics infuriating. And the BJP too is in no tearing hurry to declare Friedrich Hayek’s “The Road to Serfdom” as its official economic manifesto. Another strand of criticism that emerges from a few in this group is that of BJP being more pro-business and less pro-market. It is possible to lend some legitimacy to this criticism

BJP still receives reproach, justifiably so, for its occasional forays into competitive populism to outdo the Congress in the pursuit of entitlement centric economics. But it’s undeniable that BJP no longer suffers intellectual ostracism from mainstream economists. Today BJP has access to the expertise of an impressive array of economic thinkers. Bhagwati’s protégé and ace economist Prof. Arvind Panagariya, highly regarded DSE professor Prof. Bibek Debroy among others are in the forefront of helping it define its economic agenda.

While the successes notched up by the BJP led NDA government, which pursued a growth centric reform agenda with dogged determination deserve their due, the man who gets singular credit for the changed perception about BJP is Narendra Modi. Modi has ideologically rewired the BJP and brilliantly positioned it as preeminent party of governance. Modi’s Gujarat success story is what excites and attracts several new supporters.

Is the criticism of BJP’s economics really justified?

Even a cursory glance at party pamphlets and scholarly literature on the subject reveals a remarkable thematic consistency in economic positions advocated by BJS (Bharatiya Jan Sangh-BJP’s earlier avatar) and BJP.

Decentralisation, anti-collectivisation, commitment to sanctity of private property, strident opposition to license-quota-permit raj, advocating deregulation to enable a business friendly environment, securing foreign capital on a need only basis in specific sectors, a deliberate dash of ‘economic nationalism’ to help Indian firms compete globally constitute the core ideas of Jan Sangh/BJP’s economic manifesto.

This stands out in complete contrast to Congress party which has no fundamental economic principles or conviction after the death of Nehru, who was a committed Stalinist Socialist. In a parliamentary democracy, one major advantage that the ruling party enjoys is its ability to pass off innovative bureaucratic interventions and government institutional policy formulation as its own despite the fact that it might not be even remotely linked to party’s core ideological principles. Congress, thanks to near monopoly over power at the center, could do this.

Communist parties have it easy – they need to merely regurgitate the revealed wisdom of Marx as their economic philosophy. Even after pure play Marxism stands discredited globally, communists in India evince no interest in market socialism or even the state capitalism with Chinese characteristics.

Of course like any other political party, BJP too has escalated its rhetoric, recalibrated its populist positions and nuanced its articulation based on the prevailing political context. But it’s pretty clear that BJP has been unjustly accused of bankruptcy when it comes to economic ideas. In fact prevailing economic consensus vindicates many of economic ideas that BJP has consistently advocated.

If one goes through copious material on debates that occurred when momentous economic decisions were made, leading lights of Jan Sangh/BJP and its ideological allies such as Swatantra emerge as heroic dissidents resisting the disastrous economic ideas unleashed by the Gandhi-Nehru Dynasty. Thanks to the Nehruvian establishment manufactured historical narrative, these facts are completely suppressed.

Jan Sangh- The Party of Market Reforms

After Independence, Jawaharlal Nehru embarked on economic policies which a perspicacious economist eloquently critiqued thus – “It entailed massive dirigiste interventions in the form of centralized planning and a draconian set of economic controls on foreign trade, capital flows”.

As a devoted disciple of Joseph Stalin, Nehru set up Planning Commission which was a blind copy of Gosplan, the Soviet Planning Commission. Just as the Gosplan’s main task was to come up with Five-Year Plans, the Indian Planning Commission was assigned the task of coming up with Five-Year Plans for India.

In the Avadi session of Indian National Congress, Jawaharlal Nehru reaffirmed his unequivocal commitment to collectivist ideas like co-operative farming. It was Swatantra party and Jan Sangh that voiced their trenchant opposition to co-operative farming and land ceiling as it clearly understood it was expropriation in a camouflaged form and was an assault on freedom of property

Even as Jawaharlal Nehru was advocating Stalinist socialism and collectivisation, one of the Indian right’s intellectual progenitors Dr.Shyama Prasad Mookerjee offered an alternative economic vision “private property will be observed and private enterprise will be given a fair and adequate play, subject to national welfare”

Sebastian  Schwecke in his book “New Cultural Identitarian Political Movements in Developing Societies: The Bharatiya Janata Party” writes on Jan Sangh’s stated preference for Market Economy

India’s lost decade

After Jawaharlal Nehru, the baton passed on to his daughter Indira Gandhi (after the brief interregnum of Lal Bahadur Shastri). Nehru had nurtured her as his successor despite abundance of leadership talent in the party ranks. Indira’s reign was an unmitigated economic disaster for India. India’s per-capita income growth plunged to just 0.3 % between 1965 and 1975. This was the time that the East Asian Miracle was unfolding as countries like South Korea were galloping at double-digit rates.

Radical socialist faction of Congress, bolstered by ideological embrace of their far left economic agenda by Indira, ran amok. As Aravind Panagariya puts it

“The agenda of the radical socialists was spelt out in a ten-point program. It consisted of social control of banking institutions; nationalization of general insurance; nationalization of export- and import-trade; public monopoly over the distribution of food grain; curbs on big business houses and large firms; provision of the minimum needs for all by 1975; limits on urban incomes and property; employment programs and credit without collateral for landless farmers; and an end to privy purses and privileges to the former rulers in the princely states.”

The most spirited counter to this economic madness came from a prodigiously talented young economist, who was inducted in to Jan Sangh to shape its economic agenda. Dr.Subramanian Swamy was nominated to Rajya Sabha at young age of 31.  Dr.Swamy presented a clear alternative economic strategy to Indira Gandhi’s socialism. He published a “Swadeshi Plan” challenging the socialist shibboleths. Ideas articulated here feature as part of Dr.Swamy’s book “Indian economic planning; An alternative approach”.

As classical liberal economist Deepak Lal writes

“Swamy advocated relying on the flexibility of the exchange rates to deal with the balance of payments, thereby eliminating import controls; shifting the emphasis of the industries away from heavy capital intensive to “small” labour intensive industries; reducing high marginal tax rates to small savings and to increase tax revenues; and emphasizing agriculture. All these are now recognized by main stream economists as the essential ingredients of a development policy which promotes economic growth with equity in developing countries where labour is abundant.”

The Jan Sangh in its 1971 election manifesto, opposed nationalisation of banks and promised to de-nationalise them if it came to power. Atal Behari Vajpayee, who was the president of the Jan Sangh then, was in the forefront of opposition to bank nationalisation.

Gandhian Socialism

One of the criticisms that is directed against BJP is its embrace of Gandhian Socialism as its core ideological principle in 1980s. How can an avowedly center-right party elevate socialism as one of its founding principles?

However a closer scrutiny suggests that it’s mere positioning rather than any fundamental ideological transformation. Indira Gandhi had opportunistically embarked on a Hindu majoritarian agenda playing up on fears of Hindus as Sikh radicalism engulfed Punjab. Vajpayee wanted to differentiate BJP’s brand of politics from Indira’s divisive politics and perhaps decided that anchoring the party in Gandhian principles will differentiate itself from naked communal agenda of Congress.

Socialism was not essentially a dirty word at that time and it was used in a value neutral sense in mainstream discourse. So Vajpayee coined it combining its commitment to Gandhian ethos with an economic term that was loosely used. It is important to note that till BJP endorsed Ram Janmabhoomi movement launched by the Hindu organizations it never advocated or focused on any issue of religious nature and was deeply uncomfortable with religious mobilization. Dr.Shyama Prasad Mukherjee for instance walked out of Hindu Mahasabha on the latter’s insistence on not throwing its membership open to non-Hindus.

BJP’s support to Narasimha Rao’s reforms

One of the myths that is widely propagated by the Nehruvian establishment is that the short-lived Chandrasekhar government was responsible for India’s grave economic crisis experienced in 1991. India had to mortgage its gold reserves to tide over a balance of payment situation. Chandrasekhar was at the helm of affairs for merely 3 months and it was essentially years of economic mismanagement by the Gandhi-Nehru dynasty that clearly led to this precarious situation.

During the 1991 election campaign, LTTE operatives assassinated Rajiv Gandhi. A wily Chanakian and Lutyens establishmentarian, Narasimha Rao, who managed the internal intrigue well was anointed the Prime Minister. Rao’s choice for Finance Minister though was inspired. Rather than going for a dynasty sycophant, Rao picked up a low profile economic bureaucrat with no radical ideas of his own but who could be expected to be loyal to Rao’s vision. Dr.Manmohan Singh, who was lobbying hard with Chandrasekhar regime for the position of UGC Chairman, was handpicked by Rao after the first choice I.G.Patel refused the assignment on health grounds.

Even as a faction of Congress (loyal to the family and clamoring for Sonia’s takeover of the party) were bitterly opposed to the reforms program, Rao went about ruthlessly dismantling the edifice of the licence-quota-permit raj that sustained Congress’ political dominance for over 4 decades. Unequivocal support that he received from BJP during the first 2 years of his rule made it easier for him pursue this reformist agenda and tide over opposition from within.

When Chandrasekhar bitterly attacked Dr.Manmohan Singh on the floor of the house as an agent of IMF/World Bank, it was L.K.Advani (leader of the opposition in Lok Sabha) who rose to Dr Singh’s defence.

This is L.K Advani heaping praise on the contribution of Narasimha Rao:

“I admired Rao’s erudition. He combined a scholarly understanding of national and international affairs with rich political and administrative experience. For example, in economic policy, Rao brought about a radical shift by introducing a series of delicensing and decontrol measures to herald a new era of reforms. The BJP and, previously, the Jan Sangh had always demanded the dismantling of the license-permit quota raj since it was both corruption-breeding and growth-hindering.

The Congress government of the past had erected an elaborate edifice of licences,quotas and controls in the name of ‘socialism’ but which in effect, had kept India poor and backward by stifling the entrepreneurial energies of our people. Under the garb of giving public sector ‘the commanding heights of the economy’, the Congress government had taken political patronage, red-tapism, inefficiency and low productivity to new heights

In his own quiet way, Rao started to send out signals that, in spite of heading a minority government, he was keen to give a radically different direction to India’s crisis-ridden economy.”

Reforms under NDA

Despite a tentative start and bitter opposition from Swadeshi section of Sangh, the NDA rule unapologetically ushered in economic reforms. Massive privatization of loss making government undertaking was undertaken. This extract from Arvind Panagariya’s essay “Indian Economy : Retrospect and Prospect” sums up the NDA era achievements:

Vajpayee showed true commitment to liberalizing reforms. Unlike Rao, who had been timid in making any public claims of his near 180-degree turn in policies and often characterized the reforms as a continuation of the past policies of the Congress party under Prime Ministers Nehru, Indira and Rajiv, Vajpayee openly and forcefully advocated reforms. With the notable exceptions of higher education and the labour market, he made progress in virtually all policy areas during his six-year rule.

Trade was liberalized in a sustained manner with import licensing on consumer goods imports coming to an end in 2001. Foreign investment caps were liberalized in many sectors. Life and general insurance were opened to the private sector with foreign investment permitted up to 26 per cent. The small-scale industries reservation was substantially ended.

The New Telecom Policy of 1999 revolutionized the telecommunications sector with the tele-density rising from just 2.8 per one hundred people in 1999-2000 to more than 80 today. So successful has been the telecom reform that even rural India boasts of two phones per household on average today. Substantial progress was made in reforming the indirect tax system with a large number of complex excise duties replaced by a central value added tax rate and the principle of the value added tax introduced at the level of the state. Genuine privatization as opposed to dis-investment of minority stakes was undertaken in the case of several public sector enterprises.

In agriculture, reform of marketing of agricultural produce was launched and genetically modified Bt. Cotton seeds were introduced, which led to a sustained increase in the productivity of cotton production. In the social sector, a universal education movement was launched based on the passage of legislation recognizing education for children aged six to fourteen years as a fundamental right. A program to build all-weather roads linking villages to nearby cities and the total sanitation campaign were also launched.

The Vajpayee government had particular success in building the country’s infrastructure. It built major highways and worked toward modernizing ports. The golden quadrilateral highway linking Delhi, Mumbai, Chennai and Calcutta was converted to four lanes in record time. According to a recent filing by the government in the Supreme Court, half of the highways built in the last 30 years were built under the NDA government. Above all, the government launched a fundamental reform of the electricity sector that had the potential to modernize and greatly expand India’s electricity system. Unfortunately, the successor government all but abandoned that reform.

In the area of macroeconomics, the government freed administered interest rates on many government savings instruments, which had held the rate above market rates. It made a special effort to bring down fiscal deficits and pioneered the fiscal responsibility legislation. The government’s success in streamlining the monetary policy was reflected in inflation decreasing to below 5 per cent. On the external front, the current account deficit remained low with the last three years of the NDA rule showing a modest current account surplus. The rupee remained stable with foreign exchange reserves rising from $29.4 billion at the end of March 1998 to $113 billion at the end of March 2004.

Conclusion

It is only during the last 10 years that BJP has faltered on commitment to its basic economic ideology. It co-operated with UPA in legislating schemes that represented massive expansion of government. Whether it was because of a former socialist heading the party in Lok Sabha and desperately playing the statesman card by co-operating with the government or opportunistic political tactics to prevent Congress from accruing advantages is a moot point.

With the advent of Narendrabhai, we along with millions of party well-wishers are cautiously optimistic that BJP will regain its original ideological mooring as far its economics goes.