Failed politics, winning economics

Contrary to conventional wisdom, the UPA lost despite an inclusive, growing economy.

Written by James Manor | Updated: May 24, 2014 12:30 am
Pervasive petty corruption infuriates voters. Major scams since 2010 have ignited firestorms in the media. ( Source: AP ) Pervasive petty corruption infuriates voters. Major scams since 2010 have ignited firestorms in the media. ( Source: AP )

Economists have been busy telling us that the economy decided the election result. We heard it during the campaign and they have been at it again in their post-mortems. They are wrong. Consider some evidence.

Most Indians live in rural areas. Elections are won and lost there. So for any government, it makes good electoral sense to look after rural voters. A vast number of them are somewhat or very poor. So politicians also need to offer something to the rural poor.

The UPA tried to achieve these two things by creating programmes to make economic growth “inclusive” — including rural folk in general and the rural poor in particular. UPA leaders were partly inspired by a belief that this was the right thing to do, but they also wanted to secure votes from these people. Did they succeed in making growth inclusive?

There is strong evidence to indicate that they did. A formidable Indo-American team from the National Council of Applied Economic Research and the University of Maryland has provided it.

They surveyed just under 42,000 households across India in 2011-12, a massive sample. Crucially, these were the same households that they had surveyed in 2004-05, so they could track changes that were experienced over the first seven years of UPA rule.

The study found that real average household incomes in rural areas had increased by 5 per cent annually, which was almost twice the increase of 2.6 per cent in towns and cities.

When they adjusted their calculations using the numbers of members of households, the growth of incomes in rural India was even more impressive: an annual average of 7.2 per cent. So the UPA’s policies clearly helped to make growth “inclusive” in terms of the rural/ urban divide.

What about poor people? The researchers separated respondents to their survey into several social groups. They then calculated changes in per capita household incomes for each one. The most prosperous group, “high caste Hindus”, gained less than all of the other groups. The table tells the story.

So in terms of the rich/ poor dichotomy, the government’s efforts to make economic growth inclusive also succeeded. Dalits, Adivasis and Muslims include many of the poorest. And given the greater gains made by rural dwellers, villagers within these three categories plainly benefited substantially.

The same survey found that daily wages for agricultural labourers, among whom we find many of the poorest, nearly tripled between 2004-05 and 2011-12. So the poorest villagers, a notoriously difficult group to reach, gained disproportionately.

Despite this, however, the UPA suffered a crushing defeat. That could not have happened if these economic trends had translated into solid support for the Congress and its allies from the rural majority in general and the rural poor in particular. But the UPA could not hold on to these groups. Economic trends do not explain the election result.

And yet, still the economists chant their mantra. Some even simplify further by saying that election results follow economic growth rates. That is nonsense. Both the Congress in 1989 and the NDA in 2004 lost despite high growth rates.

They also overlook another trend. Growth may have decelerated, but government revenues have not. A marked surge in revenues has been underway since 2003 and it has persisted, despite the recent slowdown in growth. Revenues increased by over 20 per cent in the last fiscal year. This enables governments to spend generously on all sorts of programmes to cultivate popularity — among rich and poor, urbanites and rural dwellers. But despite this patent economic reality, the UPA lost.

That result is mainly explained by other things. Pervasive petty corruption infuriates voters. Major scams since 2010 have ignited firestorms in the media. Bureaucrats and politicians have been paralysed by fear ever since. An official in the prime minister’s office who jotted a question to a superior on a tiny post-it note in 2011 was hauled up and told to “put nothing on paper”.

More well-known failings could be cited. But the key point is that most of the things that explain the UPA’s demise have to do with politics, which the economic determinists largely disregard.

The writer is a professor in the School of Advanced Study, University of London

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    anon.coder
    May 25, 2014 at 6:22 am
    One word why they lost the elections - INFLATION. Increase in incomes does not necessarily reflect in better living, if most of it is eaten away by inflation. Please plot a graph of rise of food prices, milk etc and see. Corruption is a no-issue per me.
    Reply
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      Debabrata Datta
      May 24, 2014 at 6:22 pm
      The argument is faulty. Consideration of income growth since 2004 - 05 is not proper since the voters gave the credit to the UPA for good economic performance in 2009 election. So the growth in income, mentioned here should have been calculated only since 2009 and I am sure the income growth then would have been much lower. Secondly there was a huge inflation since 2009. The people blamed the government for inflation even if their money income growth exceeded price rise and they enjo a real income growth. The reason is psychological. People think that the income rise is because of their own credit and the inflation is on account of government's fault. They do not correlate income rise and inflation. The electoral debacle of UPA is an outcome of economic events and to be more precise of inflation. .
      Reply
      1. A
        ahirwan
        May 25, 2014 at 2:13 am
        It is better to have Loved and Lost ,than to have Loved nothing at all. From the numbers that produced the 2014 results says it all. At least 5 billion people never got to polling stations. And the demographic 18-55 is beyond the realms of the poor. Greed is all you need. Cheer up UPA nothing is lost ,but a lot to gain from Lobbying for the poor at all times. Nobody else would.
        Reply
        1. D
          dmp
          May 24, 2014 at 11:36 pm
          By inclusive, do you mean they included you in their development agenda?
          Reply
          1. S
            Siddhartha Sarma
            May 25, 2014 at 1:09 pm
            5 billion? Are you sure? The country's potion is 1.2-1.3 billion.
            Reply
            1. K
              kalvin
              May 25, 2014 at 3:26 pm
              one of the biggest hurdle to the overall growth of our country could be uncontrolled and reckless potion explosion, government cannot be the sole driver of our country's overall growth, our part is very important, just reckless spitting on the road, open defecation and extravagant wedding and ceremonious is draining our wealth not knowingly. resulting in deterioration of public health, sick public also result in sick economy. brain drain does not produce negative growth to our economy, they are our ambador to that country, they portray our country and help in building a healthy relatioship. Albert Einstein going to USA doesn't weaken the German country, clearly the American and Germany are now friends with a benefits, USA and an are allies, USA even threaten China when an needs their help( senkaku Island). though they have history related to Two Atom Bomb, some of our countrymen are causing fuss, over the behead of our two Indian soldier(though it need to be condemned), believe me history tells something worst then that have happened, it time to move on and create a new relationship which would yield in mutual benefits.
              Reply
              1. K
                kalvin
                May 25, 2014 at 3:05 pm
                though i favors BJP over congress, but UPA government surely did made our (small families) living conditions better, which i think, it would unfair on our part to exaggerating criticizing UPA government (though need some criticize being in democratic country) ,i would like to testify, i am the only child, in the year 2007 my dad's state govrt. group C net monthly ry was approximate 8000, in which 4000 plus is sent to me in-order to sustain in metro city, but now his ry is 20000 plus, even after sending 10000 monthly for me balance 10000 is left, which is a big saving, and i am teetotaler. life is much better than years back. but when i see my neighbor with larger family members their life and living conditions seems to have changed just a little bit better . i am also an optimist , i believe Modi will deliver as he had promised. so what even if not, anyway my life is going to be better, i believe in my indomitable human spirit. nothing in this world can put us down, dooms !! only if we allowed it.
                Reply
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                  tarun
                  May 26, 2014 at 8:31 am
                  One factor overlooked by author is inflation... Inflation effects poor more than richer one, even poor people show more increase in their incomes... should compare price rise and income for true picture... author is just supporting congress...
                  Reply
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