IndiaSpend Debates: Can good economics lead to good politics?

Why did the voters vote the way they did in the recently concluded assembly elections in Delhi, Rajasthan, Madhya Pradesh and Chhattisgarh? Govindraj Ethiraj, Editor, IndiaSpend, posed the question to Ajit Ranade, Group Chief Economist, Aditya Birla Group, and R Jagannathan, Editor, Firstpost, on the co-relation between economic and social indicators and the voting patterns in these states. And also if there are any trends in the way voters are responding and how political parties have performed in these states in the recent years. Edited excerpts:

Govindraj Ethiraj: Let’s look at the electoral outcomes in four states - Chhattisgarh, Delhi, Rajasthan and Madhya Pradesh. All the four states have all grown faster than the national average. So, what does this broadly tell us? R Jagannathan: I think it broadly tells us that economic reasons, at least the long-term economic reasons, growth and incomes have been in favour of the incumbent Governments but it does not necessarily mean that there are no other factors that might anger the electorate when and if they want to change. So I think fundamentally if you are growing well it should not be easy to dislodge an incumbent Government.

Govind: Right, Ajit how do you see that? Ajit Ranade: Well, two out of four states Govind, you know, support the hypothesis. So it’s not as if now the states responded to economic outcomes. And you know, when you ask the question, does good economics make good politics, I think the connection, of course, is governance. So, good economics mediated through good governance definitely is good politics. So I think perhaps that’s an additional variable.

Govind:  Let’s look at Rajasthan specifically. The previous Government gave away a lot of dole. Madhya Pradesh, for instance, continues to have very weak social indicators including crime against women. So if Governance equals let’s say... Ajit: Public goods, public infrastructure, public health so on. I think a big thing that affects everybody is inflation. So you got to bring in those factors as well. I am not saying that these are the factors which will explain electoral outcomes. Of course, as you know, during the elections during these five states, let’s not forget Mizoram, there were a number of local factors at play.

Govind:  I will come to local factors, let me reel off a few more statistics. Rajasthan has had the highest maternal mortality rate in India: 318 deaths per 100,000 live births. Madhya Pradesh and Chhattisgarh do better. Delhi, of course, has the worst child sex ratio and among the highest reported rape cases. It has the highest crime rate against women when compared to the all-India crime rate. Women safety, of course, was a primary agenda for the BJP and AAP. So, tell me, do you see anything common here? Are people even looking at these things? Except, in Delhi, where because of media amplification, women’s safety became a key issue.

Jagannathan: I think there are two things public goods and private goods. I think when you give out a dole it is a private good. It’s not a public good. Safety of women, crime on the street is a public good. So, when Governments like Delhi de-emphasise public goods and focus on doles and other things and this is amplified through the media, then what really happens is the trade off is becoming clearer to the common citizens . So, even though they have had good growth, if you have sense of fear when you are walking on the streets, and especially for women, that will translate to a negative thought. I may be earning more but if I am going to get mugged, it doesn’t help. You know, so that’s the thing. I think this is the trade-off that the Governments are non-management of, which is where Ajit’s point of governance mediating the growth and the feeling of benefitting from it is not translating.

Govind: Let me flip the question around - if you were to look at these four states or recent electoral outcomes, what are the ingredients, for let’s say the electoral successes that we have seen? Ajit: There are several factors. It is not as if the voter is not aware that reckless welfare spending will not have any fiscal impact. I think that must be somewhere in the back of people’s minds. Secondly, voter turnout is a new variable.  Very high turnouts have different impact on the elections as against lower turnouts. Thirdly, the fatigue factor or the anti- incumbency factor. And then of course you know the disproportionate as you said. For example, you mentioned Delhi and sex ratio but please also remember that the dynamic of the Delhi demographic, which is migrant workers. So, it won’t be surprising that it’s the male member of the family and most of the family is back in their villages that skews the sex ratio in Delhi but not in other states.  So, all these factors, I think, are at play. Then look at the victory margins. We are looking at only the final outcome. It was a neck-and-neck race in many of these constituencies.

Govind: Right, so you talked about dole. You said that people recognised or feel that Government is perhaps not being or rather is giving away too much and therefore may pay the price over a period of time. Ajit Ranade: I think so. If you ask people, would you like a job or you would like a free whatever, you know, free rice, I am sure people will prefer a job. Why? Because they know that a job is a much more sustainable way. Because they know job is what is sustainable economically and dole is not sustainable.

Govind: If you were to look at this election and to look at that principle, do they kind of add up in your mind? Jagannathan: See, doles are also subject to the law of diminishing returns. I think if you give a hungry man a meal, he is going to be happy with it. If you give him ten meals, he might be happier. But if you give him 30 meals, he might think that, look I might need something more.

Govind: Correct. Jagannathan: So, even from an individual human point of view, doles have a law of, diminishing returns. But micro economically there is the law of what do you call the counter-negatives that come – inflation and various other things. So I think if one is biting me more and the other is giving me than people have a sense of that, even though they are not necessarily connecting the two things, you know.  Everybody will accept dole if you give it to him. And even Ajit I am sure will say if you give me LPG cylinder at 300, I will take it. But that doesn’t mean that he is going to vote for you because he’s got to save 600 Rs on a cylinder. I mean since same thing applies even to a lower middle class. He is saying, he is buying rice at Rs8 and Rs10 so why, Rs3 not going to make a big difference.

Govind: Is this an evolved thought or has it always been like this? Jagannathan: I think it is intuitive. Everybody is comparing himself in relative terms. Okay, so today, I have already taken the improvement in my status for granted. I am saying, I am eating well, I have a few clothes. So, today, the dole marginally does not impact me so much. I think this is what they instinctually realise and they are now looking for something larger. I mean they have moved on from the first level of Abraham Maslow’s hierarchy of needs to the second, and the Governments are still stuck in the first.

Govind: Okay, so you are saying that Rajasthan, therefore, reflects that disenchantment apart from all the other factors, the Modi wave and those things. Jagannathan: Those are all marginal things.  They help with one or two percent additional votes. So, what could have meant a victory becomes a sweeping victory. The key thing is that there is a certain sense of disenchantment that something is not going right despite the fact that he is offering me twelve welfare schemes, freebies, free medicine, rice at three rupees etc. Somewhere along the line, that has reached saturation point, and I think most people, probably, are getting it.

Govind: Okay, Ajit all four states grew at a rate faster than the average. Now this obviously is not impacting or even touching people’s lives or seemingly touching people’s lives and surely not influencing their electoral decisions. Why is that? Ajit: First of all, just to add to the dole point, the relative perception is also about the leakages. If the administration is full of leakages, that also leads to some disenchantment. For example, I believe in Chhattisgarh, the PDS system or you know the one or two rupee rice is actually functioning effectively. In fact, that’s why that state was against the Food Security Bill. That’s also important. On this growth thing  you know unlike the, If you look at last ten years, unlike the first five years, the second  five years while  growth of course has average is about 8 but this is also a period when there was high inflation. So if you take economic growth and then you consider the distributional impact of that growth, see the 8% growth is for the whole state or the whole country. But that growth is going to different sections of society disproportionately and on top of that if you have high inflation. High Inflation hurts the lower income sections much more ... it pinches much more than the higher sections and if the growth is any way disproportionately going to the higher income sections than you have a recipe for...you know discontent.

Govind: So, tell me, is that the biggest kind of bear in the room ...the biggest factor that perhaps influence from the economic standpoint? Jagannathan: Yeah certainly. I think people cannot take a transient change in say growth for a good thing. Because, if you remember, growth actually started in the last year of the NDA. And then they immediately said India’s shining and nobody saw it shining because it takes a couple of years for it to shine. That is why in 2009, when it was really shining, people voted for what they thought was shining. But now there is a sense that it is not shining. I mean, it didn’t happen just this morning.  Growth was okay till almost 2011-2012. It’s only crashing in the last two years. And last two years itself the perception is changing downwards. Now we may be bottoming out but people will remember what you have seen in the last three years. So, I think the period in which you are sensing a certain kind of feeling is more important than just one year when growth may spike more.

Govind: And the role of inflation and price rise? Jagannathan: I think inflation is fine if you are managing to stay ahead of it but it may be affecting, as Ajit said, the distributional effect. It may be affecting different classes differently. So, if the masses are affected more by inflation than by income growth, they may be worried more than the classes or it could be the other way round. Today, I think, inflation is a middle class issue, especially inflation at set prices. If you asked any person in Mumbai, he will say real estate is completely beyond my means. That sense nobody has yet tapped because politicians are sitting with the gains there.

Govind:  So, would price rise and inflation be, let’s say, 50% of the reason why people vote in or vote out the Governments? Jagannathan: I would think at least one third of the reason is that, and the perception that it may have been caused by misgovernance would be another 30%. The last 30% would probably be the result of local factors - that’s my guess. Govind: Ajit, how do you see it?

Ajit: I think the classic ills, the microeconomic ills are inflation and unemployment. So, if you have sustained high inflation, it’s a recipe for anti-incumbency.  Conversely, if you have low inflation consistently that may or may not guarantee you success. Now, on top of sustained high inflation, we have slow down of growth.  Therefore, slow down of job creation and creeping high unemployment. So, sustained high inflation and creeping higher unemployment, there’s no way this can be, you know, positive factors.

Govind: Yet, Madhya Pradesh and Chhattisgarh have seen strong vote backs. Ajit: Rajasthan was stronger. Govind: Yes, Rajasthan was stronger but that was a reverse. Ajit: Reverse, yeah. Jagannathan: I think this is the last third about the local factors. I think people saw the local Government is better than the central Government.  They saw price rise as the result of central misgovernance rather than local misgovernance. So, they probably put that in the centre’s

khata and said you guys screwed up. So, we will give these guys a bye. Govind:  Ajit, how do you feel? Ajit: Yeah, I think it was a local factor. Govind: But isn’t it a fact that supply side issues are local factors... Ajit: Even the Planning Commission has acknowledged the implementation of PDS in Chhattisgarh. So, it must have been a very remarkable factor.  The outcome of Chhattisgarh was neck-and-neck until the last moment. So, it’s not such a decisive outcome. In Madhya Pradesh, I think, perhaps there were many other local factors at play. Remember the intensity of the campaign, and the opposition campaign also matters. There may be many other local factors.

Govind: Let’s speak on a couple of social indicators very quickly. Chhattisgarh, for instance, has the highest number of people, proportionately, living below the poverty line. MP has 60% children below the age of 5 as underweight.  The state has an infant mortality rate of 59 against the national average of 44 and maternal mortality rate of 269 against the national average of 212. Ajit Ranade: These are very important factors. I think it’s important to compare the numbers for that state with the numbers five years ago and see if there has been a steady improvement. If people are seeing an improvement in human development indicators, no doubt they are still below national averages that does count. Govind: What kind of importance do you place on social indicators? Jagannathan: Absolutely.  People actually compare whether they are feeling better off today compared to five years ago. And if the net effect of that is positive then they will vote for you even though you are far below the national average. Because what you are saying is, I was starving 5 years ago, today in Chhattisgarh, the dole may be important because it may have lifted a lot of people out of sheer hunger and malnutrition but it may not be a big deal in Delhi where people are not dying; may not be dying of so much of malnutrition so the same thing is not effective. Whereas Sheila Dixit said my growth is x y z but she didn’t benefit from it.

Govind: Also may be states of Bihar and UP, for instance, where the perception of rule of law itself was such a big upside compared to other economic and social indicators. Jagannathan: Absolutely, absolutely. I think people do two comparisons. One is, am I doing better, and the second is, is my neighbour doing better? If you are not able to see your neighbour, you will compare it with yourself.

Ajit: Yeah that’s true. Govind: So, are we trapped in a sort of bottom spiral. Ajit: We have had low growth for now, you know 5% compared to 2011or even earlier. The mood is not yet upbeat, and as I said, positive economic data perhaps can contribute but is no guarantee of success. But sustained negative economic data does have a big, big impact even though, over the last 7-8 years, I have seen the fastest decline in the poverty rate ever in India’s history.

Govind: Right. Ajit: You know, people forget that. Or during the last 7-8 years, the spread of telecom has been the fastest. Govind: Poverty has declined from 400 million to 217 million. Ajit Ranade: And telecom density to something like 10% to 85%. It’s a remarkable improvement but this is over 8 years. But what’s going to be on people’s mind is the last 2-3 years. And as I said, inflation and unemployment are at top of mind.

Govind: Which brings us to a fundamental question. Is there a big disconnect between aspiration and delivery and are our aspirations are much higher than what the delivery is or can be at a time like this? Jagannathan: Yes, it will be because what happens is like if you have seen fast growth in five years and you have seen your lot improve, you take that for granted. I mean, it’s like you don’t want to go back to that. So you are looking at something else and you have seen your neighbour benefitting so I think aspirations will keep spiralling especially in these days of extreme media where anything that happens in a city is instantly beamed to even to a village. And I think 50% of India is actually urban-oriented even if it is only 32% as per literal Census count. So, you have actually 50% of India thinking an urban way. So, I would say rural-urban change is probably affecting more than half of India. And that’s showing. Govind: And you are saying that manifests itself in higher aspirations or desires or bein g more consumerist... Jagannathan: Yes, media accelerates your aspirations. And you cannot get away from it. Govind: Ajit? Ajit: I mean, I strongly disagree with using the word aspiration as if it’s a negative thing. I often find commentators or politicians say “kya karein yaar, aspiration badh rahe hain”, arey boss, we need to aspire to be the most developed country in the world or to be the best functioning democracy in the world. So, what matters is not really that the aspirations are getting foiled. It’s that the People have to see that we are actually moving closer to our aspirational world. That movement is more important. It’s not that the people get suddenly disappointed that oh humko 9% growth chahiye we only have 5 now. But that they see that there’s consistent improvement in the micro variables. There’s improvement in deliveries. There’s an improvement in governance. There’s improvement in controlling leakages. There is improvement in you know controlling corruption. So, these directional improvements are more important. Aspiration, per say, is a good thing. I would be very happy if everybody aspires to be one of the best economists in the world. That’s a good thing. Govind: The biggest reason for the disenchantment could be because we were all going, may be, with marginal improvements and changes but we could see an upward direction. And suddenly there happens to be a jerk? Ajit: No, as I said there were micro factors and they are negative. On top if it was fatigue and then anti-incumbency and then third it was the actual outcome was much more you know stark perhaps because of a lot of local factors campaigning, media and so on so it’s a combination of all three. Govind: Right, I’m also trying to go beyond the elections. Elections may be a barometer of a certain feeling and reflected in voter behaviour and so on. But in general if we are sort of experiencing a disconnect between where we thought we were going and where we are really headed is that going to cause more  problems in the future. I think that’s the question. Jagannathan: Yes, I think, in a sense to take the UPA side, I would say they are victims of their own success. When you brought poverty down so successfully with such rapidity, partly driven by the dole, people who have benefitted from it said, “Okay, now what next?” So, aspirationally, they are driving the process to something beyond the dole. They are now saying I need something more.  And that is a good thing. And in the process, a political party may lose its base and all but they have to reinvent themselves. I think politicians are far behind people, and that’s the problem. Govind: Ajit you mentioned this earlier as well. Ajit: I don’t think it’s disconnect. I don’t think if you are trying to imply this is a wake-up call, it’s not like that, and it’s just that suddenly the mahol is such that now it’s becoming more challenging. You know like he said, why we didn’t translate that success of poverty reduction into something more. Job creation, maybe. Govind: But that’s the policy lesson in this right? Even if you were to give dole, and which may be a good thing, for a certain period of time, the transition should have been thought through to something more sustainable and more vigorous. Jagannathan: I think the fundamental problem is that politicians are not communicating clearly. They are still in a feudal mindset while people are looking beyond the dole. They may not be unhappy with the dole but they are not happy with it either. I think politicians are not communicating well - have you seen Manmohan Singh going and explaining to the people what the issues are? In fact, the future belongs to good economics and good politics. This will mix when politicians learn to communicate. And these are the politics that probably may be an Arvind kejriwal and Narendra Modi. Narendra Modi is at least able to communicate what he is trying to say even if his points are political but you are not seeing that from the Congress side. I mean, they are all just talking about secularism, communalism and painting him as an ogre. He is saying okay, you look at me, I am saying development, and you guys are saying I am communal. So, how does that add? It doesn’t work. I think Arvind Kejriwal is a better communicator. He is talking the language of the people. I think these are the two great communicators coming up. And different styles but I think that’s the future of politics. Govind: Right, and you said unemployment and jobs. Ajit: I think we have to change the narrative to job creation. You know, like in U.S. every 15 days or whatever or every month, they track job numbers. It’s like it’s ingrained in everybody - politicians, administrators, citizens. Here, we have not change the narrative to job creation. Not economic growth, not merely poverty reduction, not merely jobs...doles or rights, right to food, right to education. How many jobs are we creating? Govind: So, Jaggi, is that what it’s sort of boiling down to. We have picked up economic and social indicators. We looked at the lessons and we are trying to lean from the way voters have behaved to what really are the key issues that will drive voters now. You know is it price rise, inflation, managing of aspirations, communications and jobs. Jagannathan: I think it will be mix of two basic things - one is fast growth in jobs and incomes and a certain management of inflation, which is kept within reasonable bounds. I think people will tolerate 3-5% inflation even if it is continuous and going at that rate. People will not parlay 8-10% inflation for 3-5 years at a stretch. Jjob growth has to be there. We haven’t seen job growth. The fundamental damage the UPA has done is that t has completely clogged the labour market by distorting wages. So, they have clogged up what should have been the pipeline of jobs to pipeline of doles. Govind: You think this can be fixed? Or will people now be so used to it that they will keep looking for more? Jagannathan: I think it can be fixed... I think it’s difficult to get legislation through because any time you say I want to change labour laws, people say, oh you want to hire-and-fire. I don’t think it’s about hire-and-fire. It’s about making sure that people employ more without the fear that they will never be able to retrench. I mean even if you protect all old jobs and say new jobs where you are going to give a good package where in case people will have to be laid off because of short-term demand reasons then they are protected. In fact it can play as a job protection scheme or rather salary protection scheme and you can do it. It’s just that politician are not able to connect the dots. And what needs to be done instead of making labour feel threatened. Ajit: You can do it creatively. I mean, like he said, you keep chipping away. It’s not like a large big bullet, magic bullet. For example, NREGA employment is temporary employment, right? We do not think of it as hire-and-fire. So, why not make those 100 days available to the textile industry? They would love it if they can hire somebody temporarily but they don’t because they have permanent level. Govind: Industry feels, at least small scale industry when I talked to them is that, thanks to NREGA, wages are going up 30%. Ajit: The same industry would be very happy if they can employ NREGA labour and it’s counted. See NREGA numbers are the national numbers right. But they all have to be public projects and all that. Why not allow proprieties. In fact, for Indira Awwas Yojna, they are saying now if you build your own home, it will be counted as NREGA labour. So the ministry has expanded the definition. Now include the textile industry. They are seasonal workers. Another example is sugarcane harvesting - allow NREGA to come there, but they say no, its private sector. You got to think creatively about this. Govind:  If you were to look at two or three key indicators, which you feel will satisfy the citizens or the aspirations of the citizens, what would they be? Ajit Ranade: As I said, its a movement, it’s not the final pie in the sky. Its movement. Is inflation coming down visibly?  Are job opportunities expanding visibly? I mean all that, that’s actually... Govind: What about social indicators? Ajit: Social indicators, as I told you earlier, you got to see in your own past. Compare to five years ago, do you have better health clinics available... Govind:In your own state? Ajit: In your district actually. Are there better health clinics? Are doctors showing up? Are teachers showing up? So, those kind of things. Govind: We already hit, at least, the statistical high on student attendance. Ajit: We don’t focus on teacher attendance.  We need to ensure that teachers are also attending. They are also state Government employees. Govind: Jaggi, what are the two or three things you will be watching for? Jagannathan:  I think we already talked about inflation and jobs. I think at the Government level, the focus needs to shift from excessive expansion of provision of private goods, which is subsidies and doles, to public goods. I mean infrastructure, safety, investment in health and education. These are all public goods. These are the ones that create future citizens, worthwhile citizens. If you don’t do that, the primary job for the state is not being done. You are going in to the secondary jobs, and saying okay, I will put money in your pocket and I will put food in your mouth. I will do all kinds of things but I will not see that your daughters are protected. I will not see that the roads are built. Govind: I think we have reached a reasonable consensus.  I think the focus has to be more on public goods, rather than putting private goods in the hands of the people, focus on issues like job creation, and, of course, managing prices which can always be a critical factor when it comes to elections.