A Four-Week Online National Spring School and Immersive Online Introductory Certificate Training Course on, Fundamentals of Public Policy was conducted by IMPRI, Impact and Policy Research Institute, New Delhi from 3rd March to 25th March, 2023.
On Day 4, there were two speaker sessions lined up, the second one being, Political Economy & Public Policy in India by Mr T K Arun, Senior Journalist and Columnist. He started with a small description of what political economy actually meant which basically is a situation when politics impacts the economy and the economy in turn affects the country’s political scenario. It deals with the interaction and intersection of politics and the economy as a whole.
He began his session with a general and overall introduction by building up the concepts before delving into the topic of discussion. He explained that Politics meant state power and such exercise of all other associated powers and it deals with beneficiaries of the political power, who can influence state affairs, whose interests are best served by state power and whose are harmed by the same. To speak about the intersection of politics and economics, he states that the notion that market forces of demand and supply provide optimal equilibrium is not feasible and without state intervention is necessary and that is where politics enter the aspect of economics.
He took examples of the US promoting a green economy and leading the green transition, TESLA being provided subsidies to expand sales to show political economy working within countries and the example of the US forcing an export ban on very advanced tips and semiconductors that will allow China to strengthen the lead it is already establishing in AI to show political economy impact in the International Market.
The Indian Context
India had economic planning right at the outset of Independence and in the current discourse, this has been seen as a result of the first PM’s fascination for socialism. However, that’s a myth according to him and the reality is that planning and industrial policy were required in early Independent India to build a vibrant capitalist economy. The main objective was to build the public sector muscle for the economy to grow because without that the private sector couldn’t prosper. Hence, in the 2nd Five-Year Plan, the requirement of India to become a machine-building economy and entail advancement in industrialization was understood. India wanted strategic autonomy and therefore this calculated step.
He further drew a clear picture of the geopolitical situation of those times by stressing the fact that when India became independent, there was the socialist block led by the Soviet Union (second world) and then there was the Western Anti-Soviet Block led by the US (first world). The rest of the world who did not belong to any of the blocks became the third world countries. India wanted to build its infrastructural capacity, machinery, steel plants etc. which the Indian Government took up in stages:
- Deficit Financing: The government borrowed from the RBI as it spent more than the revenue it could generate through taxation. This intertemporally indicated borrowing from the future but that was the sole option left after being turned down by several countries for help to build its steel plants.
- External Help: However, the Soviet Union helped India build its first steel plant after which the Western countries also came forward to help India due to it, being a very crucial country. An underlying reason was that the US didn’t want a large democracy like India to become Communist, and was also unwilling to let India go into the Soviet sphere.
In order to allow the private sector to grow, the government adopted a regime of high tariff protection and quantitative controls on imports so a protected domestic market became a playing field for the Indian Industry. Socialism was hence, a deception to the public that the State was anti-rich, in order to perform the actual task.
The interests of the private sector and people at large converge. However, people generally find the divergence of interests better visible than they find the convergence of interests and that is the nature of politics because whenever there is an opportunity that will allow people to be mobilized, that will be brought upon by entrepreneurs and political entrepreneurs to rally people and gain some leverage over the state.
What is a Political Party?
A political party’s principal goal is to gain control over state power and different sections of society gain control over state power in various different ways and to different degrees. He took the example of Gender inequality to establish the fact Class is not the only struggle prevalent in society as had been stated by the Communist Manifesto and women have always been at the receiving end of the power structure in some way or the other. Then there is caste discrimination so he tries to establish that power cuts across various identities of which definitely class is dominant but is not the only one.
Focusing on the case of India, he again states that India is a democracy but citizens of India do not fund the political parties and this leads them to mobilize them giving their money themselves in a non-transparent fashion primarily from the positive corruption.
This affects the economy directly, not only in the sense that there are people who are being favoured but also increases the capital cost because industries generally make unaccounted sources of income through two broad ways to fund the unaccounted income of political parties – they inflate the costs in writing although they are facing a lower cost thereby over invoicing project costs and borrowing higher amount of money from banks and they acquire companies either in the country or abroad and taking out money from their own project to diversify into the new projects, they inflate the capital cost of the project they require.
This makes Indian Projects seem more capital-intensive than they actually are so in an accounting sense this makes it difficult to compare with other countries where this kind of cost padding is not carried out.
He wanted to establish through this situation where people do not fund their political parties, and this works to their disadvantage of the economy by creating structures that are over-capitalized and where a larger amount of debt has been serviced than it ought to.
He concludes with an interesting sentence – “This is not the only kind of political economy we should be worried about”. As Indians, we have drifted apart from our own culture and we have perceived the Western idea of living as modern and Indian ideologies as pre-modern which is detrimental. Our culture should focus on preserving its ingenuity along with accepting what’s good and rejecting what’s bad but that is not the case. We are a secular country granting equal status to all spiritual inquiry but instead of this ideology serving as a model for the globalizing world, India is currently going through a phase where some spiritual faiths have become less equal than others erupting conflicts and complex citizen notions.
But there is the Indian Constitution to counter the effects and prevalence of this hard political economy as it does have a framework to organize the society on an equitable basis and create a political economy that achieves social welfare as well as efficient economic progress.
He ended the session with insightful Q&A.
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