Institutions in India are characterized by “short termism”- privileging near term results over long term trends and objectives. In Haryana, the transitory distancing of the electorate from the BJP, after two terms, was interpreted by pollsters to mean victory for the Congress, wrongly, giving more weight to sentiment than to the potential for gaming a hotly contested, first past-the-post election by massaging nascent party loyalties. Individual leaders matter more than parties in Haryana. Consequently, it was the efficacy of spoilers- independent candidates, with large followings- not popular sentiment, which gave BJP a majority and the highest vote share of 39.9 percent with the Congress following at 30.9 percent but far behind in seats.
“Short termism” a contagious institutional affliction
Consider, that even our erstwhile colonial masters carried the “short term fog” with them, along with a taste for curry, when they left in 1947. The Brexit referendum in 2016 was unbelievably wooly headed rather than pragmatic, with the UK choosing to isolate itself in its pond, after centuries of benefiting from global trade, investment, and access to foreign talent.
Dumping central planning easier than decentralizing fiscal decisions
India dumped central planning in 2015 when the intrusive Planning Commission – a Nehru legacy-was replaced with a think-tank style, NITI Ayog. Many interpreted this as the end of an era of Big Government and the beginning of decentralization, empowerment of local communities and a return to bottom-up planning and execution. Admittedly, the force had long dissipated from central planning as a tool for optimizing the use of public resources. It had become yet another cog micromanaging the size and composition of the government spend over the next five years. Have things changed since?
One simple metric for the time trend in decentralization is a higher share for state expenditure in total (general) government expenditure of the Union and states. Per data in the annual economic survey the share of states in general (total) government expenditure, increased from 36 percent in 2007-08 (the waning year of UPA 1) to 39 percent in 2022-23 in MODI 2. Correspondingly the share of the Union government decreased from 64 percent to 61 percent. A positive outcome but not significant. Successive Finance Commissions – a constitutional body- which advises the Union government quinquennially, on the sharing of tax revenues with state and local governments, did their bit for enhancing decentralized expenditure, including direct grants from the Union to Local Governments. Also heartening is the ability of a constitutional body to influence the Union government to decentralize. Sadly, in comparison, State Finance Commissions, appointed by State Governments, have generally played a “Short Term” game, preserving the status quo, leaving decentralization adrift.
Long term neglect creates “incapable” institutions- like Local Governments today
Nor do Local Governments present a credible case for greater decentralization by failing to fully exploit the property tax base available to them or collecting extraordinarily little tax versus their expenses. Similarly, states do not generally tax earnings from agriculture. The bulk of their tax revenue is from their share of valued added Goods and Services Tax (GST) levied by the GST Council – an innovative institutional arrangement, in which the Union and all states collectively determine the tax rate. Tax on petroleum products is another big-ticket revenue for states, quite unmindful that consumption is expected to decline over the next fifteen years, as renewable energy becomes more affordable and the electric vehicle revolution kicks in. Yet again short termism prevails.
Even much needed short-term measures like welfare, are prone to fiscal flab
However not all short-term goals are impractical. Consider the trade-off between investment for growth and spending on welfare. Under India’s flag ship scheme free cereals are distributed to more than 60 percent of families even though officially, poverty levels are at about 11 percent. Admittedly, a lower middle-Income country needs near term strategies to help families with their immediate needs. Food comprises more than one half of the average consumption basket of the bottom half.
The problem lies in the poor targeting to the really needy and the large deadweight loss (process inefficiency related loss which is enjoyed neither by the producer nor the consumer) associated with the long public sector dominated supply chain of buying foodgrains from farmers at a high administered price, storing, transporting and then distributing them to families. The associated “leakage” or diversion of food grain to the open market, was estimated at between 37 and 45 percent in 2011-12 (Khera and Dreze, Gulati and Saini 2015). This practice persists because it is politically attractive to bind farmers to political parties. Sadly, it also discourages farmers from taking the market risk of planting more valuable crops but associated with market risk. Ineffective crop insurance mechanisms further dilute the farmer’s appetite for risk.
Often institutional empowerment itself is a long-term process of changing social norms
Direct income transfer to a targeted set of beneficiaries would be cheaper and more efficient, allowing exceedingly small farmers to top up their guaranteed income from other jobs or market-based farming. What stops the government from transitioning to a direct transfer of benefits to beneficiary bank accounts? Recent research in progressive Maharashtra by Abbink, Datt, Gangadharan, Negi, and Ramaswami, May 2022 shows that resistance to direct transfers comes from women who feel they will be worse off by having to buy cereals, sans price certainty, and because access to bank accounts is possibly controlled by the menfolk. The Jan Dhan Yojna accounts were opened in the name of the female head of the home, but clearly local patriarchal norms cannot be wished away.
Serial elections are fertile ground for short term political incentives
So long as the asymmetric quinquennial electoral cycle frames the development discourse, short termism is here to stay. The need for deep structural reforms is widely recognized – in land through a lowering of purchase risk via better records of ownership and ease of transactions, scaling up labour rights along with nimble rules for businesses to employ and dismiss, transparent access to bank credit, higher returns for debt holders via tax benefits, lower reserve ratios for banks and deepening of the corporate bond market.
Pre-conditions for ONOE are conventions safeguarding strict inter-state mandates, norms and light touch central management.
The problem is to find the political space to implement such basic reforms, all of which create winners and losers. Barring conspiracy theories, the momentum behind One Nation One Election, is to stretch the “apolitical working space” to at least four years by avoiding state elections during the five years between a national election. Opposition to the proposal can be muted. But only if India becomes more than just an electoral democracy and “service to the people” is the norm rather than a temporary meme during elections. For that to happen, a precondition is deep political party reform- the big elephant in the room, no one wants to confront.
First published in Asian Age October 23, 2023 https://www.asianage.com/opinion/columnists/sanjeev-ahluwalia-looking-beyond-the-fog-of-short-term-results-1832217
Opinion India 