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A FOOLISH consistency is the hobgoblin of little minds," said Ralph Waldo Emerson many decades ago. And unfortunately, it still seems to be true. It is indeed such foolish consistency that currently seems to mark the economic strategy of the Central government.
This tendency has been marked for more than a decade in India. But the recent moves of various organs of the state, whether it is the Finance Ministry, the Finance Commission or even the Planning Commission, suggest that the striving for consistency at all costs is not just the preserve of the Central government but is leading to the imposition of similar policies across States, no matter how inappropriate they may be in different contexts.
The neoliberal economic paradigm came into prominence in developing countries as a reaction to the excesses and failures of Central planning, which all too often did not recognise the significance of particularities and variations. The irony is that neoliberalism has shown itself to be equally, if not even more, centralising in its approach to economic policies, laying down rigid rules that force all Ministries and all State governments into identical formats and deny any possibility of flexibility. And all this is done in the name of "freeing" the economy!
The basic premise upon which neoliberal policies are based - the notion that reducing state involvement and giving greater freedom to private agents and market functioning ensures more efficient and economically dynamic outcomes - is so well known as to require little reiteration.
In the Indian case, the Central government has explicitly adopted this approach since the early 1990s through certain macroeconomic policies as well as through successive changes in the pattern of regulation in different sectors.
This has implied that for the national economy as a whole there have been policy changes designed to do the following:
* Do away with or substantially reduce controls on capacity creation, production and prices and let market forces influence the investment and operational decisions of domestic and foreign economic agents within the domestic tariff area;
* Allow international competition and international relative prices to influence economic decisions of domestic agents;
* Set relatively rigid norms for "fiscal responsibility", which constrain fiscal deficits, curb public borrowing and therefore limit public expenditure;
* Reduce the presence of state agencies in production and trade; and
* Liberalise the financial sector by reducing controls on the banking system, allowing the proliferation of financial institutions and instruments and permitting foreign entry into the financial sector.
This strategy has had mixed results in the aggregate - results that are increasingly associated with a pattern of relatively high growth, especially the current economic boom, but also with low productive employment generation, increasing inequality of income and asset distribution and displacement, exclusion or marginalisation of large numbers of people. These downside features have also had an apparent political fallout, indicating that a significant portion of the population have not been happy with the implications of these processes for their own lives. So, there are clearly possibilities for alternative policies that could perhaps have a different, and more democratic, combination of outcomes.
However, despite this mixed record, increasingly, the Central government seeks to impose the same set of policies upon States, through its fiscal transfers and through other measures that limit the manoeuvrability of the State governments' functioning. A series of recent actions has indicated this centralising and homogenising tendency, even though India is not a homogenous country and is rather more like a confederation of very different regional entities.
Thus, for instance, Finance Commissions are statutorily supposed to determine only the principles of distribution of the net proceeds of shared tax revenues between the Centre and the States and to provide for revenue deficit grants from the Centre to those States whose normative expenditures are likely to exceed the normative revenues.
But the government altered the terms of reference of the Twelfth Finance Commission to suggest a plan for restructuring the public finances of both Central and State governments. This in turn led the Finance Commission to suggest some debt restructuring for State governments, made contingent on the enactment of strict fiscal responsibility legislation by them. This, despite the fact the stupidity of the current fiscal rules imposed by the Fiscal Responsibility and Budget Management Act (FRMBA) on the Central government is now widely recognised. Furthermore, even the precise numbers for yearly targets to be enforced through such laws have been specified for the States!
More recently, various fiscal transfers to the States are being made contingent on their governments adopting exactly the same approach as the Central government on matters as varied as infrastructure development and school education. The Centre is currently keen on promoting public-private partnerships, or "PPPs", (whereby the government underwrites the risk, creates the necessary conditions and allows the private sector to reap the profits) rather than direct public investment, so State governments must do the same. Otherwise, they will not receive crucial funds.
The information technology policy requires village resource centres to be set up as PPPs with private involvement even if the State government already has a flourishing set of public centres under the control of panchayats. Funds from the Jawaharlal Nehru National Urban Renewal Mission will be provided only to those State government
It is this oppressive and centralised imposition of what is a flawed and, at best, debatable economic strategy that is creating many problems in the federal polity. Elected governments at the State level are all forced into the same straitjacket: whether or not this suits the particular conditions of that State; whether or not the State government was elected on a different platform; whether or not there is public demand among the electorate for a change of course; whether or not they are able to find more creative, flexible and popular ways of dealing differently with the same economic problems.
This is why the Chief Minister of Kerala was forced make this fervent plea at the recent meeting of the National Development Council: "Let each State be allowed to pursue its own strategy, with the Centre offering assistance dispassionately. When the strategy we have put in place in Kerala is beginning to yield dividends, for us to jettison it now and adopt another that we do not believe in would be tantamount to exchanging two birds in hand for one in the bush! We would request the Central government therefore not to link [funds for agriculture] to the adoption of a particular strategy."
It remains to be seen whether this passionate plea for dispassionate dealings by the Centre is even recognised, much less accepted. For there is of course a political economy narrative that accompanies all of this. The neoliberal economic strategy very clearly benefits some sections, such as large corporates and urban upper and middle classes, which have disproportionate political voice and lobbying power. And these are precisely the forces pushing for uniform imposition of policies across all the States of India.
But now that the air is suddenly thick with good intentions of Central government policymakers on making economic growth and social power structures more inclusive, could there be a better time for recognising that inclusiveness necessarily requires the acceptance - and even the encouragement - of difference?
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