What lies to the right of centre in India?

The cohabitation of traditionalists and market liberals

Ever since India’s 2009 general election, it has become fashionable for many politically-minded people in the country to style themselves as being “right of centre”, “centre-right” and other terms where “right” and something else is joined together with a hyphen.

It is clear what people who label themselves thus are against — the Congress party, and especially the family that constitutes its apex leadership. Mostly, they oppose its “appeasement” of minorities, especially Muslims. They oppose its propensity to create “entitlements” in the form of reservations, quotas, subsidies and special treatment. They oppose the cronyism in the economy and political corruption in governance. They oppose its pusillanimity in foreign policy. There are many more, but these strike me as the big ones.

It is less clear what they stand for. Many of our self-styled right-of-centrists are strident opponents of liberalism. Many have deep misgivings, if not outright opposition to markets and free trade. The most coherent “right” in India is the Hindu right, which is clear about its commitment to Hindu nationalism, broad or narrow. However, even the Hindu right does not have an economic agenda that is consistent with its political ideology: should the Hindu nation rely on individual liberty and free markets, or should it construct a strong state that draws lines on individual freedom and controls the levers of economic power? During and after the 2014 election campaign, market liberals and social illiberals found themselves in the same “right of centre” camp, often having to pretend to be each other in order to fit in.

This ideological confusion and political tension within the segment that calls itself right-of-centre in India comes because our political context and historical development is different from that of the West, where the Right and Left first came into existence. I’ve written about this in my Niti-Mandala post, constructing India’s political spectrum. I was reminded of it last week as I read Jonah Goldberg’s statement of the Conservative position in the United States: which connects tradition and markets and forms the basic worldview of the American Right that the Republicans used to champion before Donald Trump, er, shook things up.

As a Chestertonian at heart, I like and respect old things. I like it when stuff beats the law of averages for reasons we cannot easily fathom. The Hayekian in me thinks old things that last often do so for good reasons we just don’t — and sometimes can’t — know. Unfortunately, we live in an age where we take the razor of reason to every little thing and strain to know the whys of it, as if knowing the why will empower the how. [National Review, emphasis added]

The same argument would be self-contradicting in India: where there are inhuman inequities embedded in caste discrimination and social practices. You can either defend the traditional Indian social order or individual liberty (and markets and so on). You can’t defend both, because the former is constructed without regard to, and often in suppression of the latter. This explains the confusion and tension among our “right of centre” compatriots, who are at best, — to turn a phrase from a best-selling novelist — Half Right. No pun intended.

They can either be traditionalists who seek to defend the old order from social revolution, and therefore come into tension with the Constitution that demands it. Or they can be liberals who pursue individual liberty and free markets, and thereby come into tension with everyone else who opposes either individualism or markets or both. They can’t be both.

Logical consistency apart, the practical question is to what extent can the two Half Right constituencies come together in politics. Is the tension between them bridgeable? Well, that’s hard to say, but the side with greater political clout will force the other into submission. Market liberals are not driving policy in the Modi government today.

The arrangement will hold to the extent that their dislike for the Left outweighs their dislike for each other. If the Congress party sheds its baggage — and that’s a big, big if — or another party takes up its Centrist space, it is likely that the the more liberal of the liberal Half Right will gravitate towards it. Until that time, the liberal Half Right will cohabit with the traditionalist Half Right, because most who seek the security of an ideological label are likely to lack the courage and commitment to stand apart, because that means standing alone.

Cash transfers will work, if…

…there are economic reforms, astute targeting and restructuring of government

Cash transfers are here. Okay, some cash transfers will be here in some districts for some people early next year, after which the programme will be implemented across the country. No one is in any doubt that this is a pre-election move by the Congress party—it was announced in the party headquarters and not a government office (See Soma Banerjee’s article in Economic Times). It is an election sop. However, unlike loan waivers and the national rural employment guarantee scheme, it is not a bad one. It can even be a good one provided certain important conditions are met.

But first, cash transfers are based on sound economic rationale. They are generally less inefficient than subsidies for goods and services. Also, because they put cash in the hands of the recipients, they are more respectful of individual freedoms and choices. Whether they are also effective in alleviating poverty is another question. Even so, to the extent that they are an improvement over the status quo—by reducing bureaucratic processes, lowering corruption and shortening delays—we should cautiously welcome the introduction of the cash transfer scheme.

There is some debate on why cash transfers work. In the case of conditional cash transfers—where the cash is allocated for specific purposes like education, food, fuel etc—there is debate as to whether it is the conditions that work or the cash. Abhijeet Banerjee and Esther Duflo, economists whose work this blogger respects, believe in the latter: that it’s the cash that makes the impact. (More at TechSangam)

It might sound heretical, but the best scheme might involve ending all subsidies in kind, closing down as many “welfare” ministries and departments, and using the funds to give unconditional cash transfers to the needy. Give the needy cash, respect their individual freedom and just let them spend it as they wish. (See this post for why the old, corrupt political economy of poverty alleviation resists this.)

We are, of course, far from this goal. Only “the benefits of 29 welfare schemes of the government would now be directly transferred to beneficiaries in 51 districts starting January in a pilot programme and then will be extended to 18 states from April.” A total of 42 schemes have been identified for the cash transfer programme. These exclude the big ticket ones—food and fertiliser subsidies—but might include some fuel subsidies. Whether this is intentional, compulsion or both, the impact will be limited. Despite the hoopla in the headlines, it’s not a game-changer. But it can be one, if accompanied by other policy changes.

First, as warned and subsequently noticed in the case of rural employment guarantee, merely putting more cash into the hands of people without doing anything to make the supply competitive will cause prices to rise. Inflation can eat into the higher incomes, especially if they are in the form of cash, undermining the effectiveness of cash transfers. So how does one make supply competitive? By liberalising land, labour and capital regulations. By completing roads, railways, airports. By breaking barriers to inter-state and intra-state commerce. By liberalising education and agriculture. In other words, we need Reforms 2.0 before we can expect cash transfers to have the desired effect. The UPA government’s commitment to the reform agenda is much weaker than its enthusiasm for entitlements and transfers.

Second, it is necessary to target the transfers correctly. In a diverse society where communities are sensitive to relative gains, this is particularly hard. Exercises to identify the recipients, include those who qualify and exclude those who don’t, and to keep this list updated are very expensive, riddled with inefficiencies and fraught with political controversy. With a degree of flippancy, we could argue that making the scheme universal might save a lot of these headaches. Let everyone from Mukeshbhai to the poorest person in the country receive the same cash amount from the government. Let the “inconvenience factor”—for instance, a requirement to physically queue up at a government office every three months to revalidate the cash transfer account—determine who avails of the facility. The Aadhaar UID could then be used as a tracking mechanism rather than a filtering one. We are far from this, and as Bibek Debroy points out on his ET blog, targeting will be a significant problem.

Third, and perhaps the most difficult one, is that the efficiencies realised through a programme like cash transfers must register in terms of lower government expenditure and, all else remaining the same, to lower taxes. This calls for a radical review of subsidies and transfer almost all of them into the cash transfer programme. It calls for the pruning of ministries and departments that currently administer subsidies. Few governments have the stomach for this kind of overhauling of government—the UPA government certainly doesn’t—but to not do this would be to abandon the real payoffs.

Finally, every spending programme must come with a sunset clause. Cash transfers must be reviewed every few years to assess whether they are still required, and automatically lapse if not renewed. Not doing so presumes that policymakers cannot conceive of a time when a substantial number of Indians will no longer be poor. This is defeatism.

So, for cash transfers to work in the national interest, they must be accompanied by broad economic reforms, astute targeting and restructuring the government. From what has been announced by the UPA government, there is little evidence that the scheme only aims for anything more than limited efficiency gains in welfare disbursements. The Congress party evidently believes that this is sufficient to attain its electoral objectives.

Tailpiece: The final examination of Takshashila’s GCPP programme‘s January 2012 term asked students to design a programme “to support the country’s needy” (more details in the question paper). A few students proposed cash transfer programmes. You’ll find summaries of two of the responses on Logos, Takshashila’s public policy network blog.