Policy Roundup: Elections, black money, state of the economy

  • Blog Post Date 16 April, 2024
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Nalini Gulati

Editorial Advisor, I4I


This post presents our curation of key developments in the Indian policy landscape in recent months – highlighting I4I content pertaining to the issues of synchronised elections, funding of political parties, farmers’ protests, and India’s 2016 demonetisation in the context of "black money". We also take a look at the latest monetary policy statement by the Reserve Bank of India, and the current discourse on the new consumption survey and the jobs situation in the country.

Led by former President of India Ram Nath Kovind, the High-Level Committee on ‘One Nation, One Election’ submitted its report in mid-March. Laying out a two-step plan, the Panel recommends an initial move towards simultaneous elections to the Lok Sabha (Lower House of Parliament) and State Assemblies, followed by holding local government polls within 100 days of these elections. See this 2020 study wherein Vimal Balasubramaniam (Queen Mary University of London), Sabyasachi Das (Northwestern University) and Apurav Bhatiya (University of Birmingham) leverage natural variation in electoral cycles in India during 1977-2018, and find that synchronised national and state elections raise the probability of the same political party winning constituencies in both tiers by 21%. 

As India gets ready to vote in the general elections, February saw a landmark judgement by the Supreme Court, striking down the Electoral Bonds Scheme. Introduced in 2017, these interest-free, tax-exempt instruments could be purchased from the State Bank of India (SBI) by citizens and corporations, in order to make unlimited, anonymous donations to registered political parties. At the time, the rationale was curbing the flow of black money in political funding, while keeping political affiliations private. However, the top court has termed the scheme as unconstitutional and a violation of the Right to Information. In their I4I post in April 2017, Rajeev Gowda (former Member of Parliament) and Varun Santhosh (Independent Researcher) discuss the problems with electoral bonds and suggest a ‘National Election Fund’ to implement public funding of elections and political parties. Read more about their proposal here

Meanwhile, the farmers’ protests that began in the second week of February, are raging on – emerging as a key issue in the election season, particularly in Punjab state. Most prominently, the protests call for a legal guarantee for minimum support price (MSP) for the sale of produce to the government. This also featured in the farmers’ list of demands during the 2020-2021 uprising, even as the government assured them that the (now repealed) new farm laws will not affect the pre-existing MSP system. Several economists and other experts have weighed in on the matter of MSP in Indian agriculture in the pages of I4I. In October 2020, in the midst of the debate on the new farm laws, Bharat Ramaswami (Ashoka University) notes that “While the laws are irrelevant to MSP, the way in which they have been pushed through…may suggest to farmers and state governments that the government is not bound by prior institutional arrangements and commitments.” Participating in I4I’s e-symposium on the farm laws, former IAS officer Sanjay Kaul points out that MSP favours only a small section of farmers, is distortionary, and leads to irrational cropping patterns. He also comments on how the MSP regime affects market dynamics, and recommends an income compensation alternative (read more here). Independent researcher Barun Mitra highlights the need for a smart, dynamic MSP programme that can shift emphasis to crops where there is a shortfall. Recognising that the problem has built over decades, he believes that it would have to be creatively and slowly diffused – safeguarding the interests of both farmers and consumers. Hussain (ICRIER) and Mohapatra (NABARD Financial Services) propose to address the MSP conundrum by making the cultivation of protein-rich crops more profitable – via direct income support to farmers as well as direct benefit support to poor households on the demand side. 

In other news, a few weeks ago, Justice BV Nagarathna – who opposed the central government’s November 2016 demonetisation move in a verdict last year – questioned the extent to which the policy met its stated goal of tackling black money in the economy. In this light, take another look at I4I’s extensive e-symposium on demonetisation incorporating analyses by leading economists, including from the viewpoint of black money. For instance, writing in December 2016, Sarmistha Pal (University of Surrey) contends that the one-off demonetisation policy is “unlikely to have any significant effect either on existing domestic black money or future black-money generation.” Based on estimates of the stock and flow of black money in India at the time, the proportion of black money that the move was expected to mop up, and the likely adverse effects on the cash-dependent informal sector, Amartya Lahiri (University of British Columbia) concludes that the policy fails the cost-benefit test. In the view of I4I Co-Editor Pronab Sen, while the intervention may have imposed a punitive cost on those who held their black assets as cash, it completely missed those who had converted their cash into real assets and foreign holdings, and did nothing to curb either corruption or tax evasion. 

On 24 February 2024, the Indian government released a ‘factsheet’ based on the Household Consumption Expenditure Survey (HCES) conducted by the National Sample Survey Office (NSSO) during August 2022-July 2023. This is a significant move as major household-level, official survey data is being brought out after a gap of 11 years. The key finding highlighted by the government is that the per capita monthly household consumption expenditure has more than doubled between 2011-12 and 2022-23. Yet, Santosh Mehrotra (University of Bath) and Rakesh Ranjan Kumar (Institute of International Migration, Trivandrum) note in The Wire that HCES 2022-23 should not be compared with earlier rounds as the report itself points out methodology changes and comparability issues. Writing in Indian Express, Ashwini Deshpande (Ashoka University) remarks that “the HCES has introduced welcome changes in survey design, but missed the opportunity to build the concordance bridge to previous rounds”. The full data are expected to be released by June 2024. 

Announcing the first monetary policy for FY2024-25, the Reserve Bank of India (RBI) projects India’s GDP (gross domestic product) to grow at 7%, and expects retail inflation to be at 4.5%. According to the RBI Governor Shaktikanta Das, the strong growth momentum allows for policy space to focus on price stability, and there is no need to reduce interest rates until the target of 4% inflation is attained. In light of the confidence expressed by the Monetary Policy Committee about the outlook for the Indian economy, it is interesting to revisit narrative analysis conducted by Lakdawala (Wake Forest University) and Sengupta (IGIDR) of the Central Bank’s policy statements during 2003-2020 together with financial market indicators, suggesting that the Indian stock and bond markets pay careful attention to the monetary policy actions and communications of the RBI. However, the researchers find that markets react only to the ‘surprise’ component of the announcements – which did not seem to be the case this time as a pause on repo rates was being anticipated (see for example, here and here). In the context of the latest official growth and inflation forecasts, also see recent I4I analysis by Balakrishnan and Parameswaran (Centre for Development Studies) of macroeconomic indicators over the past decade. 

Remarks by Sanjeev Sanyal (Member, Economic Advisory Council to the Prime Minister) on the “poverty of aspiration” among youth in India have sparked controversy. He argues that too many young people in India are investing their prime years preparing for the UPSC (Union Public Service Commission) exams to join the bureaucracy, while they should instead be considering other alternatives. In particular, he put forth that the country should have more first-generation billionaires in order to drive job creation and innovation. Reacting on social media, economist Gurbachan Singh interprets this as essentially meaning that the government cannot address the unemployment problem, which he believes to be inaccurate. Aakash Joshi of the Indian Express says that many Indians indeed have a “ceiling on their dreams” and changing this requires an education ecosystem and support by the State. In a similar vein, Heena Fatima of ThePrint writes that it is more a matter of desperation and the socioeconomic and political challenges confronting the youth; if they are to dream big, they need to be given the infrastructure to do so. In the context of jobs, Sanyal had also said in November 2023 that there is no such thing as jobless growth: if there is growth, jobs are being generated and India has been maintaining good growth rates. I4I’s founding Editor-in-Chief Ashok Kotwal often said that “the principal challenge for policymakers…is to create, not just growth, but growth with jobs, and not just jobs but good jobs.” He further cautioned that economic growth sans growth in good jobs can potentially cause social upheaval on account of frustrated aspirations. 

On International Workers’ Day on 1 May, look out for I4I’s post encompassing a compilation of evidence on job creation in India.  

The views curated in this post are of the respective commentators, and do not necessarily reflect those of the I4I Editorial Board.

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