A perception has been gaining ground that the United Progressive Alliance (UPA) coalition suffered politically because of its commitment to welfare schemes and “handouts” to the poor rather than economic growth. The murmurs began during the election campaign—fed by the BJP’s strident denunciation—and have gained ground especially since the UPA’s and Congress Party’s comprehensive electoral defeat nationally.
The argument goes something like this: The past five years of UPA-2 were years of “policy paralysis” in which economic growth slowed down because projects were stalled by environmental and other hurdles and slow clearances; and no new “reforms” were undertaken such as deregulating whatever little is left of formal employment in the organised sector. Instead the government frittered away time and resources on “populist” schemes that were corrupt and wasteful, which the country cannot afford, and which anyway the people do not really want. This argument, in various forms, is being repeated so often that once again people assume that it must be true.
In fact it is wrong on practically all counts. To begin with, while the elections do indeed reveal the extent of public dissatisfaction with the UPA, only one-fifth of the electorate actually voted for the BJP, and many of them did so because of effective communal polarization in the Hindi heartland. The slower growth of the second UPA tenure was related not only to effects of the global economic crisis but equally the result of the mess in the infrastructure sector, with massively leveraged investments not bearing sufficient fruit for private sector interest to be retained and a looming crisis of bad debt especially for power and aviation loans of public sector banks.
Most of all, the argument that UPA-2 wasted the country’s resources on “populist” schemes is both conceptually flawed and empirically unjustified. It is analytically misconceived because it does not recognize the crucial role played by social spending on countercyclical consumption stabilizing, as well as on ensuring domestic demand and positive multiplier effects on economic activity, or the impact on future productivity because of a better fed and healthier population.
But it is also empirically wrong: UPA-2 did not really spend on these important schemes. In fact, it can be forcibly argued that the Congress and its allies would have been much better off if the government had actually put its money where its mouth was. As it happens, the UPA parties barely trumpeted any of these measures in their electoral campaigns, whether because of a lack of conviction in them or because of the guilty feeling that they had not lived up to their own promises.