Do coalition governments slow down the economic reforms agenda?

Updated - June 14, 2024 01:40 am IST

Published - June 14, 2024 01:37 am IST

Prime Minister Narendra Modi in conversation with Telugu Desam Party chief N. Chandrababu Naidu and Bihar Chief Minister Nitish Kumar during the National Democratic Alliance Parliamentary Party meeting at the Samvidhan Sadan in New Delhi.

Prime Minister Narendra Modi in conversation with Telugu Desam Party chief N. Chandrababu Naidu and Bihar Chief Minister Nitish Kumar during the National Democratic Alliance Parliamentary Party meeting at the Samvidhan Sadan in New Delhi. | Photo Credit: ANI

Until the 2014 Lok Sabha elections, when the Bharatiya Janata Party (BJP) won 282 seats and Prime Minister Narendra Modi rode to power, India had had coalition governments for 21 years. Ten years later, the BJP has 240 seats in the Lok Sabha and India once again has a coalition government in power. Fitch had stated that coalition politics and a weakened mandate for the National Democratic Alliance (NDA) could make it challenging to pass legislation on the more ambitious parts of the reform agenda. Do coalition governments slow down the economic reforms agenda? K.K. Kailash and Sanjay Ruparelia discuss the question in a conversation moderated by Sobhana K. Nair. Edited excerpts:

Do coalition governments end up making too many policy concessions?

K.K. Kailash: This question is based on two assumptions which need to be cleared. First, that single-party governments are the natural order of things and multi-party governments are an aberration and will therefore have undesirable consequences. Comparative studies show that this is not necessarily true. Second, that a single-party government behaves as a unitary actor. Once we remove these two assumptions, we will see that differences between coalitions and single-party governments have actually reduce. There will always be competing ideas and interests and as a consequence, we are likely to see policy compromises and bargains in both. The only difference, perhaps, is that in multi-party governments, much of it (compromises) takes place in the public, so in a way they are more transparent. So far, India’s experience with coalition governments has not been bad. There have been checks and balances which have helped governments work better as compared to single-party governments.

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Sanjay Ruparelia: Economic growth requires reform. We often believe that reform requires decisiveness, and that decisiveness, in turn, requires a single-party majority government. But it is more complicated than that, since the form of government is just one of the many factors influencing economic growth. The process of liberalisation of the economy tentatively began under the Janata Party government and was then taken forward by the Congress under Rajiv Gandhi and the National Front government. The minority government of Narasimha Rao introduced it fully. And then it accelerated under the United Front government and since.

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On the question of social policy reforms, earlier coalition governments, despite their rhetorical commitment to a more social democratic agenda, actually had quite a few setbacks. The rights-based welfare paradigm was introduced under the United Progressive Alliance (UPA). If you have to negotiate and bargain and compromise in order to settle on a policy, it is true that there can be multiple veto points that coalition partners can exercise. As Montek Singh Ahluwalia once said, “There is a strong consensus for weak reform”. But the fact that parties are engaging in negotiations means that there is less radical change and there is more policy stability that facilitates investments over the longer term. The fewest checks and balances are seen under single-party majority governments. That could lead to rather unpropitious policy decisions. We have seen some of those in the last decade.

How have coalition governments in the past performed on the economic agenda?

K.K. Kailash: There has actually been a great deal of continuity between governments and their policies, and one has not seen any major reversals. Policy change has been gradual and incremental since 1991. Public bargaining between parties signals that different viewpoints are being heard and accommodated. Coalitions over a period of time have institutionalised certain decision-making mechanisms which accommodate different voices. The V.P. Singh government had six committees to examine the most pressing issues of the time. These evolved and in the Atal Bihari Vajpayee government, they took the form of ‘Group of Ministers’, and they continued in the UPA era too.

Also read | NDA govt must tackle unemployment problem, especially in the unorganised sector: Rajiv Kumar

When it comes to reforms, coalition governments have worked better. In contrast, in a single-party government, there have been decisions, such as the farm laws, which were taken without getting everyone on board. Something like that would not have probably happened in a coalition because there would have been greater dialogue.

Sanjay Ruparelia: Institutions that are meant to facilitate and promote Centre-State relations are more activated in coalition governments. That is unsurprising because the allies are often regional parties. You have a more informed policy-making process even if it might be more turbulent.

Dialogues can also get acrimonious in coalition governments. And have there been examples where reforms have been stalled.

Sanjay Ruparelia: Absolutely. The Janata Party government had an ideological commitment to pro-poor, pro-labour policies, but we did see more industrial de-licensing and an increase in agricultural subsidies to relatively well-off communities and castes. The fiscal deficit drove up again. India suffered a recession at the end of that government. But there was also a worldwide recession then. Overall, I don’t think there is something inherently worse in coalition governments. Rajiv Gandhi’s government had the largest seat majority in the history of independent India. It tried to pursue economic liberalisation. That agenda ground to a halt because of internal checks within the Congress.

Also read | Decoding India’s economic realities: Comparing the state of the economy under the NDA and UPA governments

K.K. Kailash: Often, we look only at the outcome and not how the decision was arrived at. The more people involved in the decision-making, the more likely that the policy will be stable and continue for longer. The decision-making process is as important as the decision itself.

In the last five years, the debate has sharpened on the State’s share in the divisible pool of taxes. Can States expect to get a larger share now that a coalition government is in power?

Sanjay Ruparelia: The role of State governments is higher in a national coalition. It is also ironic that we have to ask this question considering that when Prime Minister Narendra Modi first took power, he pledged to strengthen Indian federalism by embracing a concept of “cooperative federalism”. The government also accepted the 14th Finance Commission’s recommendations to increase the State governments’ share of the divisible pool of taxes. But over the last decade, the Centre’s share of revenue increased because of the introduction of special cesses which were not part of the divisible pool. Second, the Planning Commission was abolished. It was a flawed institution, but it did provide an institutional space for negotiation. Niti Aayog is a far more technocratic space and much more beholden to the Centre. In the last decade there has been political centralisation of decision-making right up to the Prime Minister’s office. There is also a greater control over social welfare benefits and their packaging as directly coming from the Union government. That is what is fueling a lot of the discontent.

Also read | Has the economy improved in the NDA’s second term?

K.K. Kailash: The division of taxes between the Centre and State is a complex problem. The amount of funds available to the States is also a function of the way in which the economy is functioning. When the economy does well, there will be more to go around, and vice-versa. At the same time, we also need to take into account, for instance, the regional and income disparities between States. And then there is the vertical imbalance between the Centre and the States. Another source of tension is with regard to sharing of taxes under GST. The negotiations went on for 17 years. But when the system was adopted, not all States were on board. The goods that were taxed at a higher rate in the pre-GST regime was put under a lower bracket, so there was a decline in revenue for the States. The number of commodities that were taxed at a higher rate under the pre-GST regime was reduced. I think either the States’ voices were either not heard, or the States did not articulate their voices effectively. Overall, the GST architecture does not favour the States.

The NDA is just beginning its term. Do you see their constituents have a similar economic vision?

Sanjay Ruparelia: The BJP needs its allies to have a majority, but all the important ministries remain with the BJP. It is an open question whether the style of decision-making and governance that we have seen in the last 10 years will change substantially or not. As far as the economic outlook of the allies is concerned, Andhra Pradesh Chief Minister Chandrababu Naidu was the earliest liberaliser. The difference is about the distribution of power and the style of decision-making.

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K.K. Kailash: I don’t see any conflict in terms of economic policies as such as parties across the spectrum are sold on economic reforms. The only possible difference would be the pace of decisions. This also depends on how the decisions are taken and the mechanisms that are used. That might give us a clue to whether economic reforms get stalled or economic reforms are taken forward.

Listen to the conversation in The Hindu Parley podcast here

K.K. Kailash is with the Department of Political Science of the Hyderabad University; Sanjay Ruparelia is Associate Professor of Politics and Public Administration, and holds the Jarislowsky Democracy Chair, at Toronto Metropolitan University. He is also the author of Divided We Govern: Coalition Politics in Modern India

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