Saturday, May 24, 2014

James Manor: Failed politics, winning economics

Economists have been busy telling us that the economy decided the election result. We heard it during the campaign and they have been at it again in their post-mortems. They are wrong. Consider some evidence.
Most Indians live in rural areas. Elections are won and lost there. So for any government, it makes good electoral sense to look after rural voters. A vast number of them are somewhat or very poor. So politicians also need to offer something to the rural poor.
The UPA tried to achieve these two things by creating programmes to make economic growth “inclusive” — including rural folk in general and the rural poor in particular. UPA leaders were partly inspired by a belief that this was the right thing to do, but they also wanted to secure votes from these people. Did they succeed in making growth inclusive?
There is strong evidence to indicate that they did. A formidable Indo-American team from the National Council of Applied Economic Research and the University of Maryland has provided it.
They surveyed just under 42,000 households across India in 2011-12, a massive sample. Crucially, these were the same households that they had surveyed in 2004-05, so they could track changes that were experienced over the first seven years of UPA rule.
The study found that real average household incomes in rural areas had increased by 5 per cent annually, which was almost twice the increase of 2.6 per cent in towns and cities.
When they adjusted their calculations using the numbers of members of households, the growth of incomes in rural India was even more impressive: an annual average of 7.2 per cent. So the UPA’s policies clearly helped to make growth “inclusive” in terms of the rural/ urban divide.
What about poor people? The researchers separated respondents to their survey into several social groups. They then calculated changes in per capita household incomes for each one. The most prosperous group, “high caste Hindus”, gained less than all of the other groups. The table tells the story.
So in terms of the rich/ poor dichotomy, the government’s efforts to make economic growth inclusive also succeeded. Dalits, Adivasis and Muslims include many of the poorest. And given the greater gains made by rural dwellers, villagers within these three categories plainly benefited substantially.
The same survey found that daily wages for agricultural labourers, among whom we find many of the poorest, nearly tripled between 2004-05 and 2011-12. So the poorest villagers, a notoriously difficult group to reach, gained disproportionately.
Despite this, however, the UPA suffered a crushing defeat. That could not have happened if these economic trends had translated into solid support for the Congress and its allies from the rural majority in general and the rural poor in particular. But the UPA could not hold on to these groups. Economic trends do not explain the election result.
And yet, still the economists chant their mantra. Some even simplify further by saying that election results follow economic growth rates. That is nonsense. Both the Congress in 1989 and the NDA in 2004 lost despite high growth rates.
They also overlook another trend. Growth may have decelerated, but government revenues have not. . read more: