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Essay on “Political Stability in Economic Development” Complete Essay, Paragraph, Speech for Class 10, Class 12 and Graduation and other classes.

Political Stability in Economic Development

The relation between political conditions and economic development has been a matter of debate. Economists in the past, particularly in the initial years of industrialisation, believed that political factors did not influence development. Economic development was merely considered a function of economic factors. However, a fresh school of thought emerged, particularly after the Second World War that believed that economic development was, to a large extent, depended upon non-economic factors, particularly political. A now-forgotten economist A. K. Cairncross had made this observation more than four decades back. He had said: “The key to development lies in men’s minds, in the institutions in which their thinking finds expression and in the play of opportunity on ideas and institutions.” What probably he meant was that mental peace and people’s faith in institutions and programmes is basic to development. All this is possible only when there is political stability in the country.

The relationship between the political stability and economic development has become more relevant and important in the present context of India. The political scene has changed since the defeat of the Rajiv Gandhi Government in 1989. One party rule has-been changed with multi-party government known as alliance or coalition. For a long time the general perception was that, by nature, coalition government was less stable than one party government. In fact, it was the experience of governments all over the world. However, perceptions have changed in recent times as coalition governments, not only in. India but all over the world, have completed their full terms. Though the earlier coalition governments of Janata Party (1977-79), the National Front Government led by V. P. Singh (1989-90), and the Chandra Shekhar (1990-91) the first Vajpayee Government (of 13 days in 1996), the United Front Government (1996-98) and the second Vajpayee Government (1998-99) lasted for shorter duration ranging from 13 days to less than two years, the third Vajpayee Government (1999-2004) completed its term in the sense that it did not break down because of external factors.

As India enters into a new phase of coalition government at the Centre, one factor that puts question mark at the stability question is the huge presence of the left parties in the Congress-led coalition. If the Government in New Delhi have to take instructions from Kolkata on significant policy matters the political stability at the top may be in jeopardy. No doubt, India has done well since 1991, despite a few short-lived coalition governments. But there is a crucial difference between then and now.

India in the eighties and early nineties was more or less a localised economy. Today is far more globalised than ever before. One may take any parameter: the volume of foreign trade, which is now in excess of 20 per cent of the GDP, or the level of foreign investment. Several reports from multinational consultants have shown strong faith in the potential of the Indian economy. It is because of that the Foreign Institutional Investor (FII) has single-handedly powered the Sensex in the last 12 months. However, that may not last long as FII may withdraw from the Indian market if the new Government goes slow or allows the economic reforms to go waste.

The 21st century business scene is quite different. The manufacturing and servicing has become global to the benefit of India. The economies of almost all countries, including China and Russia, are being controlled increasingly by global finance capital. In such a situation sentiments are more important than fundamentals. A mere feeling of uncertainty will force the risk-averse foreign investor out of the country. A sample of that was visible in the crash around the time of the declaration of the LokSabha results on May 13. At that time both—the forex and the stock market—crashed. Those who glibly talk about how economic policy in India is increasingly divorced from politics—with a cross-party consensus on liberalisation and reforms—have to look no further. They should look at the situation in Uttar Pradesh where is economy is tottering because of lack of investment and virtually no increase in productivity.

However, there is another school of thought that believes that a political polity is more important than a stable government. It gives the example of the six-year experience between 1971 and 1977. The Government was stable at the Centre but the polity was not stable because of agitations, strikes and the declaration of internal emergency in 1975. The economy did not bid farewell during this period. On the contrary, during the nineties, the Centre was ruled by minority governments, but the stabilized and for the first time economic reforms were launched in systematic and effective way. The country witnessed unprecedented economic growth. Example is also given of countries like Belgium, Denmark, Finland, Germany, Italy, Sweden and Japan. All these countries have coalition governments with prosperous economies.

Why it happens so? Why in the above examples the economies are having excellent growth despite coalition governments. Answering this question, The Economic Times believes that economic development is the function of institutional development of the polity. “In a democracy, all the organs of the state have to be accountable to the people, directly or indirectly. However, all agencies of the state are not accountable to potentially unstable legislatures when coalitions matter. In India, the Supreme Court is an example of an institution that works autonomously of the legislature and functions well, regardless of the stability of the government. Regulators of different sectors, stock markets, telecom, energy, elections, etc, work according to the government or the legislature on a day-to-day basis. Thus, once the rules of the game have been well established by law and enforced by institutions that are insulated from day-to-day politics, unstable governments do not particularly affect economic performance.”

These are the two views on the relation between political stability and economic development. However, the Indian experience is that political stability is an essential ingredient for economic growth. “All parties and their leaders understand that,” says Rajeev Karwal, Managing Director of Electrolux India.


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