- Across the universe, political leaders representing various parties have one common factor that could be easily comprehended even by a layman. What is it? An unstoppable urge to play identity politics as well as indulge in populism. As is its wont, any political party would be always on the lookout to not only consolidate their assiduously built vote banks but also impress upon those on the fringes to come on board as well. People in India would be well aware of how political leaders, irrespective of party affiliations, go about nurturing the vote banks even if it goes against the tenet of fiscal prudence. We have heard enough about unhindered populism defining political class in the country, but must be surprised by the turn of events in the UK over the last few days.
PC: N MADHAVAN
- The unfolding drama in the United Kingdom is a lesson for every country’s political masters on how not to take things for granted as well as exercise utmost prudence whilst handling fiscal strategies. The UK’s 44-day-old Prime Minister Liz Truss had to resign owing to illogical and unyielding policies. The key takeaway from the chaotic and short-lived premiership of the PM also has wide global applicability. In a globalized world with vast financial markets, political legitimacy, and the ability to govern are intertwined with economic and financial credibility. The policy credibility crisis arising from an economic plan that was out of sync with fiscal reality snowballed into a political crisis leading to the present situation.
- Britain is in the grip of stagflation, a combination of high inflation and collapsing economic growth. Markets and the country needed prudence first, some plans to cut spending next, and smart policy tweaks for growth third. Unfortunately, they got a bad mix of unfunded tax cuts and a discredited growth model. That even the complete reversal of those policies didn’t save Truss shows how deeply policy mistakes can cut politically. Needless to mention, every government must conclude that there is a price to be paid for reckless fiscal – as well as monetary – policies. Remember, western countries have been merrily borrowing and until recently, cutting rates for years. Developed economies don’t mean you will never face a crisis. Britain serves as a warning.
PC: Krudo Knives
- Of course, the only partial exception is the US, because the dollar is the global reserve currency. And if advanced economies such as the UK and Italy are struggling to cope with poor economic policies, the consequences are worse for those emerging markets that believe that they can spend their way to economic growth. Crisis after crisis has proved otherwise. It also serves as a lesson for India where economic populism has gained traction. As such, the UK’s predicament should make us pause and rethink populism. Economic crises always engulf the political system and widen social fault lines. If India needs to avoid such crises, it needs durable economic growth with an environment of macroeconomic stability. Imprudent populism won’t work.
