Anti-incumbency has significant implications for political strategy. A new government could well infer that, since the problems they confront are essentially unsolvable in a five-year timeframe, they will be voted out of office in the next election.
Might as well, then, make hay while the sun shines. While this is a completely rational political response to what is clearly a dominant driver of voter behaviour, it obviously does not serve the voter interest.
However angry s/he may be about the government not delivering on its promises, s/he just cannot afford a new government, which simply wants to take advantage of the five years it has been given. There is an argument to be made for institutionalising continuity of resources and effort in functions, which are clearly in the long-term interests of the voter.
The broad structure of government, particularly the system of a permanent bureaucracy, does serve the purpose of continuity.
However, while the bureaucracy does ensure a continuity of purpose and procedure, its effectiveness is eventually determined by the amount of money it receives.
The transient political class obviously has control over this. If the system is looking for meaningful continuity, it must also insulate the process of resource allocation from regular changes in the ruling party or coalition.
We do not as yet have a formal system of dedicated funds. All money collected by the government goes into the consolidated fund and any government is free to draw on this fund for any purpose, subject, of course, to parliamentary approval.
In recent times, however, there have been significant attempts to build a measure of dedication into the fiscal process. This process needs to be reinforced by the new government, at the very least by persisting with the commitments.
But, it should go one step further and put in place a legislative framework by which a broad political consensus is translated into a secure source of funding for specific programmes.
A constitutional amendment, for example requires a two-thirds majority in parliament, with ratification by three-fourths of the state assemblies. A similar, though less onerous, voting rule can be set for dedicated funds.
In effect, the Fiscal Responsibility and Budget Management Act passed last year is a macro-level dedicated fund. It locks the government into a commitment to fiscal discipline.
As important as this aggregative discipline is, though, its benefits will only be realised when the government is able to translate it into resources for development and welfare-oriented programmes. Eliminating the revenue deficit does not guarantee that this will happen. We need to move from the aggregate to the specific and lock in sources of funds for individual programmes and initiatives.
However, the fact that a broad consensus emerged around the FRBM Act is a positive indication of the willingness of the political class to take a long-term perspective.
The highways and rural roads programmes are a very powerful illustration of the positive impact that dedicated funds can have at the micro level.
Although there is no legally binding requirement that the fuel cess is used for this purpose, a credible commitment on the part of the government was enough to set the ball rolling. It is not as if the government is raising enough money to meet all the funding requirements of the programme.
What is important is that the government was able to back up its intentions with resources adequate to leverage other sources of funds.
These programmes also highlight an essential principle of successful dedicated funds. The people who contribute to such funds must believe that the money is being spent in ways that directly benefit them.
Asking vehicle owners and operators to contribute to a road development programme is a classic example of this, and surely many other such logical arrangements can be visualised.
If this direct linkage is not possible, an equally valid principle is that the people on whom the burden falls must believe that the cause they are contributing to, is intrinsically "good" even if they do not directly benefit. Dedicating lottery earnings exclusively to primary education, as many states in the US have done, is an example of this.
Some states in India have levied "education" and "library" cesses on liquor, but without a formal dedication mechanism, there is no assurance that the money actually goes to the stated objectives. The transparency that a dedicated mechanism would provide is critical to shaping people's attitudes to these schemes.
The new government has taken a rather rigid and, in my view, retrogressive position on privatisation. People tend to blame the Left for this, but the Congress party's election manifesto advocated essentially the same position. I am not arguing that it is unreasonable to feel a sense of discomfort about privatisation.
The public sector has been the progenitor of India's large middle class because of the security and stability it provided to the people it employed. You cannot just wish away this very significant socio-economic impact. But this does not mean that privatisation has to deal with unconditional resistance. It is essentially a matter of what is done with the proceeds.
Here is a possible solution. Dedicate the bulk of the proceeds from any privatisation to the state(s) in which the assets are located. Would the CPI(M), for example, be able to resist a plan, which funded a development programme for West Bengal out of the realisation from enterprises that are located there?
I suspect that as long as people there were assured that the money was being used for their welfare, they would give the issue a more considered and reasonable hearing.
Similarly, there have been reports that a special development programme for Bihar has been sought. There were lots of public enterprises in the undivided Bihar; Jharkand now has the cream. But, why should we ignore legacies? Perhaps a dedication of proceeds from these units to both Bihar and Jharkand development priorities would kill many birds with one stone.
With respect to the second principle, the recent controversy over IIM fee levels suggests an opportunity. As the showdown between government and the institutes unfolded, one thing became very clear. Nobody ever said that the education was not "worth" what was being paid for it.
If people are willing to pay large sums for quality higher education, surely a small levy to finance primary education wouldn't be out of place? Provided, of course, that there is an assurance that the money was spent on precisely that and nothing else. Six per cent of GDP is not going to come from a 2 per cent cess on central taxes.
Combining fiscal discipline, long-term thinking and insurance against political risk is no easy task; a legislated framework for dedicated funds will be of great help.
The writer is chief economist, Crisil. The views expressed are personal
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