Moreover, fiscal reform is perhaps the most difficult aspect of economic
adjustment from a political standpoint. It involves asking voters to give up sizable
consumption subsidies on everyday necessities—foodstuffs, agricultural inputs, and
electricity, for example. Such subsidies are often poorly targeted and cover a much larger
segment of the population than those under the poverty line, but this only makes their
curtailment distressing to more people and thus riskier for elected leaders. Fiscal reform
may involve levying user fees for public goods and services previously provided at no
cost, mobilizing additional tax revenue, or retrenching state employees. The ability of
political leaders to marshal a consensus in favor of such measures—by convincing voters
that their long-term interests lie in the government’s capacity to make greater investments
in the social and infrastructure sectors to facilitate market-driven growth—cuts to the
heart of the economic liberalization challenge in a democratic setting.
This political framing of the reforms—the rhetoric or “packaging” used by leaders
to generate support for strict measures—is a key explanatory factor of the analysis here.
The reformist governments of AP and Karnataka approached this challenge in different
ways, and experienced different outcomes. In AP, the government’s progress on reforms
fell short of targets established in the Bank’s loan conditions, and the state so far has
failed to evolve a political consensus in favor of reform—evidenced most clearly in the
substantial abandonment of fiscal discipline by the new government that came to power
in May 2004. In contrast, though Karnataka too initially struggled to meet Bank reform
targets, it recently became one of the only states in India to balance its revenue account,
and the strength of its pro-reform consensus is reflected in the essential continuation (so
far) of fiscal discipline by its new government.
The political failure of reform in AP, and its relative success in neighboring
Karnataka, owes largely to very different strategies of reform implementation by the
state’s chief ministers: N. Chandrababu Naidu (1995-2004) and S.L. Krishna (1999-
2004), respectively. In AP, Naidu was a Janus-faced reformer. The forty-ish, modest in
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Convention