The month of October has been quite eventful in world history—for example, the October Revolution in 1917 saw the Bolsheviks depose the Russian Tsar. This October, too, there were fears of a revolution, albeit of a different sort, with the US government shutting down and a default looming large as the Congress battled it out on the debt ceiling. The rock group Guns N’ Roses would have probably crooned ‘October (November) rain or storm’, but finally, it was not to be and turned out to be a damp squib. The problem, though not solved, has at least been deferred, and the global economy can breathe easy till early next year—January 15 is when the federal government's funding comes up for approval again and February 7 is deadline for raising the debt ceiling. Given the backdrop, certain points need to be ruminated on.
First, the quality and role of politics is the almost the same across the globe. While we are overtly critical when there is an impasse in our Parliament and get ballistic with terms like 'policy paralysis', the same happened in the US—realpolitik dominated the day with the Republicans and Democrats not willing cede their respective grounds on the Affordable Care Act. Why do we in India make a big deal of the Food Security Act (FSA) when the largest economy in the world isn't doing any lesser? Just that, in our case the issue is food for the poor, in theirs, it is health. So, the US impasse was indeed a case of politics dominating economics with the world watching in disbelief. Everyone knew that there would be a solution simply because things could not be left in a state in which there was no solution. The suspense, however, was around how exactly the impasse would end.
Second, the fact that the policies of the government have to be sanctioned time and again by statute has lessons for us. We have the FRBM Act which lays down rules to be followed. However, resetting fiscal deficit targets is the prerogative of the central government and this is where we can borrow from the US story. Can expenditures be capped, as they are in the US, so that separate permission from Parliament will be required if they have to be exceeded? This way there will be an additional layer of discipline. Presently, the financial minister has worked well around the