Need a fresh strategy to let economics trump politics

Live Mint, January 31, 2019

By Pradeep S Mehta

We are becoming a part of the world wherein economics is being driven by politics Alot has been written about the recently released Strategy For New India @ 75 by the National Institution for Transforming India (Niti) Aayog. For the uninitiated, it outlines economic priorities of the government with an ambitious goal of transforming India to a $4 trillion economy by 2022-23 from $2.7 trillion in 2017-18. It sets the target of increasing investment rate to 35% from 29%, doubling exports to $800 billion, and the share of manufacturing to 25% from 15% in the next five years. This essentially means the economy has to expand at a compounded annual growth rate of 8.5-9% during the coming years. This cannot happen in a business-as-usual approach. It would require fresh thinking.

The strategy paper has identified as many as 41 different areas that require either a sharper focus on implementing the flagship schemes already in place, or a new design and initiative to achieve India’s true potential. It appears that the objective was to provide a bouquet of ideas for responsible ministries and state governments to choose from, prioritize and design context-specific customized measures for their implementation. A commendable task indeed, though not necessarily novel.

From time to time, Niti Aayog and other government institutions have released similar macro-level reports, which are long on ideas and short on details. Without disputing their relevance, such reports need to be informed by each other, showcase continuity in the country’s thought process and consistency in approach, which may help other stakeholders better understand its attitude towards necessary reforms.

Alas, this is not the case. For instance, not so long ago, Niti Aayog had released an India Three Year Action Agenda 2017-18 To 2019-20 document, which had rightly devoted a full chapter on competition reforms necessary for development. In the strategy paper, the need for competition reforms appears only in a few specific contexts, such as power distribution and agriculture reforms. It is stupid to think that all-round competition reforms are not required. Similarly, the need for taxation reforms is not adequately discussed in the strategy paper for creating a transparent and predictable tax policy regime to mobilize greater financial resources, while minimizing evasion and distortion in the economy. This is despite recent experience with botched-up implementation of the goods and services tax and high-decibel discussion on the direct taxes code.

A few years ago, a very important National Manufacturing Policy (NMP) document was produced by the government, after rigorous stakeholder consultation. One of the goals of NMP was to develop “joint ventures between foreign and Indian companies” to make India a world-class manufacturing hub by leveraging the benefits of foreign direct investment (FDI)-led technology transfer. The strategy paper appears to be in favour of substantial liberalization of FDI policy across sectors, and hails this as a key reason for mobilizing foreign investment in the manufacturing sector. It fails to delve into the status of technology transfer, and measures needed to revive the same.

Expecting consistency in government approach is not akin to desiring repetition. Indeed, ideas mentioned in one government report should be refined in a subsequent report based on new experiences gathered. A course correction by disregarding measures not resulting in desirable outcomes is welcome. However, altogether reinvention of wheel with blatant disregard to reforms previously suggested is an insult to intelligentsia and wastage of resources, to say the least.

In case of a change in course, an explanation of rationale and detailed description of new suggestions is not an unreasonable expectation. For instance, in an increasingly protectionist world, wherein the US appears to have lost its pole position and China its mojo, tried and tested measures of export-led growth may not work. The recently released Global Risks Report 2019, on the sidelines of the World Economic Forum, rates environment and technology as two high-risk-prone areas for the near future. Any strategy not taking into account these concerns is likely to fail.

We are increasingly becoming a part of the world wherein one-upmanship is the new normal and economics is being driven by politics and not the other way round. In such a scenario, it might be a huge ask to expect government departments and state governments to choose, prioritize and implement intelligent reforms. Unfortunately, we are witnessing adoption of populist steps such as en masse farm loan waivers and reservation for the economically backward to tackle serious structural problems of rural distress and unemployment, respectively. Such steps may result in short-term benefits, especially to the polity, at the expense of long-term pain, especially to the citizenry. A strategy to arrest this dangerous trend and suggest reorientation of approach will be the key.

A strategy for New India, which focuses on enhanced state capacity to logically think of adopting and implementing structural reforms and treating economics at par, if not trumping politics, is the need of the hour and will be a great service to the nation. If the state capacity improves, all other jig saw pieces will fall in place. This process itself will require structural shifts in our political economy.

Amol Kulkarni and Surender Singh of CUTS contributed to this article

Pradeep S. Mehta is secretary general of CUTS International.

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