Implementing India’s economic strategy: Problems of the architecture of governance in India

My last column for 2019 reflected on India’s lost year, where what can mildly be described as continued political missteps accumulated to the point of threatening the country’s economic future. Nevertheless, one has to look to the future, and understand where there is room for making a positive difference.

This involves thinking about India’s economic strategy going forward. A year ago, I wrote two columns critically analysing a report titled An Economic Strategy for India, written by about a dozen premier economists with expertise on the Indian economy. The group included US- and India-based individuals in academia, the private sector, and international policy roles, but no one, as far as I could tell, working actively with the national government. The report said many of the right things, and my main concern was that not enough attention was given to focusing on India’s lack of dynamism in the industrial sector, traditionally the core of economic development.

I have also been lamenting the lack of broad consultation of experts by the national government, but this thought prompted me to dig into what NITI Aayog, the government’s premier think tank, has been doing. I discovered a significant report that was published a month before the “outsider” document I had discussed a year ago. Strategy for a New India @75 is over 200 pages long, and identifies 41 areas for attention and focus. It is clear and well-written, the recommendations are good, and it has a foreword by the prime minister. Many experts were consulted, and it shows in the report’s breadth and quality. Interestingly, there seems to be no overlap in the contributors to the two reports.

One major difference in the NITI Aayog report is that it doesn’t give much attention to macroeconomic stability or to the need to clean up the mess in the financial sector. In some sense, these are preconditions that one can view as necessary, but at a different level than strategies for sustained growth. Given its length and the breadth of its coverage, it tackles many important issues that the “outsider” report neglects or does not emphasise enough. In particular, the seven sets of governance reforms, including civil service reform and modernisation of city governance, are given welcome prominence. I wish I had read this report a year earlier. But, since so little of what it recommends seems to have happened, perhaps it is not too late.

What do we learn from the NITI Aayog report—not just its content, but also its trajectory? In the rest of this column, I offer several tentative lessons. First, if the goal of creating NITI Aayog was to have a high-quality think tank, this report provides some validation. Freed of the futile and outmoded exercise of planning, and separated from the politics of allocating central government money to subnational governments, the new organisation has great potential.

Second, there is clearly considerable expertise within the system, or on its peripheries. I have been arguing that the government’s economic policymakers should not hesitate to bring in outside expertise, but it seems that outsiders might also do better by interacting more on the ground with those who are engaged with the realities of India. Of course, as this year’s Nobel Prize illustrated, there are such ties, particularly with NGOs and with some state governments, but deeper intellectual engagement across different groups must surely help, if only to refine ideas that most already agree on. A related point is that the internal document seems to me to have a clearer sense of the kind of structural transformation that India needs. The “outsider” report was, to some extent, circumscribed by the fashions of the economic profession, in academia and in international organisations. Economists need to engage more productively with non-economists.

Third, the NITI Aayog report and its overall efforts illustrate the continued weaknesses of economic policymaking in India. The report may have been launched with a splash, but I could find no evidence of updates, of assessment of progress, or linkages to all the other documents and ideas spread across the organisation’s website. The report itself did suffer from the standard weakness of Indian government documents, having a long list of areas that need attention, without any clear prioritisation, systematic analysis of linkages between different areas, clearly presented pathways to implementation, or realistic timelines (India will turn 75 very soon).

The root cause is the internal organisation of India’s national government, where the focus too easily becomes one of retaining and projecting political power. This tendency has been exacerbated in the current government. There is already too much centralisation of power and decision-making geographically, and further concentration within a small group at the Centre just makes everything worse. The NITI Aayog report does address some of these problems of the architecture of governance in India. Any successful economic strategy will depend on systemic changes in this architecture, including the civil service, regulators, the judicial system, and of course, politicians. Compared to what needs to be done on this front, the economics is relatively easy.

The author is Professor of Economics, UC Santa Cruz. VIews are personal

Source: Financial Express