Rethinking India’s economic strategy: Needs for concise document of objectives and priorities

India faces enormous problems in delivering promises of improving the material well-being of its people. Comparisons with China’s economic performance over the last few decades make clear the opportunities that India has missed. With the economy currently struggling, there has been increased attention to economic strategy, at least among academics and those in government think-tanks like NITI Aayog. These analysts are mostly accurate in identifying what needs to be done, and sometimes, are also able to drill down to key barriers that need to be overcome. But, those who shape and implement policies, namely politicians and bureaucrats, have not been able to move things forward at an acceptable pace.
It may be that self-interest prevents these key decision-makers from doing things that will enhance the welfare of India’s masses. In that case, the root cause is the institutions of governance, and reforms have to first focus there for progress on the economic front to accelerate. This is a complex problem, since matters cannot be dealt with by fiat. Indeed, drawing a lesson in favour of centralisation or authoritarianism from China’s experience would be completely misguided.

While governance reforms can take long—perhaps, too long, given the urgency of India’s situation—analysts can certainly do much better in terms of providing better narratives to guide policymakers. One approach I would advocate is a streamlining of the central narrative, and using that explicit focus to prioritise and draw out lessons for implementation. Rather than structuring strategies in terms of lists, the components of which fail to mesh together in a coherent action plan, one can think of a tree structure, where the initial focus (the trunk) leads to unearthing subsidiary issues and constraints (the branches). Of course, reality is not so clean and simple, but the goal of strategy is to focus on what is most important for success.

As an example, consider one of the most fundamental aspects of India’s current reality—a young population. This implies an obvious need to focus on employment generation. The classic approach to employment-friendly growth has been labour-intensive manufacturing. To be able to produce at an efficient scale, to use the best technologies, and to have adequate financing, there is a strong case to engage with the world economy, at least at the level of successful exporting, and, perhaps, also FDI. Arvind Panagariya, the first vice chairman of NITI Aayog, has long focused on trade-based employment generation in his writings, both as an academic, and as a policy advisor.

On the other hand, NITI Aayog’s 2018 document, Strategy for New India @75, ranges over every problem that India faces. Out of over 200 pages, there are five on industry, and another 15 on agriculture, where exports receive some mentions. Import tariff structure gets mentioned in one or two bullet points. Make in India, the Union government’s high-profile initiative to promote manufacturing, has a few perfunctory mentions, almost independently of the actual state of Indian manufacturing. The need for reforms in land and labour laws is discussed separately, as is the need for developing better infrastructure to support international trade. There is no concluding section, and neither the preface nor the introduction drive home the centrality of the key issue stated on the first page of the report—“India’s inability to capitalise fully on its inherent labour and skill cost advantages to develop large-scale, labour-intensive manufacturing.” Nowhere is there a coherent, implementable action plan to tackle this continuing failure.

None of this is to argue against the need to realise the complexity of the fast-multiplying challenges facing India. For example, the kind of labour-intensive manufacturing that the country will need to develop is very different from what served many countries in the 1960s. But, the report illustrates the same problems of policy articulation when going into complexities, captured in buzzwords such as “Industry 4.0.” The discussion of this issue in the industry chapter does not bring out the importance of higher education reform. The higher education sector has five pages of its own; while there are many good recommendations (as in every chapter), there are no solutions to the problem of one-third of faculty positions being ostensibly vacant. Rashtriya Uchchatar Shiksha Abhiyan (RUSA), a centrally sponsored scheme meant to improve state-level colleges and universities, is discussed without being evaluated. The stark statement that “there is no policy framework for participation of foreign universities in higher education” is not elaborated upon. Similar examples abound.

Of course, no single document can lay out all the interconnections in the different aspects of India’s economic strategy that need to be addressed for accelerated growth. Instead, what one needs is a more concise document that provides an integrated view of objectives and priorities, along with a short-list of implications for policy formulation and implementation. Some changes have no fiscal costs, only political costs; others require identifying amounts and sources of funds. Every exhortation for reform or identification of a problem should be accompanied by a roadmap for fixing that problem, along with identifying possible side-effects, or supporting actions. If such a set of economic strategy documents exists for India, I would very much like to see it.

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

Source: Financial Express