India Needs A New Economic Vision

‘A man can fail many times’, John Burroughs, the American naturalist once wrote, ‘but he isn’t a failure until he begins to blame somebody else’. Burroughs’ views aptly describe the prime minister’s efforts to pin the economic mess on the ‘collective responsibility of the House’. History is full of such instances that when faced with imminent failure, the proponent flays around looking for people to blame.

It is obvious that the leadership has been for some years flaying around helplessly in addressing the fundamental issues of the economy. The problem stems from a flawed and lazy economic vision — with its focus on dependence on foreign portfolio flows and stock market movements as ‘reforms’. Instead of focus on real investments, manufacturing and job-creation, the reliance on fickle portfolio capital flows, populist spending and dysfunctional governance with crony capitalism and corruption have brought India to this pass.

What is disturbing is that there is hardly any real policy innovation despite the so-called ‘dream team’ being at the helm for a decade. The policy domain is incoherent with competitive profligacy and competing ‘flagship programmes’.
The over dependence on portfolio flows, which has turned the economy into a giant betting parlour combined with an absence of structural reforms, has felled the rupee and economic growth. Two decades after 1991, the economy is yet to be really competitive due to cosy-cronyism helped by non-functioning regulation and regulators.

The political leadership has tried to camouflage failure with politically correct sound-bytes — about expansion of welfare schemes despite evidence of leakage and knowledge that only a small percentage of the target groups will actually benefit. The pathetic state of human indicators in the face of all the government spending reflects the stark failure of policy and institutionalization of corruption. India is afflicted by an epidemic of legislate-and-spend.While a nation like ours with vast inequities does require a social security net, to do so in the manner we are doing today, is a recipe for disaster. We are moving our nation from a vision of enterprise and competition to one where entitlements will rule.

There is a need to redefine the role of government and restore the credibility of government institutions. We also need a new architecture, a coherent economic vision, prudent financial management and a team of credible leaders. The first step would be to reaffirm commitment to fiscal accountability by reinstating the intent of the Fiscal Responsibility and Budget Management (FRBM) initiative of 2003 promulgated by the Vajpayee government.

Second, India needs a strategy that moves away from spending to one that focuses on recreating the spirit of enterprise, where the government is a careful targeted spender. Third, the government must inculcate a sense of purpose and a culture that recognizes they are trustees of public money, not owners, and therefore, set standards for disclosures and transparency in all deals.

The government can be a catalyst by creating a framework of transparency and institutions, which make investors confident about investing and competing.

The simple truth about growth is that it is based on the template of efficiency. Unless the core concerns of investors — governance, profligacy, outcomes, corruption — are not addressed, growth will lurch cyclically. As events are showing us, sloganeering and profligacy are not the right ingredients for sustainable growth. The economy and a new vision and leadership for it should be a key issue.

The article appeared in Hindustan Times on September 25, 2013