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Lack of strategic vision in the NDA has caused it to fail at economic management.

One of the biggest challenges to political leaders in office, according to former British prime minister Tony Blair, is to focus on long-term strategy. A day in government, he argues, is so full of emerging challenges that require immediate responses that managing and incorporating long-term vision can become the last priority.

For India’s current leadership, this must be a painfully familiar problem. The pandemic, which has forced almost all the world’s economies to slow and has had a devastating impact on production in India, might appear to be just the latest in a series of economic events that need managing after the fact. Of course, some of those events were self-imposed — such as demonetisation — but the fact remains that the government might argue that for much of its six-plus years in office it has been forced into reacting to emerging facts rather than really controlling them. Even goods and services tax (GST), its most far-reaching attempt to alter the economic environment in which it operated, has subsequently created multiple emergencies that policymakers are uncertain how to solve. It has not improved competitiveness as much as was hoped, and in fact has stressed small and medium enterprises; it has caused friction between states and Union government about the timely payment of the formers’ dues; and, most importantly, it is under-performing in terms of revenue generation, causing a systemic macro-economic instability that will have to be addressed.

But the fact that the government appears to be buffeted by the winds of such economic events is, on one level, misleading. The problem is not that it cannot put into place a positive long-term strategy because it has to respond to emergencies; it is that it is being left particularly vulnerable to emergencies because it has failed on long-term strategy.

The pandemic is a case in point. Nobody could have predicted it, or the devastating blow it would deliver to supply networks and demand. But an economy that was basically robust, with competitive and profitable enterprises and solid growth momentum, would have been better able to weather the months of pain associated with the pandemic and the lockdown. Instead, the latest figures for gross domestic product, or GDP, released last week, show that the Indian economy was slowing markedly even before the pandemic hit. Yes, over the next year to 18 months the government and its various allies and outriders are going to blame all India’s economic woes on Covid-19. They should not be allowed to get away with such claims, since the fact that the economy was slowing prior to the pandemic is unquestionable in the data. There was very little private investment — in fact fixed investment fell last year — and the difference was being made up by growth in government final expenditure. But a growth rate in government expenditure dwarfing the equivalents for investment and for private consumption is of course unsustainable. The macro dynamics, which have all along been this government’s main claim to success at economic management, have now turned adverse.

When the pandemic hit, the government’s first priority naturally was to deal with the lockdown and with immediate relief measures. But then, when consideration shifted to what the policy measures should be to return growth and demand to the economy, it was forced to consult widely. This is not a bad thing, in and of itself — a government that seeks advice is one that is less likely to make mistakes like demonetisation. But it is also revealing that, six years into its tenure, it remained uncertain about what its economic reform agenda was.

This has become so much a fact of life under the National Democratic Alliance government that one no longer remarks on it. Under the United Progressive Alliance government, you knew what they wanted to do, but also that they did not have the political will or the power to do it. Under the National Democratic Alliance, you know they have the will, and the power, but you fail to see intent. Implementation skill is clearly no replacement for strategic vision. Targets are not vision, far less strategy.

Even in the final pandemic package as announced by the Union finance minister, there was no coherent strategy as such. This is not to say that many of the changes were not positive — in the agricultural sector in particular, many long-overdue reforms have been brought in. Yet there continues to be a broadly confused approach to matters such as factor market reform, to openness and supply chains, and to financial-sector revitalisation. The banking sector has been in an agonising semi-paralysis almost since the time this government took office. And yet the efforts to fix the sector have been half-hearted, half-forgotten (remember the Banks Board Bureau?), and half-completed.

Yes, we know that crises can lead to reform, but a prerequisite for that is knowing what reform to carry out. When the 1991 reforms were undertaken at a moment of crisis, half the reason was, in Prime Minister P V Narasimha Rao’s words, “the papers were ready”. We knew this government had failed the reforms test, but it appears now that it has also failed the readiness test.

What has gone wrong? One of the problems is clear — the lack of a dedicated unit within the government that seeks to devise and implement a clear-cut strategy. Mr Blair’s response to the day-to-day distractions of government was to set up a novel “strategy unit” that had about 50 experts — some bureaucrats, but many drawn from the private sector and academia. The strategy unit transformed politicians’ rhetoric into actual policy agendas — and also tried to map and anticipate future challenges. It included several heavy-hitters that were known to have the prime minister’s ear, was a wing of the prime minister’s office itself — and therefore was not ignored by anyone in government. There were some hopes early on that the National Institution for Transforming India, or NITI Aayog, would become this type of unit. Yet it seems to operate today more as a reserve pool of human capital for the government that can be brought in to work on specific problems.

The larger problem is that messaging and choices at the top have not been sufficiently clear or consistent. The latest emphasis on “self-reliance”, which is being interpreted to mean different and contradictory things by different officials, ministers, and agencies, is just another example of this problem. Does it mean that “Make in India” is dead as an export vision? Does it mean a 21st-century swadeshi? Is it a challenge to China’s dominance of global supply chains? It seems to be all of these, and therefore none of these. Without clarity of vision, there can be no planning; without planning, there can be no reform; without reform, there will be no growth. Crises will come and go. But without strategy, only growth will go.

This commentary originally appeared in Business Standard.

Mihir Swarup Sharma (ORF)
12 June 2020

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