Do it yourself: policy paralysis

Tuesday, January 7, 2025

Game of narratives

Addressing the Student’s Union of London School of Economics and Political Science in 1923, Bertrand Russell said, “One of the peculiarities of the English-speaking world is its immense interest and belief in political parties. A very large percentage of English-speaking people really believe that the ills from which they suffer would be cured if a certain political party were in power. That is a reason for the swing of the pendulum. A man votes for one party and remains miserable; he concludes that it is the other party that was to bring the millennium. By the time he is disenchanted with all parties, he is an old man on the verge of death; his sons retain the belief of his youth, and the see-saw goes on.”

After more than 100 years, his words not only remain true, but also equally applicable to the democracies which are not English speaking; Indian subcontinent being a classical case in point. In the past 75 years, the citizens of India, Pakistan, Bangladesh, Sri Lanka, and Nepal have swung the pendulum several times in the hope of ushering the millennium; but success continues to elude them.

Ten days ago, Dr. Manmohan Singh, inarguably one of the finest politicians India ever had, took his last breath. His demise triggered a debate over his achievements as the prime minister of India. Since, Mr. Narendra Modi was chosen to succeed him, it was natural to draw a comparison between the 10-year governance of Dr. Singh and 10-year governance of Mr. Modi.

More notably, some of prominent people who had been critical of Dr. Singh’s performance, publicly admitted that they were unduly harsh on Dr. Singh by accusing him of causing “policy paralysis”. They are now recognizing that Dr. Singh’s tenure indeed witnessed highest economic growth (7.8% CAGR over FY05-FY14) and several transformative and innovative policy decisions. For example—

· Constitutional right based social welfare programs (Right to National Identity (Aadhar), Right to Employment (MNERGA), Right to Education (RTE), Right to Information (RTI), Right to Food (NFSA), Right to Healthcare (NRHM) etc.).

· Significant changes in the foreign policy paradigm, enabling India to form strategic partnerships with several developed countries including Japan, France, the US, Germany and Australia. Signing of the Civil Nuclear Deal with the US marked the most important milestone in the Indo-US relationship.

· Establishing a strong framework for financial inclusion. Required the RBI to ensure a banking channel in all habitations with 2000 or more people.

· Establishing a best-in-class core for digitization of the economy through UIDAI and NPCI.

· Further opening of the economy by permitting/enhancing FDI in retail trade, pension, insurance etc.

The tenure of Mr. Modi has been more about implementing and strengthening some of these policy initiatives; rather than taking new policy initiatives.

Incidentally, like “policy paralysis” in 2013-2014, influencers are now trying to swing the pendulum through building a “tax terrorism” narrative. Fortunately, like “policy paralysis” this narrative is also ill-founded. More on this tomorrow.

Wednesday, August 21, 2019

Policy Paralysis vs Policy Haste

Policy Paralysis vs Policy Haste

In 2014, NDA led by BJP's prime ministerial candidate Shri Narendra Modi won a huge majority in the Lok Sabha. "Policy Paralysis" of the extant UPA government led by Dr. Manmohan Singh was one of the primary planks on which NDA election campaign was built.

A large majority of people, especially businessmen and capital market participants, had then celebrated the victory of NDA with great fervor. Assuming that the India's economic model based on Nehruvian Socialism (a distorted version of classical Keynesian model) will pave the way for the so called "Gujarat Model". Though not many people had clarity about what the much talked about Gujarat Model of growth is all about, and whether that template of socio-economic development could also be applied to the rest of India.

Most people had expected that the new regime will at least provide a proactive, clean, responsive, accountable and business/investment friendly administration that will ensure higher economic growth.

By the end of 2018, the general criticism of the PM Modi led NDA government was that—

(i) "Policy Paralysis" of Dr. Manmohan Singh government has been replaced with "Policy Haste". A number of policy decisions having deeper and wider repercussions (especially GST and Demonetization) have been taken without adequate preparation and consultation. This "Policy Haste" has led to the "Execution Paralysis" as the status quo has been disturbed materially without evolving the alternative mechanism;

(ii) NDA government has continued with the extant Nehruvian Socialism model rather than experimenting with the so called "Gujarat Model" at national level;

(iii) Frequent material changes have made the policy direction totally unpredictable, negatively impacting the business and consumer sentiments;

(iv) The key programs of the government are misconceived and poorly defined. Hence the outcome has been poor.

(v) Bureaucracy has been empowered too much without assigning corresponding matching accountability.

Notwithstanding the economic concerns and doubts about the sustainability of the NDA economic policies, the same NDA government returned to power with even bigger majority in May 2019. NDA swept metros like Delhi and Mumbai, industrial states like Maharashtra, Gujarat, Karnataka, and most populace states like UP, Bihar, MP, Maharashtra, and Jharkhand.

Less than 3months into the latest term, the government is again subject to the same criticism as before. It seems that people of Delhi and Mumbai, where BJP made a clean Sweep in 2019 general elections 3 months ago, were under the influence of a magic spell for few months. The spell has suddenly broken and they are finding their portfolio values diminished, property prices down and falling, businesses suffering losses, jobs vanishing, petty crime rising due to rising unemployment, and mood in general stressful.

Under the present circumstances, three points need detailed elaboration, viz.—

1. Whether the "Policy Haste" of the government is leading to "Execution Paralysis" at the operational level?

2. What proportion of the domestic growth slowdown is contributed by (i) policy action (or inaction); (ii) domestic cyclical slowdown; and (iii) global cyclical economic slowdown?

3. Are our economy and markets ready for the "Reset" that is becoming increasingly imminent?