Bring rigour in economic policymaking

Who misses the Planning Commission? Hardly anyone, barring a handful of nostalgists. Its two most important roles — formulating five-year plans for India and approving the spending plans of its 29 states — were either irrelevant or counter-productive in the post 1991 economy and polity whose orientation had become more market-based and more federal. Remarkably, almost every state continued to operate its own mini-Planning Commission — the State Planning Board — even while frowning on the national one. Perhaps there was, and is, a felt need for some sort of strategic planning, not so much in terms of the allocation of resources but in the domain of policy. Clear, predictable and well thought-out policies are critical for a high-growth economy. 

The Modi government has done remarkably well in shaking up a moribund state machinery to enable efficient delivery (particularly in the last mile) of government goods and services, particularly to those who need them the most. The Prime Minister personally ensures the setting of ambitious targets and then monitors those targets. Failure is not an option. His government has deployed the best available technological solutions and managerial processes to ensure that government schemes are executed better than ever before. In fact, whenever a subject (other than the delivery of goods and services) is taken up on project mode or mission mode with clear targets and monitoring, such as improving India’s ranking in the World Bank’s Ease of Doing Business survey, the outcomes are very positive. 

Executing schemes or projects is only one part of the government’s work. An equally important part is the making of economic policies. Success in policymaking requires a different approach from success in project execution. Currently, the process of policymaking is not always put through the kind of rigour that project execution is. It must.

Policy is what determines the environment in which a particular sector of the economy operates. It is fundamental to whether a sector will thrive or be subdued. Policies, once implemented, tend to last for the medium term, at least five to 10 years, before they are revised. So errors can be costly. Because of the long-term nature of policies, strategic goals of the economy as a whole need to be incorporated. Needless to say, policies can have unintended consequences which need to be foreseen. 

Since most policies are sectoral, they are drafted by line ministries. Often, the imagination of line ministries is constrained either because of their necessarily narrow remits, or budget constraints, or limited manpower or the limited tenures of their key officials. Line ministries, usually manned by career bureaucrats, can be nudged and pushed to deliver on execution of projects and schemes. But policies are not about targets and monitoring, not exclusively anyway. In theory, ministries consult experts and relevant stakeholders but those consultations are usually perfunctory. Other ministries and the NITI Aayog are usually asked for opinions at a late stage once the policy has been fully drafted. Only minor changes are made at this stage or in case of major objections, the policy is junked altogether.

A different, committee-based approach may be considered which involves some of the key advisory bodies of the government from the start. It will bring a broader vision and checks and balances. The NITI Aayog could be given an important role with seats on the table for its vice-chairman/members (depending on sectoral expertise)/CEO. Similarly, the chief economic advisor, who has a macro view of the economy, could be closely involved as could the economic advisory council — its chairman and members.

It is not necessary to have representatives from each of these institutions on all committees. It is possible to pick and choose depending on the nature of the policy. If policies cut across ministries, one of these experts can be a “neutral” chairperson. None of these persons is a career government official. Nor do they have to protect any turf. The excellent new policy regime for oil exploration was formulated by a committee of the NITI Aayog, line ministry and finance ministry officials. There are other examples. The practice can become the norm.

And then this needs to trickle down to the states. For that, states need to invest in building their own NITI-like policy commissions and possibly institute an office of chief economic advisor or economic advisory council to the chief minister. Many policy reforms in critical sectors like agriculture, land, labour, education and health have to be done at the state level. The career bureaucracy needs to be supported by expert advice in the making of progressive policy. 

The implementation of policy, like that of projects, will still be in the hands of the career bureaucracy. It is much easier to implement a sound, well thought-out policy. It is also more rewarding.

The author is chief economist, Vedanta