Junk sector policies as an instrument of development

Policies mean very little, unless there is a national consensus behind them, because governments change in a democracy. Formulating a policy is a clunky, time- and effort-intensive, process. It should be attempted only if massive structural change is necessary. India has rarely been in the game of big bang reform. Our forte is incremental change. For this, key actions with outsize results are more significant than policies. Also, policies can haunt a country for longer that necessary.

The Industrial Policy Resolution of 1956 was one such. It was inspired by the seductive early achievements of the Soviet Union. The Bombay Plan 1944 formulated by leading industrialists, including the redoubtable JRD Tata, implicitly supported massive state intervention and regulation to protect domestic industry from foreign capital and competition. This became the trap, chaining private enterprise in regulations and excluding it from capital intensive “core” sectors. Never mind that Jamsetji Nusserwanji Tata had invested in Asia’s largest integrated steel plant as early as 1907, helped by a buy-back arrangement from the British Indian government, which also laid a railway link to the site. It was India’s first public–private partnership (PPP).

It took us over eight decades, till 1992, to come around to the idea that leveraging public resources with private management and investment was cleverer than autarkic public investment. It took another 25 years for us to come to terms with foreign investment. In the meantime, India missed the bus of industrialisation and manufacturing, even as China marched ahead, from the 1980s, to become the factory of the world. 

The short point is that making a policy is no panacea for achieving results. Health is a state government subject under the Constitution in India. But a National Health Policy was formulated in 1983. Despite three decades of central planning since then, health outcomes vary significantly across states and aggregate achievements are unimpressive. Conversely, structural change is often implemented without articulating a policy.

Consider the privatisation of state-owned enterprises. The National Democratic Alliance government under Prime Minister Atal Bihari Vajpayee found that it impossible to build a consensus around privatisation. A comprehensive privatisation policy was never attempted. The Industrial Policy Resolution of July 1991 — which sought to weaken the stranglehold of the government over industry — had reduced the industries reserved for the public sector to atomic power, defence, mineral oil, mining of coal, iron and other metals and the railways. This enabled the sale of minority shares in the other public sector undertakings (PSU). Then finance minister Yashwant Sinha used the 1999-2000 Budget to reduce the reserved sector to “strategic” PSUs in atomic energy, defence and railways only. All others could be privatised. Gradual disinvestment has been ongoing, primarily with the intention of raising revenue. This year the government anticipates an all-time high of ~1 trillion from disinvestment, being 30 per cent of non-tax receipts, other than debt.

Seasoned bureaucrats will advise never write something down, unless you need to. Merely articulating aspirational objectives in a policy will not achieve results. This has become particularly true in an uncertain world, made even more unstable by technology development. Clunky state action tends to come late and gets clogged into stranded assets. This is the fate of our Mega Power Policy with 30 GW of power generation stranded because of low demand or disrupted fuel supply. Policies create huge inertia. Consider that as late as 2015-16 the Budget Speech sought to create 4 GW of additional power capacity, even as stranded power assets were building up.

 

Some policies are intended to signal political alignment rather than become an entry point for concrete action. Foreign policy falls clearly in this genre. The “Look East” policy of the Manmohan Singh government was followed by the “Act East” policy of the present government — both signaling our interest in South East Asia. But substantively little has changed in the years since, even as China has gone, from being a dominant economic power to a power-hungry bully in the region. 

India does not have a comprehensive environmental policy. We tend to put development before the environment — in exactly the manner other developed countries have grown. This is pragmatic. The 2016 Paris accord recognises the futility of having a single environmental policy for the world. Instead, it defines a global target — reversing aggregate carbon emissions to keep global temperature rise within 1.5 degree Celsius of pre-industrial levels. Countries now evolve their own action plan, keeping in view their development needs. Collective action works better than global posturing.

Consider that multinational companies do not formulate business policies in an autarkic manner. They align with global trends to define strategies which eke out the maximum value for them. This is a sensible approach. We should get away from announcing sector policies and instead define incremental and joint action plans which result in achieving

national objectives. 

These do not need to be defined afresh. A close look at Part IV of our Constitution will suffice. The Directive Principles of State Policy were formulated more than 75 years ago. Putting in place the action points to achieve them via the annual and medium-term budgets, is a colossal task before us. 

Politicians love announcing policies and programmes because these can be narrowly targeted at specific beneficiaries for votes. This is the downside of the dharma of democracy. We should junk sector policies as an instrument of development. Intellectuals will disagree. But pragmatism must trump ideals.

The author is advisor, Observer Research Foundation