Economic Vision

 The Indian economy has entered a recessionary phase. The GDP has shrunk by 24.5% in the first quarter of FY 2020-21 as a direct result of Covid repercussion. Even before Covid, the present government apparatus has been criticized for failure in presenting a cohesive and inclusive economic vision for the entire country. 

The Indian state is very peculiar in its design. The scale and disparities in different strata of society make it very challenging for any government to present a cohesive vision. One can find a Mercedes standing by the side of a bullock cart at traffic signals. On one hand, we have the opulence and luxury of big fat weddings budgeted more than 100 crores whereas, on the other hand, we have a large segment of population malnutrition and stagnated. Many families live on one meal a day and sleep hungry. The global hunger index ranking of India is testimony to this. Therefore, we need an economic vision that can cater to the needs of a beggar to billionaire, which can serve all sections of the society like below poverty line, economically weaker sections, lower class, middle class, or upper class with equal zeal.

In the past, government philosophy has been that it needs to take care of the lower, neo-middle, and middle class. It was assumed that the upper class is capable to take care of their own. The government policies were largely influenced by the interest and prospects of poor Indians rather than rich Indians. However, there were no direct means to transfer benefits to the poor and middle class hence the government relied on the trickle-down effect. Unfortunately, trickle-down proved to be a failed experiment.  In the words of Ex-PM Rajiv Gandhi, if 100 paise dropped from the top, only 15 paisa reaches to the ground.  

Trickle-down began as an experiment in the 1960s in order to fulfill the vision of the socialistic pattern of society. However, it was considered a failure by the late 70s. The breakdown and failure of trickle-down were attributed to various distortionary factors like caste/class structure, outdated legislations, poor technology and research, the problem of ghost beneficiaries and middle man,  unskilled labor, demerit nature of subsidies, bureaucracy-businessman-politician nexus, riskless entrepreneurship, informal/unorganized nature of the market, complicated labor laws, political and social influences on the market mechanism and interlinkages and cross interactions between above-mentioned factors. The key underlying challenge was channels of trickle-down were found to be clogged, fragmented, broken, or absent in our economic system. Since the 80's no government has been able to present an alternative vision that can unite different strata of the society in one thread of common economic vision though every government claims their model as an inclusive one. 

The problem was suspended for a while due to heavy push volume falling from the top. The market reforms of the 90s created a flood for a while in the first decade of the 21st century. It resulted in broad basing of the economy and covered up the real problem of absent economic vision for some time. However, the 2008 mortgage crisis, the global recession in the second decade, and increasing global protectionism has put some breaks on the economy. This has led to the resurfacing of the problem of absent economic vision.

One of the proposed solutions is to remove the existing structure and create a fresh one. For example, create an economic system that is based on card currency rather than paper currency. Similarly, set up a system with no demerit subsidies. However, it is nearly an impossible task to build such a system from scratch. It requires alternative behavior models, tools, and institutions to be put in place. For example, if we wish to switch to card-based currency, ten have we provided financial literacy to our population so that they can use cards rather than cash.  If we are moving to an online model of business, have we made a robust technological backbone for this purpose? Demonetization and Covid disruptions offered an opportunity but alternatives were not in place. This led to the deterioration of economic growth because most Indians survive hand to mouth situation and search for jobs every day. Therefore, we need credible workable alternatives.

One of the alternatives is to take one channel at a time and fix it. For example, the GSTN is launched. Income Tax reforms are in pipeline. Labour laws are next on cards. Then after we can go for rural property cards, income reporting frameworks, and formalization of markets for all sectors. However, most systems are intertwined with each other. Hence it is easier said than done. For a country of the size of India, regulatory reforms are not sufficient. In any such effort role of the private sector needs to be clearly outlined. While there is no denying that all of the above listed are urgent reforms, from the experience of the initial few reforms, one can say that poor implementation, the ill-defined role of the private sector, and poor ethical design of the system has resulted in collateral damage and short term churning in the system.

While there is no magic wand to bring sudden overnight reforms, one thing has come out clearly from the reform experience that any long term solution should adhere to the following 7-8 principles.

1. India needs to unleash its entrepreneurial spirit. Without this, it can not cater to a vision for 140 crore people.

2. Government can not cater to everything and everywhere. Hence the government should realize its role as regulator, ecosystem creator, bootstrapper, information provider, and hand-holder. 

3. As a regulator, the government should work on legislative and regulatory reforms. It should weed out old rules and laws and set the process for new ones.

4. As an ecosystem creator, the first and foremost requirement is an investment in infrastructure systems. It includes physical, social, and communication infrastructure.

5. As a bootstrapper, the role of government would be novel and crucial. This role of the government should act as an anti-dote to riskless entrepreneurship. Our small and medium-class entrepreneurs suffer from major information asymmetry and failure complex. Hence the government needs to work in a corporate style to start new industries on a pilot basis and take this as an opportunity to create a knowledge repository of life cycle information. This knowledge repository could be opened to the private sector so that they can replicate the same model at other locations across India. This will solve the problem of Information asymmetry in the country.

4. No need to emphasize, the role of government as a bootstrapper would require rearrangement of bureaucracy as skill-based project-oriented teams. 

5. As a hand-holder, the government should ensure that all e-solution, support systems, ancillary industries, and project-specific apparatus are served through a single-window free of cost.

6. All of these should be complemented with a parallel support system in the form of regulatory, multi-sectoral socio-economic-political reforms like taxation reforms, population control, and electoral reforms. 

Indian economy is often envisaged as an elephant. Today we are standing at a crossroad. If we are not able to move fast enough then we run the risk of collapsing under our own weight. Hence it is necessary to turn this elephant into a camel (if not a horse) by bringing appropriate change in the way we function.