India needs institutional frameworks of middle-income emerging economy: Book
Vijay Kelkar and Ajay Shah have come out with a book "In Service Of The Republic: The Art And Science of Economic Policy" which stands at the intersection of economics, political philosophy and public administration.
"India has come into middle income, with a USD 3 trillion economy. We had a great surge of growth from 1991 to 2011, drawing on a new intellectual framework of policy that was built from 1977 onwards. For the first time in India's history, there was a substantial decline in the number and the share of those in poverty," they say.
According to them, the period after 2011 has seen a retreat from the optimism of 1991-2011 and this is a cause for great concern.
In the book, they tell about this underperformance and how to get back on the growth turnpike.
"Intensification of the 1977-2011 strategies will not suffice: what is required is rethinking the foundations," the authors suggest.
They say economic policy operates at the intersection of economics and politics and the ideal policy pathways must be worked out on blackboards, but then the conflicts of democratic politics are played out and determine the policy choices in the real world.
"Hence, our analysis draws as much on the timeless themes of building the republic as it does on public economics. In India, the modernisation of the political system and the economy is taking place at the same time - and feeding into each other. In this process, economic policy strategy must serve the larger objective of building the republic.
"The foundations of liberal democracy - the principles of debate, dispersion of power, the rule of law and curtailing executive discretion - are integral to solving the difficulties of economic policy that afflict India today," the book, published by Penguin Random House India, says.
Kelkar, who served as Petroleum Secretary, Finance Secretary and Chairman of the Thirteenth Finance Commission of India among other responsibilities, and Shah, who worked at the Centre for Monitoring Indian Economy, Indira Gandhi Institute for Development Research and the Ministry of Finance, describe the demonetisation episode as a large shock upon the economy.
"Even if a cost-benefit analysis showed that the benefits outweighed the costs, the fact that it was a large disruption should have been a consideration in the decision," they say.
The authors assert that there is a vast array of objectives that a state can potentially pursue through government action. But there is a big gap between dilettantism in public policy and the professional capability of actually making it work.
"We need the intellectual capacity to envision how a plausible-sounding intervention will actually work out."
A recurring theme of this book is an appreciation of 'self-organising systems', of the uncoordinated decisions of individuals left to themselves, that discover order by themselves.
"The organic development of the economic system, with freedom in the hands of each individual, works better than instructions from the top."
Referring to the problem of boom and bust in Indian agriculture, they say the price of onions surges under shortages; this attracts sowing; the price of onions crashes in a glut; this discourages sowing; and so on.
"We suffer from the cycle of boom and bust in Indian agriculture because the state has disrupted all the four forces of stabilisation - warehousing, futures trading, domestic trade and international trade," they write.
"The state makes things worse by having tools like MSP and applying these tools in the wrong way. Better intuition into the working of the price system would go a long way in shifting the stance of policy," they add. ZMN SHD SHD