Bimal Jalan at IIM-A on the inter-relationships between economics, politics and governance in India’s national life
Economics, Politics And Governance
The problem with the Indian economy is not that its market is less or more free, but that its freedom is in the wrong domains
Page 1 | Page 2 | Page 3 | Page 4 | Page 5
The economics and politics of the decision are linked also to the governance aspects. Who should govern the IIMs — their own managements or the government of the day? How this complex interplay of economics, politics, and governance will affect the IIMs is not yet clear. However, in the light of our past experiences, I would be surprised if the outcome of the present controversy turned out to be bene- ficial, either for students or for the people. Personally, I feel sad at the confrontation among different constituents, particularly at the level to which this debate has deteriorated because of excessive in-tervention. The question is not only whether governmental intervention on an issue of this type is right or wrong. But the whole tone and tenor of the official position is a matter of concern for the future health of our polity.
To return to my main theme, looking at our development experiences, it is established — beyond reasonable doubt — that our past economic strategy seldom reflected political realities. Similarly, governance or administrative implications of development or public expenditure policies were seldom taken into account in framing those policies. This is about the past. What about the present and the future? Isn’t India shining? It has one of the highest rates of growth, highest foreign exchange reserves, relatively moderate inflation, and commanding heights in IT and some other sectors. All this is undoubtedly true. The process of liberalisation and economic reforms, launched in 1991, and pursued actively in recent years, has yielded positive results, removed some of the structural rigidities, and created potential for higher growth. At the same time, it will be a mistake to be complacent about our recent successes. These gains can dis appear very quickly unless a stronger programme is launched in the next few years to further improve our economic decision-making processes, remove scope for political discretion, reduce un-productive expenditure, and improve the quality of governance at all levels. The system must be made to work in the interests of the public in general, rather than the few, including those who are supposed to serve the public, namely, government setvants and elected representatives.
To achieve the above objective, we need to move on a number of fronts. In the area of economic policy, we need to avoid “ideological certainty.” As pointed out by Albert Hirschman in a highly perceptive essay on the experiences of Latin American countries, the blame for economic disasters lay not in the use of policies considered by economic theorists to be wrong but in the blind pursuit of policies considered by theorists to be right-of the structuralist variety in the 1960s and of the neo-classical persuasion in the 1970s and 1980s (AO Hirschman, “The Political Economy of Latin American Development: Seven Exercises in Retrospection”, Latin American Research Review, Vol 22, No 3, 1987).
Development economists tended to take ideological positions (both left and the right) on such matters as planning, the market mechanism, foreign investment, inflation, the rule of the State, and so on. Although, in India, in view of our democratic tradition, public policymakers may not have gone to the same extremes as in Latin America, there is little doubt that for a very long time after Independence there was a strong tendency among our economic thinkers to ignore political and administrative realities. Of late, fortunately, there has been a shift from ideological certainty to a more questioning and pragmatic attitude. This has yielded favourable results, for example, in India’s external sector management. For the first time, after 50 years of independence, the balance of payments constraint or fear of periodic crises is no longer a factor in determining our economic policy. In the making of economic policy in other areas also, we must adopt similar pragmatic and flexible approaches which take into account contemporary realities.
Final decisions on policy matters must continue to be made by political authorities, who are accountable to the people through Parliament and legislatures. However, there should be a clear distinction between decisions on policy and their implementation. Once policy decisions have been made, the latter has to be left to professional administrators without political interference but with due account- ability. To make such a division of responsibility work, it is essential to avoid governmental micro-management, and remove procedural bottlenecks and case-by-case considerations of applications by individuals and organisations. Simplifying policies and procedures is an absolute priority. The scope for political or administrative discretion must be eliminated for all but the very few large cases which have economy-wide implications. The detailed case-by-case approach to policy implementation is an important hurdle in the country’s economic life. In the last decade, some progress has been made in simplifying procedures, but not enough. Simi-larly, in the interest of trans- parency, there should be full disclosures of financial decisions made by multifarious agencies on a daily basis rather than annually in aggregate form. There is no reason why, except in matters of national security, all decisions made at the ministerial or secretary level cannot be put on a notice board in the ministry concerned on daily basis.
It is ironical that higher and higher deficits over time have not resulted in increasing the government’s ability to spend where higher expenditure is required, for example, in the maintenance or expansion of public services. Most of the government expenditure is now committed to servicing past debt or meeting salary and other past commitments. We now have a high fiscal deficit without fiscal empowerment. A wholesale change in the government’s fiscal policy and making it more responsive to changing requirements are now essential.
For the administration to work with accountability, we urgently need legal reforms to focus sharply on the interests of the public, and not only those of the public servant in the functioning.
Page 1 | Page 2 | Page 3 | Page 4 | Page 5
http://www.financialexpress.com/fe_full_story.php?content_id=56346