Not The Political Leadership’s Fault If Former Bureaucrats Are Unable To See Reforms As Reforms

Not The Political Leadership’s Fault If Former Bureaucrats Are Unable To See Reforms As Reforms

by Karan Bhasin - Friday, November 6, 2020 02:34 PM IST
Not The Political Leadership’s Fault If Former Bureaucrats Are Unable To See Reforms As Reforms Nirmala Sitharaman, India’s first full-time woman Finance Minister.  
  • Once again, we see evidence that many high-ranking bureaucrats in India get their best ideas after leaving office.

Recently, a note was doing the rounds which is very telling about the economic policymaking of our country. The note is authored by a retired senior bureaucrat who was at the helm of affairs over the last few years and played a major role in spearheading the economic policymaking in our country.

Before we go into the note — and its subsequent analysis, at the onset, we must recognise that economic policymaking, as is, is a technocratic job but doing so requires political cover. This is what makes it a combination of art and science — with both playing an important role from time to time.

To trust just the technocrats is just as big a problem as is with trusting generalists — that too those who happen to have their own views that are more so based on anecdotal evidence rather than on rigorous methodological research. Bottom line — policymaking is complicated and requires a lot more of art than simply advocating for a set of policies.

Coming back to the issue outlined in the note. The retired senior official presents a note which is unbecoming of any senior government official for various reasons. The note at its very core makes two points.

The first is that the present administration lost a sense of the reforms agenda since 2019 and eventually, India’s growth started to slow down as previous reforms lost steam. This is stated without explicitly providing any data or serious statistical analysis to substantiate the point.

The second point made by the note is an attempt to personally attack the Finance Ministry, including the Finance Minister Nirmala Sitharaman herself as it attempts to reappropriate all the right policies to the official and blame the political leadership for any or every misstep undertaken since then.

It appears that the person wrote that note with the intention of claiming credit for all that the government got right even as the author puts the blame on the political leadership for everything else. This in itself dents the credibility of the person concerned and hints at a motivation behind this note, especially when it comes at such a critical time when the economy has barely started to heal the scars imposed by the global pandemic.

The gloating on getting forecasts right — and on having a number of views on their analysis can also not be missed. Perhaps, the retired official might find it interesting that with practically one-fourth of his experience, if not less, most of our forecasts tend to also be accurate with a 95 per cent confidence interval and not just for India but also for several advanced and emerging market economies.

It is important that we recognise two things — first, that the Indian economy started to slow from the second quarter of 2018, and it continued through 2019. The question, that thus comes to mind are manifold.

For starters, what were some of the reforms or remedial measures that were proposed at that point in time by the concerned official? This brings to my mind another related question regarding the resolution of the IL&FS and the larger non-banking financial companies (NBFCs) crisis.

The issue, to the success of the ministry, did not become a big financial crisis, however, it didn’t go away as quickly as we would have liked, and subsequently led to the growth slowdown from the second quarter of 2018.

Therefore, why was it that while the person concerned was at the helm of affairs of our economic policymaking, that such issues were not resolved swiftly and boldly?

This is an important point as the senior official puts the blame squarely on the new cabinet post 2019 and on the elections, but the fact that the non-performing assets (NPAs) problem continued to act as a constraint was well recognised beforehand.

Therefore, there was adequate time available to resolve this issue while he was in an executive position for a decent period before the election fever picked up.

What is more concerning is that post demitting the office, we see officials talk extensively about reforms but while they serve in government, they prefer to continue with the status quo.

The reluctance or rather aversion to implement some of the ideas while in office is something that is indeed puzzling.

In fact, many of the times, ideas originally opposed by individuals while holding a public service office are supported once the individual demits it. This, perhaps reflects a structural problem in our governance design as it incentivises status quo over disruption.

There is a point about reforms being more short-term and tinkering type. This, however, makes limited sense given that the person concerned was involved with the budget making exercise for the budget of 2019-20 which proposed an effective corporate tax rate of 25 per cent for most firms while leaving out the large firms.

If the official concerned wants to take credit for the sovereign bond issuance, then he must also own up to his socialist ideas of not undertaking bold tax reforms.

Incidentally, the corporate tax cut, one of the most historic tax cuts — happened in September 2019 well after the concerned official was moved out of the ministry.

It is recognised by now that the corporate tax cut, combined with the production linked incentive schemes and factor market reforms will act as a major catalyst for supply chains shifting to India.

This new economic thinking rejects the linear thinking of raising tax rates to increase tax revenues — an idea which was also there in the 2019 budget when surcharges were levied on the super-rich. This was a budget, that was prepared while the retired official was well involved in policymaking.

On the issues of reforms, while the official may not find the present reforms as bold enough, the agricultural reforms have happened a full three decades late. That is, while we liberalised the non-agricultural sector in 1991, we waited until 2020 and for the present administration with a mandate of ‘303’ to give agriculture a new and fair deal.

Despite these, opposition by the Congress-ruled states to a critical reform continues which displays the political difficulty of such actions.

Despite the difficulties, the government has undertaken reforms in areas such as labour and agriculture, even as it proposes a new electricity draft code. These reforms are far more difficult than industrial delicensing as they require Centre-state bargaining and cannot be done by an executive order. Yet, these have not impressed the former economic policy maker as he may perhaps continue to think that they are merely ‘tinkering’.

One issue that is in the public domain involves the high-handedness with which the official dealt with the issue of Reserve Bank of India’s (RBI’s) surplus reserves which did serious damage to the institutional relationship between India’s central bank and the Indian government.

There are several ways to handle disagreements, especially between key government institutions and adopting an approach of confrontation as a strategy to get the desired objective seldom yields results.

It is easy to point fingers at the political leadership but reformers, whether political or bureaucratic, seldom look at excuses as they are too busy finding solutions to push through reforms. Whether by stealth, or by conviction, but reforms have always happened in India as a consequence of political support.

For a former economic policymaker to discredit reforms such as goods and services tax, Insolvency and Bankruptcy Code, Corporate Tax Cut, RERA, Decriminalisation of Offences under Companies Act, Corporate Tax Cut, agricultural reforms, labour reforms and many more only dents his credibility as a non-partisan and serious economic analyst.

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