Image credit: Wikimedia Commons
  • If you go to the sacred texts, you’ll find a greatly reduced dependence on the government. Isn’t that what reforms are really about?

Everyone knows the story of the Ramayana, in particular, the Valmiki Ramayana. In the Ayodhya Kanda, Dasharatha dies, and Rama (and Lakshmana and Sita) is exiled. Bharata and Shatrughna are still holidaying in Kekaya. The Brahmanas and the ministers request Vasishtha, the royal priest, to appoint someone as king.

In the absence of a king, all manner of calamities could befall a kingdom. A listing of those calamities is instructive—there are no rains, there are no property rights, people do not construct parks and temples, sacrifices are not performed, no one follows rules, disputes are not settled, thieves are not punished.

There are similar descriptions in other texts too, explaining how the notion of kingship was created. Across all these, the king’s role is to ensure the defence of the realm, protect the good, punish the bad, ensure the delivery of justice and protect property rights. Governance amounted to that and no more.

The World Bank’s World Governance Indicators project has six strands of voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law and control of corruption. Whichever way we look at it, the core function of any government is to ensure security, law and order and dispute resolution.

In a relatively poor country like India, a government has limited fiscal and administrative capacity. We cannot, and should not, expect it to do too many different things. If we expect the government to do diverse things, it will perform all of them badly and become a “flailing state”.

Reforms are dated to 1991. Hence, all kinds of people are producing articles on 25 years of reform. On 24 July 1991, as Finance Minister Dr Manmohan Singh proclaimed, “But as Victor Hugo once said, `no power on earth can stop an idea whose time has come’,” and the reforms were unleashed. So runs the myth and it isn’t quite true. That quote is a mistranslation of what Victor Hugo wrote in The History Of A Crime. A better translation is: “One resists the invasion of armies; one does not resist the invasion of ideas.”

Contrary to the myth, it wasn’t as if Dr Manmohan Singh suddenly unleashed the reforms in July 1991.

One, an internal government blueprint was in place around September/October 1990, and had two constables from Haryana not got in the way, someone else, as Finance Minister, would have presented that reform package.

Two, between 1989 and 1990, an internal Congress party document written for Rajiv Gandhi, also arguing for reforms, was in place. This was not the “M Document” (named after Montek Singh Ahluwalia). It was a policy paper setting out a blueprint for economic policy reform. Nor was it the same as the government blueprint. But it argued along similar lines. When Congress leaders protested against reforms, Prime Minister PV Narasimha Rao is believed to have brandished this internal party document to dissuade them. However, to the best of my knowledge, this document has vanished. No one, including the original contributors, claims to possess a copy.

Three, the TINA (There Is No Alternative) argument is rubbish. TINA is presented in either of two ways. Faced with a serious balance of payments crisis between 1989 and 1990, India had no option but to reform. Alternatively, India only reforms in a crisis. When there is no crisis, external or internal, complacency takes over. The year 1991 is cited to buttress the reforming-in-a-crisis proposition. There is no other empirical evidence to support the proposition.

Besides, there was always an alternative: jack up import duties, impose more quantitative restrictions on imports, clamp down on foreign exchange usage. This would have led to undesirable consequences, but the alternative always existed. For that model, read the book written by Amit Bhaduri and Deepak Nayyar, titled The Intelligent Person’s Guide to Liberalization. This may have been published in 1996, but I vaguely remember an early version floating around in 1992. Alternatively, for a version that is not that India-specific but more general, read the South Commission Report of 1990. Rather oddly, this was largely authored by Dr Manmohan Singh, a fact few people in India seem to remember.

Image Credit: HARISH TYAGI/AFP/Getty Images Image Credit: HARISH TYAGI/AFP/Getty Images

Four, what were these reforms of 1991? There were bits connected with the external sector—tariff reduction, reform of export subsidies, reform of exchange rate regimes, some elimination of quantitative restrictions on imports, liberalisation of foreign direct investment (later foreign institutional investment too).

The external sector does not impact most of the economy directly. With the external sector excised, 1991 was about industrial de-licensing and nothing else. We didn’t have a Cabinet-level Commerce Minister in 1991; P Chidambaram was Minister of State, with independent charge. But who was Industry Minister? Odd though it may seem, there was no Industry Minister in 1991. Narasimha Rao retained that portfolio with himself, a decision worth thinking about.

We continue to debate reforms—big bang, steady state, first generation, second generation. Often, we have our preconceived notions about what “reforms” are. To me, whichever aspect of reforms we debate, the discourse is essentially about three strands. First, the government cannot do everything. Second, the government doesn’t know everything. Third, the government means a decentralised government.

On the last, I sometimes think of the Mahabharata. I won’t have the space to build the entire argument. Let me give you the gist. Don’t think only of the Kurukshetra War but also its antecedents. There were a large number of powerful kingdoms in what was India then—Kekaya, Gandhara, Avanti, Bahlika, Magadha, Chedi, Poundra, Pragjyotisha, Anga, Kamboja, Shurasena and so on. India was like a federation of kingdoms; it wasn’t governed with strong centralised control. By the time the Kurukshetra War was over, all these were destroyed. Notice that some kings were killed before the actual Kurukshetra War—Shishupala, Jarasandha, Shalva.

At the end of the Kurukshetra War, we had the powerful centralised kingdom of the Kurus, with Panchala and Matsya integrated into the Kuru structure. A federation was replaced by a unitary governance structure. Why did so many kings fight on the side of the Kauravas and so few on the side of the Pandavas? It is possible that the entire battle was over this idea of India, federation versus unitary structure. It didn’t have much to do with personal stuff like gambling and who should inherit the kingdom. You get the general drift. India became centralised under British colonial rule. Post-1947, economic policies added to this excessive centralisation. The 2010 Report of the Commission on Centre-State Relations gives a very good account of this.

I don’t think the government that came into existence in May 2014 has got sufficient credit for its decentralisation and devolution initiative, fostering federalism, both cooperative and competitive.

Actually, the three points (government knowing everything, doing everything and not being centralised) are linked. In the mid-1990s, I worked at the Department of Economic Affairs, Ministry of Finance. Suddenly, I would get a file which said something like the following: On some product, the duty drawback rate was x percent, and it was proposed that this be increased to y percent. Despite all my training, it was impossible for me to determine why the rate was originally x percent, and why it should be increased to y percent. Both numbers were completely arbitrary. Alternatively, we wanted to project something like the growth in coal production next year. That figure was arbitrary too.

What took the cake was the White Paper on External Debt. If you remember your Humphrey Appleby from Yes Minister and Yes Prime Minister, a minister must never promise something like a White Paper to Parliament. Unfortunately, as Finance Minister, Dr Manmohan Singh did just that. He promised a White Paper on External Debt. At that time, the quality of external debt statistics was bad. Nevertheless, the Deputy Economic Adviser produced a draft with respectable-looking data. The White Paper was printed and presented in Parliament.

The time came for next year’s White Paper. By then, there was a new Deputy Economic Adviser, and he was aghast. He had no idea how his predecessor had got some types of data. (So that I don’t convey the wrong impression, the problem was only with short-term debt, that is, debt of less than one year’s duration.) I rang up the predecessor, who was in a different office then. He laughed and said, “Sir, This is called the ceiling method. You look at the ceiling and think of a figure.”

Much of government operates on the basis of the ceiling method. However, the government thinks it is omniscient and that people of the country are stupid. Since people are stupid, they cannot be trusted to make rational and sensible choices. The government must decide for them. (I have used the word government, but this patronising mindset cuts across all three layers of executive, legislative and judiciary.) Reforms are about government accepting that it doesn’t know. And yes, I seriously think some familiarity with Vedanta helps correct delusions of grandeur and omniscience many senior policymakers suffer from. Given the patronising mindset, which is pervasive, I am somewhat surprised when people complain about reforms not occurring. One should be surprised that some reforms have at all occurred.

Simultaneously and perversely, there is an expectation that government should know everything. I am constantly asked, “What is NITI Aayog planning to do about such and such?” “What does NITI Aayog think a Smart City should be?” My answers don’t seem to please people. A Smart City and its aspect of “smartness” are decided by citizens, municipal governments and state governments. Why should NITI Aayog have any views? Why should I, or NITI Aayog, have a universal and generalised template about what should be done to reduce infant mortality rate everywhere in the country? The answer will vary from state to state, and from district to district within the same state. But when I give such answers, I get accusatory looks, as if I am not doing my job. Because the government has historically thought that citizens can’t think and decide, citizens now seem to have developed some kind of Stockholm Syndrome and refuse to think and decide on their own.

They would do well do read our sacred texts on what was expected from a king (government today). I have mentioned the Mahabharata, but the Arthashastra has similar statements. Security, law and order, and dispute resolution—that’s it. It was by no means axiomatic that infrastructure (roads, wells, gardens) would be constructed by the State. Instead, these were built by richer citizens. Skills were delivered by shrenis, what we would call guilds today. Most of the work of today’s Competition Commission of India was delivered by guilds.

In passing, it is good to recall that Mahatma Gandhi had a healthy scepticism about the role of the State. Indeed, most of what he wrote and spoke about, including swadeshi, was about the individual, not about the State. That’s probably because he was extremely familiar with the sacred texts, unlike some who actually devised post-Independence policy.

We used to have an Economics teacher in college who would incessantly say, “Read the Classics.” He meant that we should read Alfred Marshall, John Hicks and John Maynard Keynes in the original, rather than popular textbooks. In a similar way, I think more people should read about governance in the sacred texts. You will get a different take on the Hindu model of governance. There is a greatly reduced dependence on the government and an enhanced role for the individual and the community. Isn’t that what reforms are about?

Bibek Debroy is Member, Niti Aayog.

Image credit: Wikimedia Commons

This article was published in the July 2016 issue of our magazine. Do try our print edition - only Rs 349 for 3 print issues delivered to your home + 3 months digital access. Subscribe now!

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