INDIA
28 March 2014
India optimism
Arun Maira, from India's Planning Commission, made a strong case for India optimism at a recent Bertelsmann Stiftung/Infosys conference in Bangalore.
Many analysts are down-beat on India. But, against the grain, Arun Maira from India's Planning Commission, made a strong case for India optimism at a recent Bertelsmann Stiftung/Infosys conference in Bangalore.
For the past five years, Maira has been sitting in the cockpit of India's economy, at the National Planning Commission. And from this vantage point, he has gained a good perspective of the changes sweeping through India, the signals beneath "the deep rumbling of Indian democracy".
What are these changes? And what are the signals?
"The people are yearning for reforms of the country’s institutions — government, political parties, and business institutions too. Citizens and businesses want institutions to be more responsive. They want them to deliver results more effectively. They want institutions cleaned up of the rust of corruption that is corroding them."
Maira and his team have distilled three plausible scenarios for India's future, based on this work. What are they?
The first scenario is called "muddling along". While the system is crying out for reform, and some reforms are initiated in this scenario, they are only piecemeal, and do not address core governance issues. Centralized government systems struggle with demands for decentralization. The agenda of big business dominates to the detriment of SMEs. The policy conflict between subsidies and financial stability of the economy remains unresolved.
The economy grows but does not achieve its full potential. Insufficient social and political cohesion remains a threatening source of instability. This increases lack of trust in institutions, resulting in continuing protests and political logjam.
The second scenario is called “falling apart". Here, India remains stuck in a centralized governance system, despite demands for devolution. The centralized system tries to exert control through mega schemes and projects, and by redistribution of wealth through handouts and subsidies. The impatience and political logjam that result put India under severe stress.
In a system where hardly any institutional reforms are made, a vicious cycle emerges. Political logjam becomes so severe that government can barely function. Extremism infects more areas of the country. Stand-offs between central government institutions, and also between the center and the States become rigid. Civil society protest movements take up non-negotiable stances. The political logjam becomes worse.
Governments try to win popularity with increasing hand-outs. Hand-outs strain governments’ finances. Investments slacken. Employment creation does not grow as rapidly as the workforce. India’s demographic changes become a ticking time bomb. Handouts do not incentivize innovation and entrepreneurship, but instead create dependency. A cash-strapped government is unable to achieve its goal of poverty alleviation through subsidies.
The third scenario is "the flotilla advances". India, a land of democracy and enterprise, progresses in this scenario, as its people are empowered. The "flotilla" of 28 states, many political parties, and private enterprises move together.
India is not a uniform monolith. It is racially, linguistically, religiously, and politically the most diverse country in the world. All people must want to go in the same direction, and they must learn to cooperate to proceed. This scenario is the future of India with a federal governance system in which the wheels begin to mesh more smoothly, local governance institutions and small enterprises are nurtured and grow effectively.
Responding to the widespread demand for institutional reforms, the government vigorously takes up necessary reforms in government processes and regulatory systems, along with economic reforms. The central government’s financial assistance to the States is altered to give the States more flexibility to devise local solutions. Institutional capacity building, especially in local governance, is given high priority in government’s rural and urban programs. People begin to see change on the ground. They are engaged, not alienated.
What do these scenarios mean for growth?
If India can break out of the muddling along scenario, and prevent the falling apart scenario, by getting the flotilla to advance, India’s growth rate could exceed 9% per annum by 2017, the last year of the 12th Plan. If it cannot, GDP growth will remain low and poverty reduction will be much less.
But how can India achieve the high-growth scenario? Its economic growth has slowed down in recent years. Both Indian and foreign investors are hesitating to invest because too many projects are stuck. And both investors and citizens are pressing for reform of India’s institutions.
Institutional reform has to be India’s priority to revive growth and to accelerate inclusion in growth. The architecture of institutions must be reoriented along the "four-Ls", argues Maira.
-- Localization -- power and control of governance must be shifted much more from the big centers down to localities.
-- Lateralization -- silos in management, and silos amongst academic disciplines, though required for specialization, prevent the development and implementation of systemic solutions -- thus lateralization is necessary.
-- Learning -- the paradigm of governance must change from obtaining more control of the system to improving the ability of the system to learn.
-- Listening -- we will understand the whole system if we will listen to others.
In light of this, the Planning Commission identified the need the 12th Five Year Plan “to establish an effective ‘backbone’ capability which will provide strength to multi-stakeholder policy and implementation processes”. This led to the launching of the India Backbone Implementation Network.
In the midst of all these imponderables, why is Maira an "India optimist"?
Because, "from the loud noise of India’s democracy, as it prepares for a momentous election in a few months", he hears "the people are demanding institutions that are responsive to their needs. They are demanding governments that can deliver results. They want political parties that are in touch with people and are internally democratic too. The Congress, the BJP, and the new Aam Admi Party, are all responding to the people’s demand for reform of institutions."
Maira's vision of a "democratic, entrepreneurial India" taking shape inspires great hope that the giant of the sub-continent might at last realize its immense potential.
But, as in recent years, it is may be equally possible that all three scenarios take place at the same time, in different parts of the country or even in the same town or city. For example, the Gujarat economy has been bustling along at 10% growth rates these past years, while others have done less well.
Such unbalanced growth can however have positive effects, as internal migration responds to diverging opportunities and supports the growth process. State governments can also be under public pressure to respond constructively to competition from other states. And the likely election of Gujarat's Chief Minister, Narendra Modi, as Prime Minister, could also see many lessons from his state's dynamic development brought to the national level.
All things considered, Arun Maira's case for "India optimism" may indeed be well founded. We must hope that is the case! The social and political consequences of India "falling apart" would be disastrous, both nationally and globally.
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
For the past five years, Maira has been sitting in the cockpit of India's economy, at the National Planning Commission. And from this vantage point, he has gained a good perspective of the changes sweeping through India, the signals beneath "the deep rumbling of Indian democracy".
What are these changes? And what are the signals?
"The people are yearning for reforms of the country’s institutions — government, political parties, and business institutions too. Citizens and businesses want institutions to be more responsive. They want them to deliver results more effectively. They want institutions cleaned up of the rust of corruption that is corroding them."
Maira and his team have distilled three plausible scenarios for India's future, based on this work. What are they?
The first scenario is called "muddling along". While the system is crying out for reform, and some reforms are initiated in this scenario, they are only piecemeal, and do not address core governance issues. Centralized government systems struggle with demands for decentralization. The agenda of big business dominates to the detriment of SMEs. The policy conflict between subsidies and financial stability of the economy remains unresolved.
The economy grows but does not achieve its full potential. Insufficient social and political cohesion remains a threatening source of instability. This increases lack of trust in institutions, resulting in continuing protests and political logjam.
The second scenario is called “falling apart". Here, India remains stuck in a centralized governance system, despite demands for devolution. The centralized system tries to exert control through mega schemes and projects, and by redistribution of wealth through handouts and subsidies. The impatience and political logjam that result put India under severe stress.
In a system where hardly any institutional reforms are made, a vicious cycle emerges. Political logjam becomes so severe that government can barely function. Extremism infects more areas of the country. Stand-offs between central government institutions, and also between the center and the States become rigid. Civil society protest movements take up non-negotiable stances. The political logjam becomes worse.
Governments try to win popularity with increasing hand-outs. Hand-outs strain governments’ finances. Investments slacken. Employment creation does not grow as rapidly as the workforce. India’s demographic changes become a ticking time bomb. Handouts do not incentivize innovation and entrepreneurship, but instead create dependency. A cash-strapped government is unable to achieve its goal of poverty alleviation through subsidies.
The third scenario is "the flotilla advances". India, a land of democracy and enterprise, progresses in this scenario, as its people are empowered. The "flotilla" of 28 states, many political parties, and private enterprises move together.
India is not a uniform monolith. It is racially, linguistically, religiously, and politically the most diverse country in the world. All people must want to go in the same direction, and they must learn to cooperate to proceed. This scenario is the future of India with a federal governance system in which the wheels begin to mesh more smoothly, local governance institutions and small enterprises are nurtured and grow effectively.
Responding to the widespread demand for institutional reforms, the government vigorously takes up necessary reforms in government processes and regulatory systems, along with economic reforms. The central government’s financial assistance to the States is altered to give the States more flexibility to devise local solutions. Institutional capacity building, especially in local governance, is given high priority in government’s rural and urban programs. People begin to see change on the ground. They are engaged, not alienated.
What do these scenarios mean for growth?
If India can break out of the muddling along scenario, and prevent the falling apart scenario, by getting the flotilla to advance, India’s growth rate could exceed 9% per annum by 2017, the last year of the 12th Plan. If it cannot, GDP growth will remain low and poverty reduction will be much less.
But how can India achieve the high-growth scenario? Its economic growth has slowed down in recent years. Both Indian and foreign investors are hesitating to invest because too many projects are stuck. And both investors and citizens are pressing for reform of India’s institutions.
Institutional reform has to be India’s priority to revive growth and to accelerate inclusion in growth. The architecture of institutions must be reoriented along the "four-Ls", argues Maira.
-- Localization -- power and control of governance must be shifted much more from the big centers down to localities.
-- Lateralization -- silos in management, and silos amongst academic disciplines, though required for specialization, prevent the development and implementation of systemic solutions -- thus lateralization is necessary.
-- Learning -- the paradigm of governance must change from obtaining more control of the system to improving the ability of the system to learn.
-- Listening -- we will understand the whole system if we will listen to others.
In light of this, the Planning Commission identified the need the 12th Five Year Plan “to establish an effective ‘backbone’ capability which will provide strength to multi-stakeholder policy and implementation processes”. This led to the launching of the India Backbone Implementation Network.
In the midst of all these imponderables, why is Maira an "India optimist"?
Because, "from the loud noise of India’s democracy, as it prepares for a momentous election in a few months", he hears "the people are demanding institutions that are responsive to their needs. They are demanding governments that can deliver results. They want political parties that are in touch with people and are internally democratic too. The Congress, the BJP, and the new Aam Admi Party, are all responding to the people’s demand for reform of institutions."
Maira's vision of a "democratic, entrepreneurial India" taking shape inspires great hope that the giant of the sub-continent might at last realize its immense potential.
But, as in recent years, it is may be equally possible that all three scenarios take place at the same time, in different parts of the country or even in the same town or city. For example, the Gujarat economy has been bustling along at 10% growth rates these past years, while others have done less well.
Such unbalanced growth can however have positive effects, as internal migration responds to diverging opportunities and supports the growth process. State governments can also be under public pressure to respond constructively to competition from other states. And the likely election of Gujarat's Chief Minister, Narendra Modi, as Prime Minister, could also see many lessons from his state's dynamic development brought to the national level.
All things considered, Arun Maira's case for "India optimism" may indeed be well founded. We must hope that is the case! The social and political consequences of India "falling apart" would be disastrous, both nationally and globally.
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com