Careful with the realism

Unrealistic ambition and incremental reforms can be self-fulfilling prophecies.

Written by Manish Sabharwal | Updated: October 27, 2015 3:18 am
Indian economy, Indian economic policymaking, Make-in-India, Digital India, Skill India, indian express India got more labour reform in the last one year than the 20 years before that. (Illustration by: Pradeep Yadav)

Indian economic policymaking today faces two criticisms: First, that storytelling is far ahead of reality and second, that incremental reforms represent a lack of courage. But how does this square with India’s nine-rank rise in Transparency International’s corruption index, 16-rank rise in the WEF’s competitiveness index, and its topping global foreign direct investment rankings? One explanation is that the world has been fooled by marketing that “puts lipstick on a pig”. I disagree; these rankings echo historian Samuel Huntington’s quip that the gap between India’s ideals and reality is not a lie but a disappointment. We have always been a 10-horse power engine running on two, and confidence is not a mathematical state but an emotional one. India doesn’t need a “realistic” plan, but a multi-year vision far ahead of our reality. While it’s fair to criticise the government’s crazy fringe grinding its dated social agenda, it’s unfair to ignore the potentially self-fulfilling impact of unrealistic visions, marketing and incremental reform on job creation.

Mocking the new economic vision — Make-in-India, Digital India, Skill India, cooperative federalism and ease-of-doing business — gathered momentum after the recent Silicon Valley tour with Edward Luce writing about “digital delusions”, Aakar Patel calling India’s “march to greatness” a “giant bubble” and 100 US academics of Indian origin warning that Digital India will “repress the constitutionally protected rights of citizens”. But any great first-generation entrepreneur knows that ambitions and goals must be larger than your pockets, or current capabilities. Progress needs the useful delusion that economist Albert Hirschman called the “hiding hand”, under which entrepreneurs grossly underestimate the real odds of failure. Given the guaranteed time lag between big visions and reality, entrepreneurship is the art of staying alive long enough to get lucky; Richard Attenborough’s movie Gandhi was released 20 years after it was proposed in 1962, Lupin took 33 years to reach a market cap of Rs 1000 crore but reached Rs 90,000 crore in the next 15, and Infosys took 23 years to reach its first billion dollars in revenue but reached the next in a few months. Similarly, political entrepreneurship is the art of getting re-elected before your long-term interventions work, but that is not easy. NDA 1 lost, but UPA 1 reaped the harvest; Y.S. Rajasekhara Reddy beat Chandrababu Naidu but soared on his reforms; and Gerhard Schroeder’s labour reforms cost him the next election but converted Germany from “the sick man of Europe” into Angela Merkel’s manufacturing powerhouse. India’s relentless elections and deep problems need political entrepreneurs to buy time with big visions; the confidence of foreign and domestic job creators is a mind game that precedes job creation.

Political entrepreneurs have three reasons to choose incremental over big bang reforms. First, India is a genuine democracy; it’s clear that, say, Chinese President Xi Jinping would never need to withdraw a GST or land bill. A benevolent dictatorship might seem to be the best form of government but you are more likely to end up with Robert Mugabe rather than Lee Kuan Yew. Indians are not irrational, ignorant or dyslexic — it’s just that our citizens and 30 lakh election winners disagree a lot. Second, big bang reforms imply one solution for all of India, but exports labour markets like Bihar need different interventions than import labour markets like Kerala, whose population is now 9 per cent Bihari. Finally, big bang reforms create an antibiotic reaction. If you propose 100 or zero, you usually get zero. India got more labour reform in the last one year than the 20 years before that because we stopped equating it with hire and fire and tackled inspections, apprentices, provident fund, decentralisation and online compliance. Of course a labour contract that is marriage without divorce must change but, just like the difference between a list of ingredients and a recipe, successful reform needs sequencing, proportioning and prioritising. Improving the ease-of-doing business involves a million negotiations but it would be delusional to believe that a public target to improve India’s global ranking and publishing a state ranking do not help. Big bang reforms are surgery without anesthesia; sustainability for India’s reforms will not come from a regulatory beheading, but with death by a thousand cuts.

Countries are narrative. Poet Maya Angelou says the universe is not made of atoms but stories. Is America’s exceptionalism and optimism — Abraham Lincoln said America was the last best hope of the earth and Ronald Reagan believed it was always morning in America — a child or parent of its success? Leaders are dealers in hope, as reflected in Jawaharlal Nehru’s 1942 letter from Ahmadnagar jail: “Whether we were foolish or not… we aimed high and looked far.” Of course this government’s undoing could be friendly fire from its crazy fringe. And big vision without civil service reform will fail, because the brain of the Indian state is currently not connected to its backbone and hands. But its economic ambitions aim high and look far. I understand the mocking by Western columnists because, as Peter Frankopan cites in the great new book, The Silk Roads: “The accepted and lazy history of civilisation, wrote [Eric] Wolf, is one where ‘Ancient Greece begat Rome, Rome begat Christian Europe, Christian Europe begat the Renaissance, the Renaissance the Enlightenment, the Enlightenment political democracy and the Industrial Revolution. Industry crossed with democracy to yield the United States, embodying the rights to life, liberty and the pursuit of happiness’.” What I don’t understand is the letter from Indian academics in the US; the India of their youth was hostile to their ambitions, so they chose exit over voice or loyalty (as in Hirschman’s superb framework about the three responses to country decline). But India contains multitudes, is changing rapidly and needs their help by their moving back, rather than a collective display of Wysiati — What you see is all there is, Nobel Laureate Daniel Kahneman’s wonderful phrase for “the cognitive illusion that prevents people from seeing beyond what is visible from the tip of their noses”. The odds have always been tough for India, but odds can change radically with unrealistic ambition.

The writer is chairman, Teamlease Services.

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