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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  1. T
    TIHAEwale
    Oct 27, 2015 at 10:11 am
    A man who points a gun at you and pulls the trigger can be presumed to want to kill you, despite the fact that his psychiatrist may later testify that it was 'just a call for help.' Central bankers claim to be helping the world economy. They admit that the gains are 'unevenly distributed.' This inequality, they say, is merely the price we pay to get the economy growing again. But it's not new wealth, instigated by the central planners, that is being unevenly distributed. It's old wealth that is being stolen from some people and given to other people. In big, round numbers, the stock market added about $1trillion to stockholders' wealth in the last 7 years. The economy added only about $1 trillion. There was only about $0.15 trillion in new wealth to divide up, in other words. But the wealthy scored $0.85 trillion. Where did the money come from? It had to be existing wealth...and it had to come from someone.
    Reply
  2. J
    JJ
    Oct 27, 2015 at 6:11 am
    Full of sound and fury signifying nothing ... a tale told my an .. Wow! Lots and lots of names - even Maya Angelou!! Saying what Manish? Can you sum it up so its quantifiable verifiable hypothesis and doesn't sound like pompous jargon by a Modi groupie? Start with gap in promises and performance :)
    Reply
  3. K
    K SHESHU
    Oct 27, 2015 at 7:28 pm
    Harping on industrial development without considering labour and their problems does not lead to industrial growth. Labour force is the ultimate instrument of production. Without the welfare of labourers, no industry can succeed in boosting production. Sufficient wages, medical benefits to families, retirement benefits consute labour reforms and proper reforms lead to proper growth of industry.
    Reply
  4. A
    A A.
    Oct 27, 2015 at 5:44 pm
    An article of the sort I've never seen in the recent past in this newspaper. Look forward to reading more such articles from the author Mr Manish Sabharwal.
    Reply
  5. A
    amhindustani
    Oct 27, 2015 at 11:53 am
    All the recent governments believed that encouraging crony capitalism was the way to raise resources for creating an utopian society for the future generations. Manmohansingh was leader of a party which depended on its rural votebank and hence could not go all the way giving everything to the corrupted unethical capitalists in the country. Modi has no such limitations and went about doing what his businessman friends suggested him to be good for the country but real politics forced him to relook his policy of robbing the common man to pay the businessman . If he had observed the real pulse of the country and made a balanced and compromising approach considering the diversity of the country, he should have achieved a lot in the past one and a half year with the low oil prices and the biggest savings of forex we had . As far as the labour reforms are concerned, the organised labour is only a fraction of the workforce in the country. Though it is necessary that the people who hire the labour should be allowed to fire them also; we have to consider that the indian labour in the unorganised sector is ill treated, exploited and lives in the worst conditions. Make laws for a reasonable minimum wages and make sure that it is implemented than making it an avenue for more corruption. If the government is sincere, make stringent anti corruption laws with fast track courts which delivers judgement in minimum time, and awards punishment such as summary dismissals and attachment of ill gotten ets without right to appeal. That alone will drive the progress of the country.
    Reply
  6. S
    Simply_there
    Oct 27, 2015 at 6:22 am
    In order to make self-fulfilling prophecies come true, many people have to make choices and act so that dream becomes a reality.
    Reply
  7. G
    GSY
    Oct 27, 2015 at 6:54 am
    The easiest reform before this govt is ping of GST bill. But they have failed to get through even the legislation having least political resistance. Congress has flagged only two or three issues in the GST. Even if govt thinks differently on these issues why not to accommodate opposition's concerns and get along. There is nothing like perfect legislation. Things evolve with time. Problem with this govt is that they have dumped all senior politicians who had good relations across political spectrum. Can you expect that the likes of Vankaia Naidu can create atmosphere of mutual accommodation, given the background of acrimonious environment that the BJP created during UPA 2. This govt seriously need some statesmen to steer it. Machoism can take you only thus far.
    Reply
  8. M
    mdbiyani
    Oct 27, 2015 at 11:35 am
    Let's face it @incindia with dynasty clones & mecca/Vatican agenda has made India suffer. No one has yet found to debate what Modi said, India has no reason to be poor. It was not debated for 7 decades is a shame of Indian intelligence. This government taking it up in a mive scale . Indians love for freebies & happy to be slave mentality killed the real Nationalists NDA 1 & Chandra Babu. Media and Historians enjoying lavishly on hindu money do not tell that narrative. If they do how will they corner all the wealth and keep honest people working for them . Thanks for this article. Hope it acts as catalyst for more truth to come out and India really prospers.
    Reply
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