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Friday, November 26, 2021

Crisis and complicity

Institutional disrepair lies at the heart of the economic breakdown.

Written by Pratap Bhanu Mehta |
August 21, 2013 2:16:28 am

Institutional disrepair lies at the heart of the economic breakdown.

The current economic crisis requires not just fire fighting,but long-term institutional rebooting. The government’s extraordinary complacency,hubris and recklessness is responsible for the crisis. Its response seems,for the most part,trifling. It gives the impression of fighting a modern economic war with prehistoric policy tools: when tanks come charging,you can’t get away with throwing a pebble here and a pebble there. To be sure,there were global headwinds. But India’s fundamentals should have placed it in a position to not just weather the storm,but also take advantage of new opportunities. Instead,we frittered away the good times.

The credible signal we need right now is twofold. First,can India be economically governed in a manner that is compatible with the new accountability revolution? Can it fix serious bottlenecks and uncertainties arising out of past perfidy in land,environment,natural resources,infrastructure,regulation and taxation? These have reverberations across the entire economy. Second,will the government signal that it is not completely self-deluded? Do we have the knowledge base to make good judgement calls? There is very little evidence that we have moved much on either front. We will still be arguing about missing coal files and PPPs gone bad,rather than worrying about energy and credible contracting arrangements. And our actions suggest a knowledge base rooted in the 1970s: as if the economy can be fixed by encouraging hawala,and penalising ordinary labour from Dubai for accessing the one prize possession they want — a big TV. Meanwhile,big business is encouraged to accumulate even greater short-term external debt.

It is no secret that the institutional story is at the heart of the current crisis. Government officials are fond of whispering that the crisis is a product of the combined efforts of the CAG and the Supreme Court. If only they had not used a blunt sledgehammer in the garb of accountability,telecom,real estate and infrastructure would have chugged along merrily and there would be no economic crisis. There is a grain of truth in this argument. The Supreme Court sometimes resorts to on-again,off- again blanket orders,particularly in land and mining matters. In the 2G case,as this column has argued,instead of fixing responsibility precisely and carefully crafting remedies,it went for a slash and burn approach. Let us face it: we have the rule of Supreme Court,and that is reassuring. But whether that amounts to rule of law is becoming a more open question.

The roots of this lie in an untrustworthy government and dysfunctional Parliament. If Parliament had functioned,so many of the bottlenecks could have been cleared. The scams could have been swiftly dealt with by parliamentary committees,and the system could have moved on. If the vacuum in Parliament had not been compounded by a breakdown in government,these other branches of the state would not have acquired the authority they have. There is no point blaming them. Environmental orders would not be so blunt if we could trust the ministry of environment and forests to provide effective and sensible regulation. Our institutional culture veers between anything can be subverted and therefore anything goes,and its counter reaction — a blanket suspicion. An oscillation between these attitudes has now infected every institution,creating more regulatory uncertainty.

But more importantly,as the government got embroiled in scams its instincts were not to set the system on a more transparent,reasoned and credible footing. Instead,it created an institutional knot it will take years to untangle. Bureaucrats have a lot to answer for. But the truth of the matter is,once a system of “collective political responsibility” was replaced by a system where “everybody except me is responsible”,routine decision-making was bound to come to a halt. What started out as a vacuum at the top,with the prime minister’s attitude,has now become a cancer spreading through the system,subverting the most well-intentioned reform.

Can we reform these institutional cultures? A panic-stricken governance order will create more bureaucratisation rather than less. When P. Chidambaram asks the tax department to meet collection targets,the net result is not better enforcement,it is more arbitrary harassment of honest citizens. In the land acquisition bill,the worrying part is not compensation or definitions of public purpose. It is that it will create a bureaucratic nightmare,which would take years to negotiate. We have,at the moment,a bureaucracy that is both overweening in its formal powers and scared in it actual functioning. A fatal combination.

But complicity runs deeper. We prided ourselves on a banking system that had weathered the financial crisis. But then it turns out our banking system did a terrible job of assessing investment risk. It over-concentrated credit,engaged in lazy banking,imposed little accountability on large companies. We thought the private sector would assess risk rightly. In some cases,it got short changed by governance failures. But it is not exactly a state secret that much of the private sector entanglement in so many areas displays the same lack of discipline and hubris that government does. It entered projects less on their technical merits,more on its confidence that it could manipulate the system to extract inordinate returns. At the slightest hint of accountability,the system began to collapse like a house of cards. Like the government,it got trapped into a combination of hubris and complacency.

The list could go on. Behind the crisis,there is an intellectual failure. There were some honourable exceptions. But economic argument in India has become a blood sport in two respects. First,so much of the economic argument became “by definition” a mode of argument that we lost our grip on reality. Second,even resorting to empirical facts had the “my favourite table versus your table” feel to it,with a few people in responsible positions carefully working different vulnerabilities under different circumstances. But never has a government been so bereft of intellectual candour within the system. Indeed,so many five-star economists in the system were so self-satisfied that they were dismissive of questions that have come to haunt us: sticky inflation,current account deficit etc. Even post crisis,there is much evidence of argument,but little evidence of thinking,in the true sense of the impoverished word. (I should say that we political scientists are probably worse,but then we are also inconsequential!) A couple of individuals may be gifted,but there is no confidence left in the knowledge systems in government. The vote of no confidence from the economy is not just about the government. It is scepticism about whether we can govern ourselves and intellectually grow up.

The writer is president,Centre for Policy Research,Delhi,and a contributing editor for ‘The Indian Express’

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