Opinion Still without perspective

The efforts of the Planning Commission to model the economy with outside help are well taken. Indicative planning,which has been suggested by all of us since the early ‘90s,does not rule out business-like perspectives. It only means that the command economy gives way to behavioural models — as I titled my paper for the V.K.R.V. Rao centenary volume.

Kirit Parikh,before he left the Planning Commission,released a book on the models behind the numbers in the Eleventh Plan. As liberalisation continued through the ’90s many,myself included,kept on writing on the need to introduce behavioural rather than deterministic models. There are two ways of looking at the economy: one is to worry about structural bottlenecks,income distribution and price-wage rigidities. The other is to sail with the working of markets. Both needed consumers,producers and traders,and their behaviour at home and abroad; these can be modelled. Kirit,an engineer-turned-MIT economist had both kinds of models built — and for good measure one by the Planning Commission. It’s an effort he will get credit for. His famous words,on page 281 are: “However as the economy began its tryst with liberalisation and globalisation in 1991… the focus of economic modelling also shifted to… indicative planning… A beginning was made in the Ninth Five Year Plan to move away from deterministic to indicative planning and the practice has continued since.”

So far,so good. The models Kirit edited are both structural and market-economy ones. In one set,agriculture,rigidities and income distribution are modelled. In the other,the rest of the world as trading opportunities. These issues are still with us in terms of impacts on fiscal and monetary policies,trade perspectives under alternatives and investment strategies. The mindsets are relevant. The Eleventh Plan original numbers no longer are. We have to go back to the drawing board to carry conviction.

But indicative planning does not mean the lack of a perspective. Very responsible people have given targets from 7 to 9 per cent,which is naturally seen as media noise,without serious content. Underlying this is a genuine viewpoint articulated in some “responsible” speeches to chambers of commerce,that strategic policy-making is a fault,one inconsistent with the age of liberalisation. This is a faulty perspective.

The official Indian position — by default against strategic perspective planning — must go. The real concerns are,clearly,in infrastructure investment and the argument that the overreach in telecom investment makes up for the expenditure targets is a no-go. The concerns about power and roads shortfalls are real. Government investment is slightly higher in the budget figures as compared to earlier half-yearly estimates,but loans,which are a proxy for PPPs taking off,and are the vehicle for viability gap funding,remain stagnant. Nowhere is the gap more apparent than in the sectoral caps the banking and monetary authorities put in for power and road projects when in the PPP viability gap mould. Here a single project can pierce the norm of a diversified basket or portfolio of a financing agency. Unfortunately,our long-term funding institutions are in the public sector and access to global finance is limited. To change that we need to argue using a perspective approach,which brings out the centrality of these investments to the growth process and to the 9 or 8 per cent target. Without that,we cannot underline the need for newer mindsets and policies. India is a country of quantum breaks; more of the same won’t work.

We do need a perspective both of policies and targets which is slightly more than general wishlists. The argument of this column,that a perspective chapter should be added on,is not a mere theoretical oddity: it is important in a practical sense.

The writer,a former Union minister,is chairman,Institute of Rural Management,Anand

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