The Hindu Business Line : A conventional Approach still

The Eleventh Plan Approach Paper has been accused of departing from conventional wisdom. But it has not departed enough. The critical issues it lists are all chronic sores that innovation, not conventional wisdom, can solve. But the Approach has no answer, rues P. V. INDIRESAN.

It is a well-worn cliché that every new Five Year Plan is a copy of the first one (more accurately the Second Plan when the basic principles of national planning were formalised). The same is being said about the Approach Paper to the Eleventh Plan. That is not quite true.

The latest Approach paper has at least two innovations: One, the idea of "inclusive growth," which is more comprehensive than the idea of poverty alleviation that has held pride of place in the country's economic policy for decades. Two, shift towards Public-Private Partnership with as much as 70 per cent of investment expected from private enterprise and the state playing a supportive role only, not the dominating one it insisted upon all these years. The first is a shift in emphasis; the latter a cultural change. Both will surely transform the nature of our economy and even polity.

What Professor J. K. Galbraith said of the Council of Economic Advisers in the United States applies to the members of our Planning Commission too: "(They) do not function as economists. They function as a priesthood. . . . should not be identified with the integrity of the economic profession but with the politics of the president." Likewise, the Planning Commission is not free to produce the best plan that the discipline of economics would suggest; it has no option but make the best of what the compulsions of politics decides.

No experimenting

Our planners are like ancient rishis. They lay down the sastra, which everyone must accept. Like the rishis, they do think a lot: Instead of sitting under a tree in a Himalayan forest, they do so for months and months in committee rooms of the Delhi jungle. However, like the rishis, they only think. They do not experiment; they do not try out new ideas.

The West has dominated world economy for centuries because it tries out unconventional ideas. India has suffered because it will not. India will accept only traditional ideas or second-hand ones handed down by foreigners. Original ideas emanated from within India are unacceptable.

As an example, let us take the case of distress among farmers. On the face of it, the problem lies in their inability to repay debts. More credit is the obvious solution. There can be an exactly opposite view: Farmers have had too much — not too little — credit. It may be argued that, even then, high interest rates are ruining them; hence, cheaper credit will relieve their distress. There can be dissent on that score too: When crops fail or when the market collapses, low interest rates may mitigate distress but will not remove it.

Information asymmetry

In the alternate view, uncovered risk is the true problem, not lack of low-cost credit. At present, farmers face the full brunt of crop failure; merchants who dump unwarranted, excessive or even adulterated stuff on them run no risk themselves. Here is a classical instance of market failure on account of asymmetry of information: Farmers are uninformed or even misinformed about the value of the farm inputs they purchase. It is also a case of management failure: Disjointed farm inputs thrust on the farmers by merchants who maximise sales not optimise them.

In this alternate view, the solution is not more credit, nor lower interest but better information that minimises risk, better management that ensures optimum mix of inputs.

Consider a scheme where the government regulates what merchants sell to farmers by insisting that they sell a complete package, not parts in isolation; share the risk by accepting part of the crop as full payment. In that case, salesmen will not knowingly sell (the way they do now) more than what is not worthwhile nor will they offer an unbalanced package. For the farmer, the collateral is not his entire capital, not the farm itself but only that season's crop. If for any reason the crop fails, the farmer will earn less but is not ruined, will not lose his property. In this system, there is little or no need to have crop insurance, which the Approach Paper has ruefully accepted is too expensive and too complex to work.

Better Governance

This alternative needs no additional investment, but calls for better governance instead. Planners may accept that it is better than giving more credit. Even then, it is unlikely they will be able to implement the idea now that the government has decided to enhance farm credit: Our government has no plan to accept feedback, to make changes once a scheme has been launched.

Rapid growth, inclusive or otherwise, needs better governance even more than clever economics. Hence, the Plan should be deeply involved in the modernisation of governance. For instance, it bemoans corruption but has no prescription to offer. It could at least have indicated how it would use the Right to Information Act for the purpose.

Key information

The Right to Information Act is the best administrative reform since Independence.

Unfortunately, confused critics are raising irrelevant questions about disclosure of official notings. In the government system, what officials write is so confusing that no one can be faulted with certainty. Knowing what individual officials say will not improve governance but knowing which hand — usually an extra-constitutional authority — took the final decision will do so. Knowing which official delayed how much will also help. Then, it suffices if the RTI guarantees two pieces of information only: The name of the official responsible for the final decision, and how long each official retained the file.

Government officials operate the way children play the game of "passing-the-parcel". They are paranoid about taking responsibility. Corrupt politicians have taken advantage of that failing. Once it becomes a legal necessity to pinpoint the official responsible for the final decision, as also the extent of delay that each official caused, officials will be forced to act carefully and promptly. Politicians will lose the power they now have to do backseat driving. Corruption will fade away. Decentralisation that the Approach Paper ardently desires will follow automatically.

The Approach Paper has been accused of departing from conventional wisdom. My complaint is that it has not departed enough. Critical issues it lists, such as the Naxal problem, farmers' distress, urban chaos, education muddle, healthcare mess and the like, are all chronic sores. Conventional wisdom cannot solve them; only innovative solutions will. That is where the Approach Paper is a blank; it has few new ideas. In India, new ideas are not sought. Even when they are proposed, they are left to die prematurely for lack of nourishment. So, old problems fester and become permanent sores. The Approach Paper has no answer.

Closed windows

It is too much to expect that any planner of however superior intellect will come up with the best ideas to solve all national problems. However, planners have the means to glean ideas that appear anywhere in the country; they have a responsibility to identify what is best.

In that respect, the Indian bureaucracy rates poorly mainly because it operates in secrecy. Its windows are closed so tight that it permits little light from outside. It believes in committees, not in people; in rules, not in ideas.

A good Plan will have, at all times, a window open for untried novel ideas. It will experiment before rejecting new ideas. It will accept feedback and act on that. That is, the Plan should not be a rigid blue print but a process, the way we go about on an adventurous journey.

(The author is a former Director of IIT Madras. Response may be sent to: indiresan@gmail.com)

(This is 182nd in the Vision 2020 series. The previous article was published on August 7.)