Policy-making pitfalls

The heat and dust generated over the recent passing of the three farm reform Bills in Parliament once again bring into focus the relationship between economic reforms and the political class. That ‘good economics makes bad politics’ is an assertion that seems to have a surprisingly strong resonance, not only among sections of the policy-making elite but also in the media. But this ‘proposition’ also rests on some assumptions that may at best be described as dubious.

For one, it assumes that the policy-making elite is a ‘neutral’ class which knows what is best for the people. Also the people, who typically oppose reform, are seen as being short-sighted or, worse still, not knowing what is in their best interest. The policy-makers are supposed to function in a ‘rarefied’, ‘value- neutral’ arena which is diametrically opposed to the more ‘chaotic’ everyday lives of people. The political class is supposed to expertly mediate between these two and bring about difficult reforms in the economic arena.

In this context it is often said that to soften the blow of a painful reform the political class doles out welfare (read populist) schemes for the poor. This astonishingly cynical view, which has gained currency over time, is deeply problematic. One, it privileges economic reform over welfare schemes and creates a false dichotomy between the two. Two, welfare schemes are often seen as something that needs to be ‘grudgingly’ given to ensure that reform is carried out. The political class is not just buying consent for its reforms when it comes out with welfare schemes. It is merely keeping its end of the bargain for having being elected to power.

Policy-making takes place within a social and political context and not in a ‘sanitised’, ‘hermetically-sealed’ laboratory. Despite their domain knowledge, policy-makers often fail to judge the social and political consequences of their actions. Also, the most carefully crafted policies can often flounder at the ground level as there are just too many unknown variables operating which are impossible for policy-makers to predict.

The Insolvency and Bankruptcy Code is a good example of this. The IBC was the most important piece of reform brought about in the first term of the Modi regime. The IBC’s crucial role in restoring the health of the financial sector and bringing about speedy resolution to bankruptcy cases cannot be emphasised enough. Yet, we have seen enough instances of how some disgruntled and discredited ex-promoters have tried to subvert the system to regain control over their companies. As a result, the government needs to continuously keep tweaking the rules to make sure that the original objectives of the reform are fulfilled.

Farm sector reforms, however crucial and urgent, are not a magic wand that will make the farmers’ woes disappear. That politicians across the political divide take opposing stands is hardly surprising. What is more disturbing is the polarising stand taken by economists on this vital issue.

There is little doubt that the APMC system is in dire need of reform. Also, some elements of the Bills may be worth pursuing while others may be causing genuine alarm for States, farmers and other stakeholders. It certainly would not have hurt the Centre’s cause to reach out to the States and farmers to bring about a consensus on this crucial piece of reform that is going to impact the lives of millions. Bringing about consensus may be time-consuming but may also make reform more lasting.

Certitude in policy-making can often lead to hubris and we know how disastrous that can be.

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