Economic policy agenda for India in 2013

  • Blog Post Date 02 January, 2013
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Dilip Mookherjee

Boston University

What should the priorities be for economic policymakers in India in the coming year? This column emphasises the need for greater transparency, and improved governance and regulation for reviving economic growth in 2013.

Let me start by reiterating some things that should not be on the agenda. The UPA should refrain from introducing any ambitious nation-wide social programme this year. There will undoubtedly be political compulsions to introduce some such scheme on the eve of the general elections. It does not have the mandate. Nor can the country afford another expensive, poorly targeted, corruption ridden programme that will be difficult to reverse or modify after it is implemented. Fortunately a one-size-fits-all expansion of the PDS program for the country was put off temporarily, in favor of experimentation with different ways of improving targeting. It is still too early to tell which of these versions will be more effective, so wait-and-watch would be the most sensible thing to do on this front.

Instead, given all the brouhaha over corruption scams, and the go-slow in government approvals that have stymied growth, reviving growth will require measures to improve governance and regulatory institutions. The deeper problem underlying these is excessive discretion afforded to government officials, combined with lack of transparency. As scam after scam breaks the news, the government retreats into its shell by going to the other extreme for fear of being accused of corruption; stopping approval of new projects, and setting reserve prices for telecom licenses and land acquisition sky-high. It is time to initiate governance reforms that reduce discretionary powers and promote transparency, by delegating more decision-making to quasi-judicial regulatory authorities, allowing greater oversight by watchdog agencies and making greater use of market-based mechanisms. If monetary policy can be delegated to the Reserve Bank of India, why can’t we do the same with procurement, auctioning of licenses, or acquisition of land? Such reforms cannot be completed overnight, of course. But the current government can initiate the process which could hopefully be completed in the next two or three years. Some bold steps in this direction could be used to shore up the credibility of political parties in their claims to citizens of finally doing something about corruption.

The fate of the FDI retail bill also hangs in the balance, which may be resolved in the course of the coming year. One cannot help wonder why foreign direct investment in multi-brand retail is the only way to help improve agricultural marketing systems. Why can’t there be initiatives to promote schemes to enhance competition for farmers produce from domestic corporations? Why are agricultural mandis throughout the country in such a sorry state? Likewise, why are urban municipal governments so limited in their powers, finances and administrative capabilities?

My fear is that populist compulsions will motivate the government to do precisely the opposite of what is sensible. We are likely to see them continue with high reserve prices for telecom licenses, push through a Land Acquisition Bill that will set arbitrary high prices for land, and introduce a costly, leaky PDS Bill. They will claim these will revive growth and benefit aam aadmi. Whether this will be politically saleable remains to be seen. In various states we are seeing that long term political success rests ultimately on improved governance and sensible economic policies. It is high time the lessons percolated up to politicians in New Delhi as well.

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