Trial and error experiments in economy

K. Raveendran

Finance minister Arun Jaitley keeps repeating at monotonous regularity that the benefits of demonetisation and GST would be realised in the long term, although he has no problem in acknowledging that short term pains, the manifestations of which are now visible in terms of lower growth rate, job losses and problems with the informal sectors of the economy, are unavoidable. He may or may not be right. But how long is his long term? There needs to be clarity on that.
Long term, as understood today, is much different from what it may have been a long time ago. Long term now could be as little as one year, as it is done for calculating income tax for certain types of investments, to five to seven years, which is now the time frame for start-up companies to grow into world-beaters or erstwhile giants to go out of business.  Google took some 15 years to be built into one of the most valuable companies in the world, while facebook didn’t require even 10 years or Uber five years to reach there.  ‘Long term’ for a company, which has taken less than five years to come of age, cannot be more than a couple of years.  And yet, long term in the context of a nation may be longer.
The erstwhile Planning Commission’s five-year plans, laying down the broad parameters and targets to be achieved over a five year period, could be considered as a long-term plan, while the annual plan with the time span of one year was intended to set short term benchmarks. For a major part of our development effort, it was the Planning Commission that called the shots, until the commission itself was disbanded and the whole process scrapped to give way for the incumbent Niti Aayog.
When Narendra Modi appealed to the people of India during the run-up to the 2014 Lok Sabha elections for an opportunity to rule for 60 months in place of Congress, which ruled the country for 60 years and still couldn’t lift the country and the people from the rut, he was obviously asking for a reasonably long term to implement the BJP’s developmental agenda, read the Modi plan.  But within days of Modi assuming office, the five year planning was replaced with a 15-year National Development Agenda, although not much is heard about it these days. Maybe Modi wanted to convey a message through the move: that he would be, or at least wanted to be, around for the next 15 years.
Extrapolating the 60-year Congress rule to the 60-months mandate that Modi sought, a 2-3 year period could reasonably be considered long term. But this obviously does not correspond to Jaitley’s idea of long term, going by his expectations and the performance of the economy under him. Despite his obsession with long term, the policies of his government smacked of short-termism.  That demonetisation, announced without any homework, turned out to be one of the biggest policy blunders in now on authority, with report after report confirming that it contributed significantly to an economic slowdown, which will in all likelihood take a few more quarters to recover. Similarly, GST was introduced in a hurry with most unexpected results, which have since forced the government to roll back some of the decisions. It is indeed a pity that we only have a trial and error method to determine the efficacy of a new idea or approach. So much for the creative imagination of our bureaucrats, if at all they had a say in the decision making process. Going by former RBI governor Raghuram Rajan’s account in his book ‘I Do What I Do’, they didn’t have much say even in such crucial decisions as demonetisation.
With three years already gone, it was time for a reasonably long-term view of the performance of the Modi government, and this has not been very reassuring. Concerns were being expressed that the Modi magic was appearing to wane, putting a question mark on the prospects of 2019, which until some time ago was considered almost a foregone conclusion. This gave Modi detractors in the party an opportunity to strike back. Former finance minister Yashwant Sinha, according to his own volition, felt a sense of national duty to speak up, which saw him launch a frontal attack on Arun Jaitley, and by implication Modi himself, for the manner in which the country’s economy was being managed. His article in the Indian Express was perhaps the most biting criticism of the Modi government as no other opinion piece in recent times created such impact. In fact, a couple of  days prior, this column had itself expressed the  fear that the Modi era may end up like President Barack Obama’ s second  term,  which was characterised by ‘all words and no action’. Sinha’s critique took the debate to a new level, with the government lining up an army of loyalists, including Jayant Sinha, Yashwant Sinha’s minister-son in the Modi cabinet, to defend the government performance.
And as if to prove that these were not mere words unaccompanied by action, he  got into a huddle with his experts  and  colleagues  straightaway and announced a 2-rupee reduction in vat for the price  of petrol and diesel as the spiralling fuel prices in the aftermath of the dynamic  open market pricing policy had created widespread discontent. Also, he seems to have preferred to advance the action plan on GST, with the finance minister already announcing a number of reliefs to the small and medium enterprises and the informal sector.
Yashwant Sinha’s ‘call of duty’ action did not go in vain. (IPA)

Wednesday, 11 October, 2017