The homeopathy approach to Reforms

A fascinating piece by TN Ninan. It has been picked up from his speech he gave on the launch of this book – India’s Economic Reforms and Development: Essays for Manmohan Singh.

He looks at the issues boggling India reform story:

change is not easy to bring about in our unique political system. First, we have copied the Communists, for whom the party is supreme and the government secondary. This is of course alien to the Westminster system, which we nominally follow, and creates some problems. Second, we have a prime ministerial system in Delhi, but a de facto presidential system in most of the states. So the prime minister has to be consultative, but presidential-style chief ministers in states can be as arbitrary as they wish.

Third, we have a coalition system at the Centre where the Cabinet acts like the American confederacy; each minister is an independent republic. So we have one policy under X environment minister, and quite the opposite under Y environment minister, and both are the policies of the same government. The fourth and final unique feature of our system is that our courts can and do dictate policy, breaching the walls that ensure a separation of powers.

So what do we do? Ninan says We need to make an omlette without breaking eggs (superb analogy) etc. He says we need to learn from homeopathy:

First, we must learn from homeopathy, and the importance of small doses. I am told that Gujarat raises its power tariff by two per cent every quarter; no one notices and no one protests. It seems to me that we can do that for petroleum pricing, and for pricing reform in general.

Second, we have to find a way to get beyond positions adopted out of fear of change or because of ideological bias. As the Chinese would say, feel the stones as you cross the river. For instance, introduce income transfers through pilot projects, then do state-level changes that demonstrate how money gets saved, and then commit to a national roll-out. It is hard to sustain ideology-driven opposition when the proof of the pudding is there in the eating.

Third, since politicians and civil society leaders do not like being told that poverty is declining, we must assure them that the poor will always be with us. How? By making poverty a relative and not an absolute definition; you are poor if your family gets less than 60 per cent of the income of a median family — is the European definition. This means two things. One, there will always be a large number of poor people, so no one need be afraid that poverty is disappearing. Two, the number of poor will always be less than 50 per cent of the population, since the median family is the yardstick. So any anti-poverty programmes or fiscal transfers will by definition be aimed at the really poor. There is a third benefit, we can track inequality because a skewed income distribution pattern will mean that a larger number fall within the 60 per cent category. That’s three goals in favour and none against.

Finally, reform has not yet got a political constituency even after 21 years because we talk of the fiscal deficit, of tariff walls, of public debt, of monetary policy and other arcane things that mean nothing to ordinary people. The market for change exists and grows only if it is linked to the market for votes. Instead of power sector reform, why not offer guaranteed electricity supply, at lower cost?

My final point is about the business of inclusion, and how we may have got it all wrong. True inclusion happens when you create jobs. And you do that when you facilitate low-cost manufacture in labour-intensive industries. We have failed to do that. When China vacates low-cost manufacture, the factories go to Vietnam and Bangladesh, not to India. But we don’t want to discuss labour policy, or the cost of infrastructure. Surely, make-work programmes in the name of inclusion are not a substitute for real work that is also growth-enhancing. If people have decent-paying jobs, it provides food security too. So how about making jobs the centrepiece of the inclusion debate?

My over-all point would be that, in an atmosphere of declining optimism and a sense of stasis, change is possible.

Loved the new poverty line definition and sarcasm around it (intended or unintended not sure…)

Here is TGS Blog endorsing the article and some more links and write-ups

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