Indians Economic Reforms

Indians Economic Reforms

Policy-boost innovation

The more things change in the domain of policymaking in India, the more they seem to remain the same. For instance, back in the 1950s, it was purposefully adumbrated that we were drawing up five-year plans so that, apart from our overall development, the national income may go up and we may be able to undertake the big tasks that we want to and extricate ourselves from the mire of poverty. That was then, in the face of anaemic growth, economy-wide shortcomings and distortions. It is another matter that the import-substitution model and growth behind high-tariff barriers that we followed - till we embarked on tentative reforms and opened up in 1991 - proved to be inefficient policy design and led to suboptimal results. Be that as it may, fast-forward to the here and now, and the mavens envision economic growth of 9-9 .5% during the 12th Five-Year Plan, set to start next year. But instead of the usual 'growth diagnostics' approach towards plans and projects , against the backdrop of high growth and much growth potential waiting to be tapped, it would make sense to focus on innovation rather than growth per se.

The original rationale for growth diagnostics was the presence of glaring rigidities. The reasoning went that in the absence of sufficient resources (read: capital), entrepreneurship , decision-makers , etc, and the means and ability to bring them all together gainfully, proactive policy was warranted. The idea was, given the lack of markets, enterprise and skills, policymakers do need to identify and choose the projects and plans to contribute most optimally to the development delivery mechanism, relative to their costs. Hence the gameplan of backward and forward 'linkages' of projects and programmes. The point is that in focusing predominantly on investment , for example, the desirability or otherwise of adding 1,00,000 mw of power capacity during the forthcoming Plan, the growth diagnostics approach deems the main problem of policy as one of overcoming the shortage of capital equipment and productive capacity . So, the assumption remains that raising growth rates is the central challenge.

Instead, we ought to aim at boosting efficiency improvements and shoring up productivity gains across the board. After all, growth at high cost really makes no sense. To continue with the power example , instead of policy debating ballpark capacity addition, it would make better sense to absorb and indigenise supercritical and ultra supercritical boiler technology