Adopt an offensive strategy for key economic decisions

Live Mint, December 24, 2020

By Pradeep S. Mehta and Amol Kulkarni

If Nobel laureates like Richard Thaler cautioned us against seeking confirmation of our biases, leaders like Barack Obama have shown how to get around these challenges

As the world awaits with bated breath for a successful covid vaccine, it is apt to remember Waldemar Haffkine, a zoologist (not a doctor), who developed world’s first vaccines for cholera and plague, and saved millions of Indian lives more than a century ago. Despite his stellar contribution to the medical field, Haffkine faced scepticism and resistance from the medical establishment most of his life. Solutions to problems can emerge from anywhere, and thus those in power need to be open to new ideas. Unfortunately, this is easier said than done. Our doctors’ lobby is opposing the ability of Ayush practitioners to provide medical services though we are short of medical personnel in our country.

Richard Thaler, the Nobel laureate credited with making economics more human, has shown that decisions are susceptible to biases. Anchoring, selection and confirmation biases keep decision-makers from considering new perspectives, engaging with diverse stakeholders, and acting against preconceived notions. Good policymakers are aware of such limitations and often build processes to work around them. Barack Obama, writing of the virtue of soliciting views from a large group in his recent memoir, A Promised Land, points out that in this approach, a current of thinking can quickly take shape and move everybody in the same direction. Thus, he used to have at least one contrarian in the room, other than him, which pushed everyone to think harder and allowed a freer airing of opinions. 

Closer home, N.K. Singh, in his autobiography Portraits of Power, notes the evolution undergone over the years by the Prime Minister’s Secretariat. He points to the crucial role it played during the economic reforms years in managing complex dynamics, coordinating with the cabinet office, acting as a bridge between key government departments, and ensuring indepth consultations with various stakeholder groups.

Singh’s observations have been validated by Montek Singh Ahluwalia in his book Backstage. He points out that our reforms of the 1990s were homegrown, presumably done through consultations and the use of evidence, and were not thrust upon a reluctant India by the International Monetary Fund. The M Document, as described in his book, was the first integrated approach taken by the government to accelerate the growth of our economy.

It’s not that these proposals were not resisted by prospective losers, but a clear offensive strategy was deployed by Indian reformers to ensure India would benefit from integration with rest of the world, and this was conveyed to the public via robust consultation mechanisms that eventually convinced naysayers and status quoists.

However, such mechanisms have hitherto been informal in nature, making them subject to manipulation, and appear to have disintegrated over time. That Ahluwalia himself has acknowledged the need to build institutions that would promote good governance, and foster a second generation of reforms, has escaped sufficient attention.

Perhaps we have been unable to convince people in general and critical stakeholders in particular that a defensive strategy of continuing with our old ways of doing business will only benefit incumbents.

This is evident in India’s recent rejection of an offer to participate in a free-trade arrangement that covers most of Asia, and the country’s imposition of higher import tariffs in the name of supporting domestic industry, for which a scheme was created to incentivize large enterprises while paying lip service to the interests of small and medium enterprises. The rest of the world, meanwhile, has falsely been portrayed as wanting Indian market access without any reciprocal measures, and the keenness of foreign investors to invest in India has been exaggerated. A recent Global Competitiveness Report provides a sobering reality check; it ranks India below the global average on the indicators of skilling, social protection, research and development.

Unfortunately, there are signs of an echo chamber being created wherein voices of only the big and powerful are heard. Economic policymakers seem to be getting more susceptible to their biases.

A problem with crafting an offensive strategy is that the likely gains from reforms are typically based on assumptions of future outcomes, while their likely beneficiaries are unable to invest enough time and resources to engage in policy discussions. There are always vested interests that oppose reforms. India and South Africa recently failed to get an intellectual-property waiver for covid-related medicines at the relevant World Trade Organization council, though a precedent for it exists on AIDS-related treatment.

Right now, India seems unable to design a clear narrative around farm reforms by engaging stakeholders and following time-tested constitutional processes. Regrettable misconceptions persist. It is thus important for the government to adopt an offensive and inclusive strategy for economic decisions. This must involve institutionalizing processes to engage those with divergent points of view, without prejudice and on the basis of evidence. This will help India take and implement informed and timely decisions with wide support, and emerge ahead.


Amol Kulkarni of CUTS contributed to this article.

Pradeep S. Mehta is secretary general, CUTS International.

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