BackArun Maira | India at a turning point
India has several underperforming sectors. It needs a new plan and a new method of planning
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Any system of people that wants to reach its goal must have a plan. A team aiming to reach a mountain-top must have a plan; a corporation aiming to grow its profits must have one; and a nation aiming for faster, more sustainable, and more inclusive growth must have one too. The Planning Commission may be disbanded; but the government and the people need a plan to reach the country’s goals.
Plans are made in different ways and take different forms. The form of India’s Five-Year Plans no longer fits the country’s requirements. Such plans are oriented towards budget-making rather than steering. They are too rigid to respond to changes as they occur. Therefore, such plans do not help leaders of governments to steer through a dynamic world.
A better method of planning that enables steering through uncertainty is scenario planning. Scenario planning is founded in disciplines of systems’ thinking. All strong forces that can cause change in a system are considered: economic, environmental, social, and political forces. Conventional economic forecasting models do not include social and political forces because they are not quantifiable. Including only a slice of reality, their predictions can turn out very wrong when excluded forces, such as political and social forces, affect the economy. Therefore economists using conventional models could not predict the recent sharp decline in India’s growth rate. Whereas scenario planners had.
Scenarios derived from systems thinking should not be confused with “scenarios" produced by economic modellers using “sensitivity analysis". The latter is merely different ranges of an outcome variable with different values of an input variable. Whereas systems’ scenarios are different shapes the system (the economy and society) can take by the interplay of major forces at critical points. Most useful is the ability of systems’ scenarios to explain to policymakers where the high impact levers are that they can use to change the condition of the system.
Scenario planning was used unofficially in 2005 by a group of international and Indian scenarists to analyse the condition of the Indian economy when it was confidently “shining". They noted an increasing tension within India caused by increasing disparities and by ideological dissonance between proponents of free markets and others. They foresaw three plausible scenarios for India by 2015 depending on the development strategy adopted then on. The scenarists predicted that the Indian economy would grow even by 10% per annum within the next years, but would decline towards 6% if the tensions were not managed. Many Indian leaders who saw these scenarios were dismissive of the worst scenario, called “Atakta Bharat", in which growth would decline below 6%. They turned their heads. The warning was not heeded.
In 2012, the Planning Commission prepared two types of plans. One was the conventional 12th five-tear plan with allocations made to all sectors. It “planned" for 8% average growth. The other was systems’ scenarios for India for the next five to 10 years. These scenarios modelled the interaction of all the principal forces that were affecting the country’s progress. The analysis revealed the root cause of the slowdown of the Indian economy, which was the increasing mistrust of citizens in institutions of government and big business. The mistrust was putting brakes on implementation of policies and projects. Which, in turn, was dampening investments. The scenarists predicted that if the mistrust of citizens and investors in institutions was not addressed vigorously, the country’s gross domestic product would slide to below 5%. There could be no hope then of achieving the 8% average growth fixed for the 12th Five-Year Plan.
Most economists were pressing the government to press on the accelerator: to have the will to make “big-ticket" reforms to revive the economy. The scenario analysis explained that revival of the Indian economy could not be brought about by such reforms. They will have no effect if the brakes in the system are not removed first. The root causes of bottlenecks in implementation must be tackled. These are mistrust of institutions, contention amongst stakeholders, and the confusion that is bedevilling implementation of policies and projects in the country.
Scenarios point to the path to take. Scenario analysis also indicates the signs to look for to see which scenario will emerge. The 2012 scenarios said that India was at a turning point. It could not “muddle along" (the descriptive title of the scenario in which the country was in) much longer. If citizens’ and investors’ confidence was not immediately won, by those in power admitting that there were institutional weaknesses and then taking some bold steps to fix them, then growth would decline even further—as it did to below 5%.
India has many underperforming sectors: infrastructure, manufacturing, health, and education, to name some. It needs a new plan and a new way of planning. In his first 100 days, Prime Minister Narendra Modi has shown his determination to fix the institutions and remove bottlenecks in implementation. He has put the central government on its marks. More work; less talk. Better coordination within government. More service to people. And the first big reform he is making is an institutional reform: to overhaul the hoary old Planning Commission which has resisted reform for decades. These are signs are that the Indian economy is definitely taking a turn for the better.
Arun Maira is a former member of the Planning Commission.
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