The dark clouds and the sombre atmosphere reflected in a major part the mood of the nation as the Prime Minister addressed the nation from the Red Fort on Friday. Indeed, there are dark clouds on the horizon, and the buoyant spirit of the last three years is noticeable by its absence.
Just the other day, the Prime Minister’s economic advisory council came out with the Economic Outlook for 2008-09 and said what several of us have been saying for months: Growth will be lower than 8% and inflation will grow before there is any relief. Even the Prime Minister’s speech speaks of higher prices in the long term, and has a somewhat inadvertent admission that price rise is not due to external factors alone. Why else would the easing of oil, commodity and foodgrain prices not be reflected in inflation numbers being put out week after week. There has been no explanation as to why we should be running 12.4% inflation when these numbers are much lower in countries we like to compare ourselves with — Brazil, Russia, China, Europe, Japan or the US.
It is not as though the real solutions are not apparent to the policymakers. It is interesting that this government has had the best advice from the several scores of committees that it has appointed. It is equally interesting that the recommendations of most of these remain untouched. It is perhaps in the nature of the democratic process that every report brings forth its own dissent. The Economist argues, surprisingly, that authoritarian regimes nurture a class of recognized intellectuals whose views are carefully listened to and controlled. In democracies freedom of expression leads to a cacophony, in which each one complains that one’s urgent messages are being drowned in a sea of opinion. The Economist calls it “repressive tolerance”. It gives an opportunity to the policymaker and the implementers to call for a debate, for further opinion, and to dilute the doable into defending the status quo. The result is a paralysis of decision making, of discussion replacing action.
Let us take two recent examples. The committee to recommend solutions for adjustment in petroleum product prices has just submitted its report. Interestingly, two years ago, the Rangarajan committee had addressed the same issues. The comparison of the two merits a full column, but several of the recommendations, such as moving away from import parity pricing to comparison with international prices, are quite similar. Why was the earlier report not implemented? Simply because it was drowned in the cacophony of oil companies’ demands for meeting their “under-recoveries”, an arithmetic that they are loath to disclose. Further, in the effort to find the ultimate solution, the present committee has come up with several recommendations that cannot be implemented. Already, there are comments from the ministry of petroleum that most of the steps recommended cannot be implemented feasibly.
The second example relates to the debate on participatory notes (PNs), a matter that has been revived recently. We are told that the Securities and Exchange Board of India (Sebi) is reconsidering the issue of PNs. These are investments made by overseas entities in Indian financial markets through foreign institutional investors (FIIs). The concern was that there was no transparency about the source and origin of these investments. In September last year, the regulators, after several months of debate, decided that fresh PNs should not be issued, and that PN holders could register themselves directly as FIIs. Everyone lauded it as a wise step. Between January and June this year, FIIs have withdrawn over $10 billion from the financial markets, and the regulator has now reported that this is largely because the PN holders are rolling up their investments as mandated by Sebi. The losses in valuation have severely dampened domestic sentiment and domestic wealth, and now there is clamour for a relook at the PN issue. Experts are asking for a re-examination and there are rumours that Sebi will relax the conditions. Meanwhile, of course, $10 billion has gone from the wealth of local investors.
It is difficult to justify such wild swings in approach to policy, given the same players. If the argument in both the cases is that earlier advice was incorrect or inadequately researched, then there should be accountability. If, on the other hand, it is the recipients and the implementers who are to be blamed, then again there should be accountability. The burden for irresponsibility, whether it is in petrol pricing or equity values, is borne by the citizen, but the bar of accountability is set so low that he gets no relief. The concept of “repressive tolerance” ensures that everyone is heard and nothing is done.
Can we not ask, what has happened to the implementation of the reports of over 80 expert committees set up by the government since 2004 whose reports have already been received? Surely, there must be a place where the buck should stop.
S. Narayan is a former finance secretary and economic adviser to the prime minister. Comments are welcome at firstname.lastname@example.org