Last week, when defence minister A.K. Antony blundered his way through the debate in Parliament on the skirmish between Indian and Pakistani troops that left five Indian soldiers dead, most people were not surprised.
We have, over the last nine years of the Congress-led United Progressive Alliance’s (UPA) rule, become accustomed to gaffes (remember the statement in Sharm-el-Sheikh, Egypt, at the beginning of the UPA’s second term in office, which seemed to suggest that India was fomenting internal unrest in Pakistan?).
The big question is this: why is the UPA repeatedly coming up short? After all, this government includes some of the very same politicians and technocrats who shepherded India through such difficult times and climes as the 1991 balance of payments crisis. Surely, these people know more than a thing or two about governance?
An erudite acquaintance familiar with the way this government works had an explanation: “Their mental models are wrong.”
Reflect on it for a moment and you can’t help but agree.
For one, the UPA’s mindset has failed to grow out of that of the struggling years of the Indian economy in the 1970s and 1980s. This is a serious handicap, given that not just the world economy, but the Indian economy, too, has been radically transformed.
India, initially a reluctant participant, is now very much integrated into a globalized world. While it has gained from this process, helping the economy grow nearly four-fold over the last decade to nearly $2 trillion at present, it has also become vulnerable to global pulls and pressures.
The new India is as vulnerable to the global spread of Severe Acute Respiratory Syndrome (SARS) as it is to the efforts of the US Federal Reserve to stimulate the American economy by turning the liquidity spigot on and off.
Yet, the UPA continues to evolve domestic policy with an insular mindset and the consequences are devastating: India is inevitably reacting to a crisis instead of preparing for it.
While the SARS epidemic came about abruptly, the quantitative easing pursued by the US was over a prolonged period and there have been enough warnings that it would be reversed. But somehow domestic policy seemed to operate with the fundamental assumption that easy money will last forever.
Even now, the solution to the looming balance of payments (BoP) crisis is symptomatic—akin to treating the fever, a symptom, instead of the underlying infection. Even if the government does succeed, there is every reason to believe that the crisis would return.
Second, the entire focus of policy formulation, flowing from the stagnant mindset, seems to focus solely on the organized sector.
And this is true whether we look at the policy on resource sharing, access to credit or concessions, you name it. However, this ignores the reality.
This ignores the informal sector, which has traditionally played a significant role in the Indian economy.
The statistics are staggering: the unorganized sector accounts for 80% of employment in the manufacturing sector but only one-third of the value of output.
Obviously, if policy is skewed in this fashion then the consequences are not surprising—while output is growing, employment is not.
Clearly, as my acquaintance claimed, the “mental model” of this regime is not in sync with the new reality of India.
It shouldn’t surprise anyone then, that this government has failed to acknowledge the fundamental change in the development paradigm of this country.
Structurally, the country crossed a significant milestone, when for the first time, new data released by the National Sample Survey Office (NSSO), showed that the agriculture sector employs less than half the workforce—the gains have been in the non-farm sector.
Similarly, the levels of poverty, in less than a decade, dropped from around 40% in 2004-05 to 22% in 2001-12.
And the first round of disclosures from Census 2011 reveal that inclusion is taking root and that India is trading up (reported previously by Mint: http://www.mintasia.com/trading-up ).
Instead of celebrating this phenomenal achievement—of bringing 150 million people out of poverty—the UPA has been busy suggesting that the benchmark for measuring poverty levels is out of date.
Clearly, its mental model is preventing it from recognizing that India’s development lexicon has altered and policies need to be recalibrated. In the final analysis, as my acquaintance rightly assessed, the governance issue can be fixed only if the UPA resets its “mental model”.