Opinion | Proper scenario-planning for the country’s future4 min read . Updated: 31 Jul 2019, 10:46 PM IST
India is a huge, complex system, with many social, political and economic forces swirling within it
As the new millennium dawned, Goldman Sachs’ Jim O’Neill projected that BRICS (Brazil, Russia, India, China and South Africa) would drive the global economy. However, BRICS faded soon, a global financial crisis struck in 2008, and the G20 was put in the driver’s seat. Now, with trade wars erupting, economists say G2—the US and China—is calling the shots. Arvind Subramanian, former economic adviser to the Indian government, has turned this around. He says “G-minus-2" will shape the future. It is difficult to see through the fog of uncertainty. However, it is clear that economists are confused and their extrapolations have not been reliable.
It is ironic that Subramanian has cast grave doubts about India’s own economic numbers. He didn’t start the controversy: the government did—by changing methods for computing gross domestic product, which conveniently made its performance look better, and by denying the unemployment numbers produced by sources the public has relied on. The government’s economists seem to want citizens to believe in a set of “alternative facts" they provide.
The Indian government has a credibility problem. Trust our numbers, it says, not those that others give you. It even says—albeit with some reason considering the evident limitations of macroeconomics—don’t trust foreign-educated economists (like the two governors of the Reserve Bank of India who have resigned and also Subramanian). Nevertheless, it is telling investors around the world as well as Indian citizens the following: Trust us, we will be a $5 trillion economy in a few years; just have faith in the government’s projections.
When BRICS caught the world’s imagination in 2001, some business leaders had challenged economists at the World Economic Forum (WEF). Because a decade earlier, economists had forecast that the new century would be Japan’s (China was not even in the reckoning back then). Now they were saying it will be BRICS. These sceptical businessmen asked the WEF to project more reliable scenarios. They said these scenarios should not be based on econometric calculations. They must consider impacts of social, environmental and political forces on the shape of the future.
Macroeconomists do not have the tools to model complex systems, which include forces that cannot be converted into neat quantities—powerful forces such as public sentiments and trust in institutions. Scenario planning, which is based on whole systems thinking, is a better approach to thinking about the future, especially when diverse forces are combining to make all changes dynamic and unpredictable. Therefore, the WEF used scenario planning in 2006 to project the forces that would shape India over the next 10-15 years. The scenarios said India’s growth would accelerate for a few years and then it would decelerate if increasing inequalities were not addressed with good policies, and institutions of governance were not improved. This has actually happened.
The value of a good model lies not only in its ability to make more accurate forecasts, it lies more in its ability to explain how real things really work and, thus, guide policies that will produce the desired outcomes. The United Progressive Alliance-II realized this, but it was too late. Belatedly, it used scenario planning to supplement the preparation of the country’s 12th Five Year Plan. The scenarios revealed the weakness of a top-down model of growth and an urgent need to improve the quality of decentralized institutions of government, as well as the quality of business institutions.
Scenario planning systematically applies systems thinking to develop “whole of government" plans. In the first step, it combines many disciplines and many perspectives, each of which captures only a slice of reality to capture “the whole elephant". In the second step, it analyses the structure of the system, to see patterns and relationships—what is connected with what, and what causes what. Then, it locates leverage points within the system, action on which will produce beneficial changes in other parts of the system. It can also reveal “fixes that can backfire"—bold actions that can cause great damage to the whole, if a whole systems approach is not taken. Demonetization is one example. Another example is the big drive to impart skills to millions of youth when the economy was not generating enough employment opportunities. This resulted in more educated and skilled, but more unemployed (and thus frustrated) youth.
Scenarios are not merely numbers. They are credible narratives of how the future will evolve with different policies and different approaches to transformation. They offer choices and they project the likely outcomes of choices that can be made now.
Modi made a bold move by replacing the Planning Commission with a new institution bearing a new charter, the NITI Aayog. It is reported that it is preparing a bold vision for India with strategies to accomplish it. A $5-trillion economy will undoubtedly be part of the vision. Make in India, the government’s unrealized strategy from its first term, will remain. So will the doubling of farmers’ incomes. India is a huge, complex system, with many social, political and economic forces swirling within it. NITI Aayog must live up to its transformational charter by adopting a new, “whole of government", systems thinking-driven scenarios approach to devise strategies for that vision.
Arun Maira was a member of the erstwhile Planning Commission.