Photo: Mint
Photo: Mint

Opinion | India’s economic recovery may well lie in a million small fixes

It’s good if the government finds big-bang solutions, but much else can be achieved in the interim

I was a speaker at the “Food For Thought" event organized by the Madras Chamber of Commerce for its members on 4 October. The topic was the state of the economy. My co-speaker was T.T. Srinivasaraghavan, managing director of Sundaram Finance Ltd. Many came looking for answers. The truthful answer, however, was “I wish I knew". I had to convey that honest answer in 12 slides within 15 minutes. Jokes apart, there is a large element of truth in what I said.

Just sample the numerous articles that have appeared in the last four months on India’s economic slowdown; 90% of the content was dedicated to an analysis of what has gone wrong. Cogent and seemingly erudite, such an article typically has a throwaway recommendation on fixing the problem in its last paragraph or line. Job done.

A growth slowdown has many causal factors. It can be traced to decisions taken or not taken by the private sector, Union government, state governments and the central bank, and also to the judgements of the Supreme Court and high courts. There are proximate catalysts, such as the collapse of Infrastructure Leasing and Financial Services and a few other non-banking finance companies, but the underlying causes run deep. Therefore, to be able to fix it with a few waves of a magic wand will not be easy. If anything, these will most likely be counterproductive or harmful or ineffective, or all three.

Experts, for all their wisdom on post-mortem analyses, are probably the least equipped to offer solutions. A somewhat unheralded article that appeared in The New York Times illustrates this rather well. Titled, “Health Facts Aren’t Enough. Should Persuasion Become a Priority?" (nyti.ms/2OfH3vt), it’s a must-read for its humbling effect on our so-called experts, elites and academics, and those who belong to all three categories. Usually, researchers blame the masses for their failure, or inability to listen to expert advice. However, the article also makes an important point—that experts simply do not have the requisite know-how or skills of persuasion. In fact, after receiving “scientific information", people have been found to double down on their prior beliefs! Merely operating on the belief that a lack of support for good policies and good science is due to a lack of scientific information was a sign of both arrogance and ignorance.

A more damning indictment of experts lies in how they process scientific information themselves. Proof for this comes in these clinching sentences in the article: “A recent study (Is Great Information Good Enough? Evidence from Physicians As Patients, July 2019) looked at how doctors behaved when they were also patients. They were just as likely to engage in the use of low-value medical care, and just as unlikely to stick to their chronic disease medication regimens, as the general public."

In short, experts cannot convince others because experts cannot convince themselves! In that sense, ordinary folks are as good, or as bad as the experts. Both do not know and do not know that they do not know. Whom should governments turn to? They can listen to experts because their advice might serve as useful points of departure, but they should listen more to folks on the ground. That will provide them with clues as to how their own acts of omission and commission might have caused the problems that have emerged and how to fix them.

An illustration of that is in what my co-speaker on 4 October said on an important contributory factor to the growth slowdown. On the topic of demand for commercial vehicles, he mentioned that two things could have impacted demand adversely. One, the goods and services tax (GST) increasing efficiency and turnaround time (he gave the example of how breezy it is it go past the checkpost between Coimbatore and Palghat now; it used to take up to a full day) of trucks, thus reducing demand for new lorries. Two, an increase in axle load (permitted since July 2018) was supposed to have been announced along with a scrappage policy for old trucks. For some reason, the second part—on junking old vehicles—was not announced. That would have offset the weak demand growth stemming from GST efficiencies and a higher axle load.

The lesson for the government, as it works assiduously to arrest and reverse the growth slowdown, is this: Stop looking only for big-bang cures. Well and good, if these are easy to find and implement. However, economic recovery lies in a million small fixes.

One, the government could package its economic stimulus with reciprocal obligations on the part of recipients. If tax cuts are on the table, for example, let us figure out what the public can do for nation-building in return. Two, work on forging a consensus among like-minded state governments, to start with, on crucial state-level reforms. Three, easing the living conditions of people will help. For ideas, see “For ‘Ease of Living’: Dismantle Distrust" by Shankkar Aiyar (bit.ly/2IuVS8c). Four, keep an eye on the medium-term impact, while trying to boost short-term growth (e.g., loan mela). Five, do no harm (for example, onion export ban). The economy will mend itself.

These are the author’s personal views

V. Anantha Nageswaran is the dean of IFMR Graduate School of Business, Krea University

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