Setting the economy right | Book Review- Unshackling India: Hard Truths and Clear Choices for Economic Revival by Ajay Chhibber & Salman Anees Soz

By Amitabha Bhattacharya

Riskless capitalism is a term often used to characterise India’s foray out of the ‘socialistic’ mode. Businessmen and entrepreneurs are often reluctant to take risks, preferring instead to depend on government protection and subsidy; civil servants play safe, fearing that their bonafide decisions can be questioned for alleged lapses by courts and investigating agencies. Members of the higher bureaucracy are aware of the complexities involved in economic policy formulation, and more so, in translating such policies into action. And yet it is mostly the executive alone, accountable to the legislature, judiciary, public and the media, that gets bruised and tarnished all the time. Major acts of reform meet with stiff resistance from every conceivable quarter.

In recent times, eminent economists and policy makers like Montek Singh Ahluwalia, Arvind Panagariya, Kaushik Basu, Vijay Kelkar, Ajay Shah and Shankar Acharya have written about their experiences in helping shape our economy. The shock of Covid-19 has added a new dimension, as Arun Kumar and others have highlighted. The authors of the book under review, Ajay Chhibber and Salman Anees Soz, having worked in international bodies, display an independence of mind not always observed among government economists. This lack of bias adds freshness to the work.

Therefore, while arguing for changing the role of our state, based on experience here and abroad, the authors show the yawning mismatch between state effectiveness and the degree of state intervention, especially in the economic sphere. And, the state covers all its organs, not the executive alone.

They plead strongly for privatisation, based on an analysis of our experiences so far. On the performance of public sector undertakings after privatisation, they note how companies like Bharat Aluminium, CMC, Hindustan Teleprinters, Hindustan Zinc, Maruti Udyog, Paradeep Phosphates, etc, have shown considerable improvement after strategic disinvestment. “The weighted ROC (Return on Capital) tripled on average from around 5 per cent in 1999-2004 to 15.1 per cent in 2010-15 and went even higher in the high-growth phase 2004-09 to average of around 25 per cent. The ROA (Return on Assets) for these firms also stayed high—higher than that of the Navratnas that remained in public hands…” Since “the business of government is not business”, they have expressed apprehensively: “A litmus test will be the sale of Air India.” Air India and Central Electronics have since been privatised, raising hope for the future.

The book is divided into five parts— changing the role of the state; building the foundations: developing human capital; freeing markets and unleashing competitiveness; re-engineering the economy, and planning for the future – organised into 19 chapters, concluding with ‘the economy India deserves’. Although the areas covered are neither new nor novel, the authors bring to focus many interesting insights based on international experiences adapted to our situation.

For example, while classifying government activities, as suggested by Arfuro Israel, using two broad criteria—specificity (or discretion) and transaction volume—it is observed that accountability becomes most difficult where there are low specificity and high transaction volumes—as in the judicial system, police, primary education and primary health. “It also explains why governments are keen to deliver things like toilets, water, gas cylinders and bank accounts”—with high specificity and high transaction volume—“where they can show the beneficiary immediate results, but do not show the same interest in delivering the more difficult services like health and education… This new welfarism helps win elections but not development.” Thereafter, the authors suggest certain pathways for sustained development, including measures “to feminise the economy”.

Quoting former PM Atal Bihari Vajpayee that “India’s labour laws are anti-worker”, the authors note that we have “the largest share (about a third) of a category called ‘casual wage workers’ or in colloquial use ‘daily workers’ in South Asia.” At India’s level of Human Development Index, its share of vulnerable employment “should be at most 50 per cent but it is above 75 per cent, much higher than even in Bangladesh”. They acknowledge the recent moves to reverse the trend, but the benefits are yet to be realised.

Arguing for immediate reform in the banking sector, the book recommends seven key ones, including reprivatisation of the banking system (except for four PSBs), swift clean-up of the existing NPAs, RBI being given full supervisory powers over all PSBs (they should not sit on the boards of these banks), and removal of RBI’s role as the debt manager for the government.

What about our record to boost manufacturing through initiatives such as ‘Make in India’? Inevitably, a comparison with China and even Bangladesh comes in. What should we do to be able to compete for a bigger share of the Fourth Industrial Revolution, when we fall well behind global levels of productivity and competitiveness? Our R&D expenditure, after reaching a peak of 0.86% of GDP, “has consistently declined to about 0.65 per cent in 2018. China spends 2.2 and the US 2.8 per cent of GDP”. Among various recommendations, the authors make a bold one, “Shift Corporate Social Responsibility (CSR) funding entirely to R&D and encourage R&D in private industry through tax incentives.” It is expected that the recent initiatives like the National Education Policy and the National Science, Technology and Innovation Policy would make some difference. Few authors critically examine some root causes behind slow decision making at the higher levels. Judicial activism in the economic domain has been touched upon, but not adequately. One expects some discussion, for example, on which laws have harmed wider public interest so far. Why cannot such laws be allowed to run their course and be modified or repealed, based on experience? What prevents senior officials from taking bold decisions in good faith? Should executive decisions be tested on infallibility, or on reasonability? How should bonafide risk-taking in public interest be encouraged? In a landmark judgment, our honourable Supreme Court had once observed, “In matters relating to economic issues, the government has, while taking a decision, right to ‘trial and error’ as long as both trial and error are bonafide and within limits of authority.” What are the economic and opportunity costs of unduly delayed or interventionist actions by different organs of the state? To improve the capacity of the state as a whole, an understanding of all such issues is important.

The book doesn’t end in despair. It radiates hope for the future. Einstein once said, “If you always do what you always did, you will always get what you always got.” Evidently, the government representing the the people has to take the lead in steering the nation forward, but the legislature and judiciary, the media and the citizenry, are no less responsible. Sustainable development on the promised lines, or the lack of it, after all, is a collective responsibility.

A critical yet balanced, penetrating yet lucid account of where we went wrong and what we should do now, the book is an important addition to the corpus of literature on this enticing subject.

Amitabha Bhattacharya is a former IAS officer who has also worked in the private sector and with the UNDP

Unshackling India: Hard Truths and Clear Choices for Economic Revival
Ajay Chhibber & Salman Anees Soz
HarperCollins
Pp 480, Rs 699