Can India really be managed? The question may sound hackneyed. It is often posed at the corporate level. Corporations start small, succeed, and grow. At some point, they become too complex for the management team, however talented and competent, to manage. They stagnate and struggle to survive. They have to be broken down into smaller units, which either are given substantial empowerment and autonomy or are divested. Then the cycle can start anew.
This is an eternal truth because human cognitive limitations are the biggest binding constraint on managing complexity. As many brain researchers have discovered, the human brain largely stopped evolving after the Stone Age, and most of its instincts were honed in the days when humans were hunter-gatherers. If all of human history were inscribed on a scroll a mile long, the modern industrial age would merit no more than 4 inches of space at the end. Hence it is no surprise that the brain has difficulty discerning long-term trends, distinguishing random from systematic outcomes, and focusing on a multitude of factors at once. If this deficiency gets in the way of managing corporations, it is even more likely to get in the way of managing nations. And with respect to India, with its continental size and diversity, templates or precedents simply do not exist.
Therefore, to say that any capable politician in India is going to run up against the Peter Principle, in which an individual rises to the level of his incompetence, it is not an admission of inadequacy but an acceptance of reality. With a population of 1.2 billion people (and growing), democracy, open and subversive media, fast-growing social media use, twenty-nine states, multiple languages, multiple layers of government, and a complex legal and regulatory regime overlaid on the legacy of a predatory and control-minded colonial regime, India is simply too complex for any government to handle. Throw in information glut, the proclivity to argue endlessly, a tendency to reach for instant gratification, and much else, and India becomes overwhelming for any human. Is the message then one of despair, and not of hope? Maybe not.
Because of the magnitude of the challenges India faces, simply accepting the status quo carries a big risk. Giving up is not really an option. It is important to recognize that postindependence modern India has survived and made progress on several fronts. Challenges remain not because they have not been tackled but because the problems have kept getting bigger and more complex with the relentless rise in population. This is where India is today.
Faced with a complex situation, the first step is to break it down into manageable, bite-sized parts in every possible way. Not everything can be tackled at once. If ingenuity has enabled Indians to defy adversity in every aspect of their daily lives, the same ingenuity will guide them when conditions turn more favorable. The government does not have to solve all the problems. It can solve a few, and that would enable India to solve the rest of its problems on its own.
According to behavioral researchers, the greater challenge to implementing reforms is not building technical competence but managing human cognitive biases and contextual inhibitors. Too often leaders see only the technical and political challenges associated with reforms and overlook the formidable behavioral and contextual dimensions. They are blinkered by cognitive biases, overestimation of control, cyclical trends, the need to show results, and so on. Great fortitude and self-awareness are needed to overcome such blind spots.
Humility is called for, both from those who design and execute plans and from those criticize. India’s situation is unique in many ways. Humility makes dialogue possible, which in turn makes it easier for a diversity of solutions to emerge. With such an eclectic, diverse, and open-minded approach, India can become a positive role model for problem-solving under conditions of complexity.
This chapter outlines few processes and strategic principles that should help increase success with implementing reforms.
Let a Million Ideas and Models Proliferate
India’s continental size, large population, and vast diversity, coupled with its inherently complex nature, mean few universal strategies exist for addressing public policy challenges. Context matters, and policy and implementation designs have to be tailored accordingly.
Multiple pilots or multiple policy experiments should be conducted simultaneously, greater decisionmaking discretion during implementation is likely necessary, and one-size-fits-all approaches should be avoided. No single answer will emerge that can be applied everywhere in India—far from it. Instead, a plurality of solutions should be anticipated, encouraged, and even demanded. The bureaucracy, because it must enforce uniformity, might find a plurality of policies and approaches difficult to accept. Officials first need to become aware of this gap between their conditioning and what the situational reality demands. That is the first step toward accepting and then mastering the situation.
Lacking precedents, role models, or templates from others’ experience, India’s policymakers and politicians should have the courage to craft policies based solely on what, in their best judgment, is likely to work in the Indian context or contexts, rather than on whether the policies comply with prevailing wisdom or Western practices. Having the courage to buck trends, fashions, and fads in the best interests of India is vital.
India needs to encourage new models of development across sectors in small pilot programs. Central government departments and states should be encouraged to innovate with policy design and implementation, using technology and external expertise, through public-private partnerships, collaborations with nonprofits, and so on. Innovation is critical because the public systems are acutely enfeebled: in many cases, the prevailing service delivery models and systems are irreparably damaged, and Indian policymakers may need to junk them completely and embrace new models of engagement.
In every field, the government of India should make available, in an accessible manner, various models of intervention and all actionable templates and supporting documents that states can readily adopt and implement without further tweaking. In a large sample of districts, at least a few would embrace any initiative, and at least one or two would effectively implement the intervention over a five-year period. These districts could in turn become potential champions of the intervention and models for emulation by others, and so spearhead the gradual nationwide rollout of the intervention. Several such positive deviances across a wide spectrum of interventions, coming together over a period of time, stand the best chance of achieving nationwide implementation of innovative public service delivery interventions. In more politically complex reform areas, such as banking, this form of experimentation has the potential to generate an inexorable tide in favor of reforms.
Here the evolution of China’s economic growth, as chronicled by Ronald Coase and Ning Wang, is instructive.145The authors examined Chinese growth since the late 1970s and challenge the conventional wisdom that it was driven by an omnipotent Communist Party through tight central planning and the benign leadership of a group led by Deng Xiaoping.146 They point instead to a decentralized and flexible model of growth that allowed experimentation with several ideas, a “million marginal revolutions.” All the major initiatives now lauded as great successes—including the decollectivization of agriculture, the establishment of special economic zones, town and village enterprises, and financial market deregulation—emerged as bright spots from among the numerous variants of each that were experimented with across the country. Most of these experimental versions failed, but because they were not yoked to high-profile central programs there was space for the experimentation and risk-taking so essential for refining the implementation design of large-scale policy interventions. Deng famously exhorted his constituents to “try bold experiments, blaze new trails.”147
Such decentralization will inevitably cause disequilibrium and disruption for some time. But it stands a far better chance of producing new, sustainable public service delivery models than the current top-down norms- and components-based strategies.
Practice Cooperative and Competitive Federalism
Philosophically, the empowerment of states and local governments is the linchpin of India’s future growth strategy. If India is to scale up its fragmented agricultural and industrial production, states should not only embrace policy changes made by the federal government, but they should also actively propose their own. Issues pertaining to land, labor, and education are the concurrent responsibility of the central government and the states. However, the failure or reluctance of states to adopt proposals promulgated by the central government is a major obstacle in a competitive democratic framework. Therefore, it will be better if states are encouraged to initiate changes of their own, with the central government stepping out of the way.
The central government should pursue the twin strategies of both cooperative and competitive federalism. It needs cooperative federalism to obtain support from the states for the land acquisition bill, labor codes, and similar bills that make up a large part of its parliamentary legislative agenda. It would also need their support for the effective implementation of the federal government’s various flagship programs. But this would have to be complemented by triggering healthy competition among states in the achievement of various program objectives.
The federal government will have to mobilize support among states for reforms and program implementation through continuous formal and informal engagement with chief ministers. It must consciously debunk the entrenched notion of the federal government as the sole authority for formulating plans and providing funds. Frequent informal meetings with the chief ministers, preferably at the regional level, and visits to states other than for ceremonial purposes (such as ribbon cutting or inaugurals) would help.
The National Institution for Transforming India (NITI Aayog), a government-established think tank, should be entrusted with the responsibility of creating a framework for fostering competition among states. Included should be standard mechanisms, such as comparative ratings, third-party assessments, and even financial incentives. The success of the World Bank’s Ease of Doing Business rankings in fostering competition among states should be emulated to develop similar indices for agriculture, education, healthcare, and law and order. An annual festival of the states culminating in awards for best performance on these indices and a few national programs can be a powerful means to encourage competitive federalism.
The multiple-round Challenge competition to select cities under the Smart City Project is a good example of cooperative and competitive federalism at work. The project cost is shared between the central government and the states. Instead of being prescriptive, the central government allowed cities to identify and prepare reports on their preferred set of technology and other interventions. The cities then competed among themselves for funding based on the strength of their respective proposals. Finally, the Ministry of Urban Development provided support with model bidding and contracting documents, technical specifications, and so on. This could form a template for sectoral and program engagement between the central government and the states.
But devolution, too, must go deeper. Substantial devolution of authority, responsibility, and resources to the states, and then from the states to corporations, to municipalities, to gram panchayats (village government), and to municipal and panchayat wards, is urgently needed.
Some or most of these lower administrative units may fail. They may be too overwhelmed by the sudden change in their situation to cope. They have to be open to accepting new ideas, getting new people in, and assigning new powers and responsibilities. Some may buckle under the pressure. The Peter Principle is powerful. But some will succeed, and over time, others may start to emulate them.
To sum up, federalism must be an important part of India’s sustainable growth strategy. The central government has to make it its top priority. A top-down strategy is ill-suited to addressing India’s reduced and fragmented production sector.
Step Back From the Ring: Manage Both Strategic Priorities and Hygiene Factors
Reflecting the grip of short-termism, it is often said that decisionmaking at listed firms occurs on a quarterly basis. Similarly, governments are captive to the demands of electoral cycles. In countries like India, with separate state and local government elections, electoral cycles can be extremely short. This, coupled with the intense media scrutiny, means that public policy decisions are dictated by the immediate and the quantifiable, often at the cost of the important and the structural.
For example, while building schools and bathrooms and recruiting teachers are important activities, they count for nothing unless the learning outcomes are adequate. Similarly, getting healthcare outcomes right requires going beyond making primary care centers function better or unveiling universal health insurance plans to produce more fundamental reforms of the medical education and health regulatory systems. Building public housing for the poor is important, but affordable housing depends on the presence of critical market enablers, such as a mortgage market and making low-income housing attractive to developers. Coal-block auctions are not the same as creating a liquid and broad-based market for coal. Labor market reforms are not just about changes to a few labor regulations but should also address the deeper causes of the predominance of the informal sector.
In all these cases, the immediate and the quantifiable, in addition to being important policy ingredients, are essential for the political economy. Popular narratives on each of these issues are woven around the immediate and quantifiable. Governments doubtlessly need to do the immediate and the quantifiable more effectively. But the important and the structural, which involve strategic choices, lay the foundation for more sustainable growth. The latter are as diffuse and transactional as the former are focused and logistical or decisional. Furthermore, even as the former are the business of individual sectoral departments, the latter require very close interdepartmental coordination. They also entail making difficult trade-offs, taking on strong and entrenched interests, and embracing a long and tough slog—all of which require mobilizing broad-based coalitions.
The central government should view the former as hygiene factors, to be rigorously monitored for their effective implementation. This would placate the opinion makers and political constituency, besides ensuring achievement of program outcomes. Even though the near double-digit growth would not materialize, the government would most likely win another term in office. But what would elevate the government’s legacy to a different level would be its commitment and ability to plan and execute the strategic reforms.
While the immediate and quantifiable can be a large laundry list, the list of strategic reforms would have to be more carefully thought out. The ministries may be empowered and motivated sufficiently to lend leadership to the effective implementation of their programs. But the success of the important and the structural would require political leadership at the highest level. In fact, given the nature of these reforms, tackling them would require considerable political capital and systemic bandwidth.
Pursue Substantive Changes
Governments today are subjected to intense and relentless media scrutiny. The natural inclination, therefore, is to focus on the visible, the salient, and the quantifiable, which are often peripheral and not substantive. This is unavoidable. But it is important to ensure that the latter are not marginalized by the former, and that reforms do not morph into cosmetic exercises and terminate in pyrrhic victories.
Consider the example of the mission to move India up in the World Bank’s Ease of Doing Business rankings. This mission, while unexceptionable, overlooks the serious limitations of the rankings themselves, which are confined to two cities and are a perception (among professionals) and not actual enterprise survey. The danger of a narrow focus is the risk of missing the forest for the trees. Instead, if the underlying objective—namely, to improve the business environment—is absorbed, a more appropriate strategy might be to construct a more robust and credible metric of the regulatory environment and rigorously monitor progress. A broader focus would be a substantive change and would improve India’s rankings on the more high-profile global indices. But realizing such transformation on the field will undoubtedly take time.
Going forward, this focus on the substantive issues should apply equally to the success of other missions concerning financial inclusion, sanitation, skills building, and start-ups. It is relevant to other structural reforms, such as improving the health of power distribution companies or allotting public resources. Each of these missions requires persistent, long-duration effort, applied to multiple dimensions simultaneously, to move the needle. Therefore, the temptation to focus on crude targets and secondary parameters that are quickly achieved can be immense.
Avoid Growth Through Fads and Bubbles
The secular stagnation hypothesis in developed economies implies, among other things, that high growth rates can be achieved only through inflationary bubbles. Much the same thinking applies to India, though the underlying causes are different.
If India is to sustain an 8–10 percent annual output growth, its gross fixed capital formation must grow three to four times as fast at 14–16 percent per annum. Because of India’s narrow capital base, limited supply-side capacity, and weak implementation and contract management capability, such growth can come about only through rounds of aggressive bidding, reckless lending, and irresponsible contracting, and even then only for short periods of time. In essence, that accounted for India’s growth from 2003 to 2008. In 2016, however, the stressed corporate and bank balance sheets make growth based on such behaviors an even longer shot.
That has not stopped the country from trying. For example, a bubble may be inflating in solar power. A risk exists that massive capacity may be opened to bidding without sufficient evacuation and grid management (balancing solar with conventional power, the latter to be made operational or diverted, based on demand) capabilities. Even with the best possible implementation, putting in place proper evacuation and grid management techniques would take many years. The fissures should start showing up as these issues start affecting more than a few gigawatts of solar capacity addition. More disturbingly, reckless bidding and disingenuous financial engineering are never far away from such trends. The ongoing existential crisis facing SunEdison, a poster child for clean energy and a pioneer of financial engineering through publicly traded yieldcos, is just one example.148 In November 2015, the firm shook the Indian solar markets by bidding below Rs 5, at Rs 4.63, for a solar park in Andhra Pradesh. Developers, banks, and taxpayers could be left holding the bag for the irrational exuberance.
Just as with improvements in higher education, any rapid expansion runs the strong risk of coming at the expense of quality, and its longer-term costs would be far higher than its immediate benefits.
The RBI governor summarized the risks well in his C. D. Deshmukh lecture, delivered in January 2016: “It is possible to grow too fast with substantial stimulus, as we did in 2010 and 2011, only to pay the price in higher inflation, higher deficits, and lower growth in 2013 and 2014.”149
With deficits in consumer spending power, firm capacity, retail and other transactional chains, the breadth and depth of credit markets, skilled labor supply, and infrastructure capacity, India’s economy is simply not broad-based enough to sustain high growth rates for long durations. The weak state capacity and various land, capital, and labor market distortions only exacerbate the problem.
India therefore needs to build a more broad-based and deeper economic and social foundation to be able to grow sustainably at high rates. Unfortunately, this cannot be achieved through shortcuts. It will require persistent efforts in multiple dimensions over an extended period of time.
A more prudent strategy, then, may be, as Jahangir Aziz says, to “hunker down” and brace for 5–7 percent medium-term growth rates while simultaneously expediting important long-term reforms in health, education, labor, the credit markets, taxation, and, most important, improving state capability.150 Throughout this process, infrastructure investment must be kept up so that the stock builds up and the deficiency shrinks. If all goes well, within four to six years India can be where China was in 2001 and can then take off in a more sustainable manner.
Policymakers and political leaders may need to acknowledge this reality, while also pursuing the strategy of talking up the markets. The latter is necessary not just to win elections but also to reassure the financial market participants. But the former, acknowledging the reality and dealing with it, is where substantive action should take place.
Once the deficiencies are recognized and action is initiated, it is certainly possible that the dynamics generated by them and the several strengths of the Indian economy would interact to expedite the transition to a higher growth trajectory. A better future is founded on realism; otherwise it is simply building castles in the air.
The RBI governor had this to say on the distinction between self-belief and hype:
No country succeeds without believing in itself—I do not mean the unwarranted belief that we are intrinsically better than everyone else but the confidence that given our population, our demographics, our massive infrastructure investment opportunities, and the wide range of capabilities in our people, the arc of history is turning towards us.151
Scale Back Expectations: Promise Less, Deliver More
In hunkering down, one scales back expectations. Apart from many other changes, the 2014 national elections ushered in a revolution of rising expectations. Political pundits framed the time as no less than a bright new dawn after a long night of gloom and despair. The new government announced an ambitious set of mission-mode programs and exhibited a remarkable commitment to stamping out corruption and restoring probity in governance. These promises were doubtless necessary. But they also amplified the expectations and fueled the belief that dramatic overnight transformations were around the corner. Because of the complex nature of the challenges that were to be addressed through these programs, however, it was impossible to produce meaningful results in a short time. Disappointments were bound to set in.
Overpromising assumes even greater significance in an age in which the media play an important role not only in shaping the public policy agenda (and its reception) but also in setting it. Communicating important initiatives, therefore, is as much about being clear on the details as it is about managing the expectations surrounding the initiatives. Unfortunately, managing expectations is often taken to mean ginning up expectations.
It is a mantra of management gurus that businesses should underpromise and overdeliver.152 This aphorism applies equally well to governments, whose survival is critically dependent on meeting, or even exceeding, public expectations.
It should be the government’s strategy to shape expectations around important behavioral changes (as with the Swachh Bharat Mission) and paradigm shifts (focus on the state government’s role, learning outcomes, and so forth). But communicating about such issues most often is reduced to discussing specific actions and what targets have been achieved. This approach takes away from the more critical dimensions of the issue: the difficult nature of the task, the constraints that limit the anticipated changes, the role of each stakeholder in the process, the need for sustained effort and sufficient time. The government’s communications strategy should be to frame the agenda for each of its initiatives by incorporating all these dimensions.
In democracies in general, a culture of underpromising and overdelivering should replace the culture of tall promises and outcome shortfalls. The economist Alan Blinder advocates that approach for two reasons:
One is that progress will probably come slowly. Economic problems rarely disappear overnight. They dissipate slowly, like a dense fog. For a long while, the people will see little or no progress. The public needs to be conditioned to expect that, and not to look for quick fixes. Otherwise, their naturally short attention spans will dominate public discourse. The other is that there is no political punishment for doing better than you indicated, but lots for doing worse.153
Don’t Obsess Over China’s GDP Size
It is no exaggeration to suggest that India’s high-growth quest is largely motivated by China’s quarter century of transformational growth. That is a good thing. China’s growth showed India that big size does not preclude fast economic growth. For the aspirational middle class, the elites, and political leaders, India’s northern neighbor is a touchstone for India and its growth something to emulate. Its immediacy, both in time and in geography, and its staggering scale have captured the Indian imagination.
But there are compelling reasons to argue that China’s path to growth may not be the appropriate model for India. First, unlike China, India does not have the requisite human, physical, and financial capital or state capability needed to sustain such high growth rates over long durations. Second, the proximate domestic driver of Chinese growth was its extraordinarily high public investments, in the range of 45–50 percent of GDP, which India cannot come close to matching. Third, the external counterpart, export-led growth, was facilitated by favorable global geopolitical and economic structures, which may have turned against continuing Asian growth. Finally, as recent events have shown, such breakneck growth is inevitably distortionary and engenders profoundly destabilizing risks with the potential for long-term damage.
Doubtless, there are certain important lessons to be drawn from China’s experience—none more important than its heterodox and iterative strategy of “crossing the river by feeling the stones,” to use Deng Xiaoping’s phrase. India needs to do the same, especially with deregulation in various sectors, trade liberalization, and a greater opening up of the financial markets. India also needs to absorb the lessons from China’s investments in human capital, its focus on urbanization, its investments in transportation infrastructure, and the like. And finally, India needs to embrace the Chinese strategy of letting a “million marginal revolutions” bloom.
Break Down Silos
In an interview with Time magazine’s editors, Prime Minister Narendra Modi offered the following observation about the central government in New Delhi:
Similarly, it was my experience after I entered the Federal government that different departments of the Government of India tend to work in silos. Each department seems to work as a Government in itself. . . . My effort has been to ensure that these silos get broken down, that there is a collective thought process which is brought about in the Federal government. And I think we have managed to achieve that in a short period of time wherein everybody thinks together as a collective, everybody works together. And also it has invigorated the administrative system of the Federal government which looks at a problem in a collective manner rather than as individual silos.154
The prime minister could do no better than repeat this every time he addresses officials. While large organizations and their bureaucracies generally work in silos, this trend is excruciating when found in the government of India, not just across ministries but within departments, too. Officials elevate turf interests over public interest or departmental objectives.
The power sector is but one example of organizational silos leading to loss of efficiency. Transmission capacity has failed to keep pace with generation, distribution-side reforms have failed to keep up with all other changes, and the expansion of renewables has failed to keep up with grid management investments. It is true that some of these problems are beyond the control of the Ministry of Power and would occur even with dynamic leadership, but the criticism that there is no agency with a comprehensive view of the sector has merit. Having a separate Ministry of New and Renewable Energy highlights the problem, for its success is critically dependent on the Ministry of Power developing transmission and grid management capacities and retrofitting existing thermal plants.
Metro rail projects are another example of silos at work. While such projects are universally viewed as critical instruments to guide the density and form of urban growth, in India they are seen predominantly as trophy engineering projects. Even commonplace policy levers such as higher density along rail corridors are cast aside in the eagerness to get such projects sanctioned.
One immediate action agenda would be to consolidate all the departments in each ministry and have them function as a single entity. This move should be accompanied by the merging of certain ministries. Apart from breaking down silos, consolidation would free up considerable scarce human resources, which could then be more optimally deployed, with duplication of activities eliminated.155
Breaking down silos is difficult even under the best of circumstances. As Gillian Tett has recently documented, even more cohesive and smaller organizations, such as Sony or the Bank of England, have failed to do so.156 But it is important for the leadership of India’s ministerial departments to be made constantly aware of blind spots that can distort their actions and distract from their pursuit of larger objectives.
The role of leadership in achieving economic, social, and political transformations is usually glossed over, not because it is unimportant but because it is too important to be discussed by economists. Technical solutions to problems can be found by hiring technocrats and other experts, but implementing solutions and getting them to work require leadership.
In October 2012, at the height of gloom and despondency over India amid growth challenges, corruption charges, and the collapse of governance, Shankkar Aiyar, author of Accidental India, wrote the following about leadership: “Leadership is not about pickled intellect. It is driven by imagination, a willingness to reflect, ability to inspire, to listen and to have the courage of conviction to embrace risk.”157 That is a useful list of the attributes of successful leaders. We discuss some of them in this section.
In the main, leadership is about making decisions in the pursuit of transformation of the society and the country. Decisions involve trade-offs and making choices. Leadership is a popularity contest, but with a twist. It is about choosing between appeasing the current generation versus courting the goodwill of future generations. Successful leaders bet their future on the uncertain goodwill of the unborn. The time inconsistency is not easy to handle. It is hard to resist giving in to the temptation of dealing with the here and now instead of waiting for the uncertain rewards of the future.
Resisting that temptation requires awareness and an acceptance of delayed gratification. Resistance to change is common, but leadership is usually about effecting change. Leaders can break down resistance with appeasement or with empowerment, combined with accountability. Appeasement buys peace and cooperation in the short term but at the cost of potential long-term damage.
At the same time, enforcing accountability is not cost free. In the short term, adverse economic consequences are possible, resulting in personal unpopularity. But visionary leaders trade off short-term popularity for long-term national interest. When decisions—choices and trade-offs—are made with the consistent application of values and ethical norms, the credibility of the decisions and that of the leadership will be enhanced. The public will understand and accept decisions better. This takes time, often longer than an electoral cycle. Hence risks need to be taken. But conviction and communication could make such risk taking electorally rewarding, too.
Keeping Wise and Fearless Critics Around
In India, the Tamil sage Thiruvalluvar dedicated one chapter (couplets 441 to 450) to the idea of surrounding oneself with wise men who would keep kings grounded and ensure they ruled the kingdom well, in the interests of all the subjects.
தம்மிற் பெரியார் தமரா ஒழுகுதல்
வன்மையு ளெல்லாந் தலை (Thirukkural 444)
A king wise enough to have men of greater wisdom than he to advise him shall be a powerful ruler.
இடிக்குந் துணையாரை ஆழ்வாரை யாரோ
கெடுக்கும் தகைமையவர் (Thirukkural 447)
Where the king’s counselor possesses the courage to reprove him when necessary, nothing on earth can bring about such a king’s ruin.
இடிப்பாரை இல்லாத ஏமரா மன்னன்
கெடுப்பார் இலானும் கெடும். (Thirukkural 448)
Without courageous counselors to point out his faults and so protect him, a king will ruin himself, even without foes.
பல்லார் பகைகொளலிற் பத்தடுத்த தீமைத்தே
நல்லார் தொடர் கைவிடல். (Thirukkural 450)
It is surely foolish to incur the enmity of many foes, but ten times worse to lose righteous friends.158
These four couplets (kurals) capture the importance of leaders surrounding themselves with friendly, fearless, and well-meaning advisers. It is useful advice for leaders at all levels. India has been a feudal society for most of its modern history. Most scholars, pundits, and poets depended on the king’s munificence to sustain their livelihood and their vocations. Hence a certain amount of sycophancy—deserved or undeserved lavish praise—is deeply ingrained in Indian history and culture. At the same time, the culture has provided for a Tenali Rama to advise and counsel Krishna Deva Raya and for a Birbal to advise Akbar.
In the Indian context, in light of the immense challenges of steering the Indian economy to prosperity in what are likely to be inhospitable conditions, the role of leadership becomes that much more critical. Indeed, it can be argued that strong, effective, competent, and enlightened leadership may or may not have been necessary for today’s developed economies because other factors were vastly more favorable to them. For India, it is the other way around. Since many of the favorable factors have vanished, leadership has become critical to the restoration of economic growth and the achievement of economic prosperity.
In his book After the Music Stopped, Alan Blinder notes that the Obama administration was guilty of not trumpeting four messages from the moment Obama was elected president in 2008:
1. Here is how we got into this mess.
2. This is what we propose to do to fix the problems.
3. We have a coherent plan, and here is why it makes sense.
4. This is going to take time, so please bear with us.159
That is a good action and communication template for Indian leaders, too.
Communication makes the difference between persuasion and coercion. In the age-old fable, it is the sun gently bearing down that removes the cloth from the itinerant traveler and not the fierce wind that threatens to snatch the cloth from him. The sun succeeded because it made the traveler feel it was in his interest to let go off the shawl, whereas the wind tried to impose its will on him. Success comes to those leaders who make others feel they are in command of their decisions.
Can India grow? In 2004, development economist Dani Rodrik and Arvind Subramanian, India’s current chief economic adviser, collaborated on a paper showing why a 7 percent real GDP growth rate in India was likely. They believed that India had the potential to do better. One of the premises of their optimistic conclusions was that a reduction in India’s demographic dependency ratio would lift the savings rate from around 25 percent to 39 percent—the demographic dividend. They felt that change alone would guarantee a growth rate of around 5.4 percent. Even with no changes in educational attainment or labor force participation rates, labor was supposed to add an additional 1.3 percent.160
For a while, between 2004 and 2008, it appeared that India was on track to do better than what Rodrik and Subramanian had suggested. Despite an improving literacy rate, however, the employable population remains too low. Labor force participation has not improved. The savings rate increased up to nearly 37 percent but is now at 30 percent. The productivity of capital and labor is not measurable but in any case is too low.
India’s economic potential, in theory, is quite high. In practice, it has always fallen short of expectations. The first step on the long road to redemption is to accept that a higher growth rate for India and its rise to preeminence (economic and otherwise) in the twenty-first century are not preordained. Optimism is essential to pace and scale up effort. However, acceptance of the problem comes before optimism. Second, developing a solution to solve the problem and securing the consent for the plan requires a realistic assessment first. The third step is to realize the need to allow sufficient time to pass for deeds to produce fruit. Premature declarations of victory betray an insecure and diffident mental inclination.
Before the finalization of the Twelfth Five Year Plan, the erstwhile Planning Commission of India conducted a scenario exercise in 2012.161 It envisaged three alternative scenarios emerging in India in the ensuing ten years, which the commission dubbed “falling apart”, “muddling along,” and “the flotilla advances.” The people and institutions whom the commission surveyed—civil society organizations, as well as experts in economic and social development and international relations and environmental issues—at the time felt that India was muddling along. For the most part since independence, India has operated on the border between falling apart and muddling along. As for the flotilla advancing, it had only glimpses, all too brief.
However, it is dangerous to be satisfied with muddling along. It is a not a badge of honor to be worn with pride. The danger of continuing to muddle along is that society becomes increasingly vulnerable to external attacks and internal shocks. The risk of falling apart rises. The Planning Commission correctly noted that the perception that the story of India was falling apart could induce people to take unilateral actions to serve their own interests, making cohesion more difficult.
The report explained that “[India] is not a naval fleet, with all captains enjoined to obey the admiral’s orders, but a flotilla of ships under the leadership of a flagship headed by a commodore who is elected to be first among equals.”162 In the best-case scenario, in which the flotilla advances, the commission envisaged “a concerted effort to adopt decentralized governance and solutions, along with a focus on opportunity-based inclusion produces more sustainable strength—both socially and economically for the country.”163
This has sought to make the flotilla advance. Economic growth and social progress are best achieved by stripping away illusions and delusions and starting with a stark understanding of the challenges that confront India. Once that understanding is in place, the necessary policy and behavioral changes can and will follow with relatively more ease. Then prosperity and a life of dignity will become possible for the vast majority of Indians within a generation.
145 Ronald Coase and Ning Wang, How China Became Capitalist (New York: Palgrave Macmillan, 2012).
146 Ezra F. Vogel, Deng Xiaoping and the Transformation of China (Cambridge, MA: Harvard University Press, 2011).
147 Wei-Wei Zhang, Ideology and Economic Reform Under Deng Xiaoping 1978–1993 (New York: Routledge, 2010), 188.
148 Brian Eckhouse, “How Wall Street’s Favourite Solar Company Spent Itself to the Brink,” Bloomberg, March 31, 2016, http://www.bloomberg.com/news/articles/2016-03-30/the-2-6-billion-buying-binge-that-felled-solar-giant-sunedison.
149 Raghuram Rajan, “Financial Reforms: Past and Present,” C. D. Deshmukh Lecture at the National Council of Applied Economic Research, January 29, 2016, https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=986.
150 Jahangir Aziz, “Now, Hunker Down,” Indian Express, September 17, 2015, http://indianexpress.com/article/opinion/columns/now-hunker-down/.
151 Raghuram Rajan, “Sustainable Growth in the Financial Sector,” 4th C. K. Prahalad Memorial Lecture, Mumbai, September 18, 2015, https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=976.
152 Tom Peters, “Under Promise, Over Deliver,” tompeters.com, 1987, http://tompeters.com/columns/under-promise-over-deliver/.
153 Alan S. Blinder, After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead (New York: Penguin Publishing Group, 2014), Kindle edition, 441.
154 Nancy Gibbs, Zoher Abdoolcarim, and Nikhil Kumar, “Exclusive Interview with Narendra Modi: ‘We Are Natural Allies,’” Time, May 7, 2015, http://time.com/3849492/narendra-modi-interview/.
155 Irrespective of its size, all departments have to maintain divisions for certain common activities, such as RTI replies, Parliament questions, Vigilance, and Official language translation.
156 Gillian Tett, The Silo Effect: The Peril of Expertise and the Promise of Breaking Down Barriers (New York: Simon & Schuster, 2015).
157 Shankkar Aiyar, Accidental India: A History of the Nation’s Passage Through Crisis and Change (New Delhi: Aleph Book Company, 2012).
158 Thirukkural is an ancient works in Tamil literature, consisting of 1,330 couplets on topics ranging from individual and household morality to statecraft. It is said to be date from between the third and first centuries BCE.
159 Blinder, After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead, 440.
1 Dani Rodrik and Arvind Subramanian, “Why India Can Grow at 7 Percent a Year or More: Projections and Reflections,” IMF Working Paper, July 2004, https://www.imf.org/external/pubs/ft/wp/2004/wp04118.pdf.
160 Planning Commission of India, Scenarios: Shaping India’s Future (New Delhi: Government of India, July 2013), http://planningcommission.nic.in/reports/genrep/rep_sce2307.pdf. The Planning Commission has since been disbanded. In its place, the Narendra Modi government established the National Institution for Transforming India (NITI Aayog) in January 2015.
161 Planning Commission of India, Scenarios: Shaping India’s Future (New Delhi: Government of India, June 2012), 26, http://planningcommission.nic.in/news/tender/rfp_model0507.pdf.
162 Ibid., 33.