‘Since we are not fixing institutions, India is falling apart’: Arun Maira

With his longstanding experience in consulting and hands-on leadership, Arun Maira brings an outsider’s perspective into the Planning Commission. In a free-flowing discussion with Hardnews, he says the economy has yo-yoed between ‘Bollyworld’ and ‘falling apart’ because of lack of political will to initiate administrative reforms. Excerpts from the interview: 

Sadiq  Naqvi Delhi

 We managed the 2008 crisis well. Why are we suffering so badly now?

In 2005, the World Economic Forum did some scenarios for India. They were of the view that economic forecasts are generally wrong, they extrapolate things. The economist just looks at economic factors, ones that go within their models and declare everything else exogenous. That means the quality of the institutions of the country, the politics of the country or the anger in the society of the country, are all exogenous stuff. We can tell you investment rates and so on as if investment will be carrying on regardless of social conditions and political conditions in the country. So they are flawed models, the macroeconomic models. The macroeconomists know it, now that they have got so many big things wrong. We used the scenario technique in 2005. We conducted the survey in India, using the scenario technique, using the different forces in play and projecting which direction these forces could take, and we developed conditions of the model.

Three scenarios emerged. One, called ‘Pehle India’, was the scenario in which most forces were aligning in a positive fashion and India would be able to fulfil its economist sort of story of being a very large economy. Another model was present in 2005, which they called ‘Bollyworld’, where they said there are a lot of tensions building up, whereas there was GDP growing, and people were becoming richer. Poverty was not reduced adequately, but, more important, the difference between those who were finding they were not very well-off and those who were shooting up like stars was very obvious. So the result of these tensions, they were noting even then, was the growth of violence in the cities, the growth of the Naxalite movement. So the tensions were obvious. And if we let them be like that then, they projected, India would be what they called ‘Atakta Bharat’. So then we had said that if under ‘Pehle India’ we fix these tensions, improve the institutions, we could get a 9-10 per cent growth for many years. External factors could play a dampener, but India was not so much dependent on external forces. Under the Bollyworld model, they said the situation would continue for two-three years for the tensions were out there, so you would go with 9-10 per cent growth for the next three years and then the decline would start. And they said if tensions erupt more strongly, and there is a logjam of sorts, then it could even bring you down to five percent in seven-eight years’ time. That is what happened. It is not that it was not anticipated.

So what had to be fixed? It is the quality of the government institutions, institutions of big business who were not cognizant of what impact they were having, the mistrust that had built up. We had an anti-corruption movement which said precisely this, fix the institutions. And also after the rape incident. The foreign investors are also saying the same thing.  So it wasn’t a matter of opening up the economy for more investments. Unless you fix the institutions, which the investors also want fixed, the citizens also want fixed, your economy will get into an ‘atakta’ situation. That is what has happened.

So, when we developed the 12th Five Year Plan this time, we agreed that we would use the scenario planning technique. Some of us actually said that we better use this other technique as well and not just rely on macroeconomic models. In the opening pieces of the 12th Five Year Plan we have these three scenarios that we can see in the next 10-odd years. The diverse group of social scientists, civil society and economists came out with three scenarios. The first one is muddling along. That is, we try to fix one institution, and then another one comes in the way, then we say let’s fix that first. Then this reform, that reform, so it’s just muddling along. The better scenario was, if the governance is tuned up, if the institutions are tuned up, we would have a scenario called the ‘flotilla advancing’.  And the third scenario, if we allow the muddling along too long and the tensions in the system to build up, would be a falling apart of this growth story. Since we are not fixing the institutions, the falling apart is pulling the growth further down. India has to fix its institutions. It’s long overdue. India has had reforms since 1991. Almost everything is open now except for some financial sector things over which we have some sensible controls, which even the macroeconomists say shouldn’t be opened so soon. There is pressure to open them, but we have some good financial management people. So India is as open as any other country in terms of trade and investment. 

Looking at the institutions, the kind of things people are demanding now, do you think their demands are justified… Like the demand for an all-prevailing Lokpal to stem corruption?

We need institutional reforms. People are demanding institutional reforms, they are absolutely right. This is one great case — both communists and capitalists are asking for the same thing. They are completely on the same side. You got to fix your system in the country. I wouldn’t say that the problem is this particular thing, the agenda is clear. Now the solution should be in terms of governance reforms.