India has made an ambitious push with PPPs (public-private partnerships) to build infrastructure for power, roads, airports, and ports. Many of these projects have become unviable because the terms of their long-term contracts did not allow for unforeseen difficulties. These stranded projects have created a huge overhang of NPAs (non- performing assets) with Indian banks. Economists’ concerns are that further investments will not come and economic growth will not be sustainable unless a more practical view is taken and legal contracts are undone. A more poignant issue where the sanctity of contracts is colliding with the sustainability of businesses is waivers of farm loans by many state governments. With farmers who are unable to pay off their contracted loans committing suicide, what is at stake here is the sustainability of farmers’ lives. In this case, some of the same economists, who plead for policy-makers and courts to be practical in the case of bank loans to large infrastructure companies, invoke moral hazard to argue against writing off the loans of small farmers.
Citizens’ trust in the ability of their state’s institutions to deliver justice is a condition of good societies. What would make a better governed society? Enforcement of contracts, regardless of their consequences, as Shylock had insisted in Shakespeare’s Merchant of Venice? Or, that public institutions should consider the welfare of all affected? In great societies, trust in institutions goes much deeper than expecting that legal contracts will be enforced regardless of their consequences. It comes from the confidence that, if the unexpected should happen, all points of view will be considered fairly and justice will be done.
A senior bureaucrat said to me that he would not take a decision, though he was expected to, because the matter was too complicated and he feared he would be accused of being partisan whichever way he decided. He would rather let the matter go to court to be resolved there. On the other hand, there is growing concern that India’s Supreme Court, before which many contentious and complex issues are being presented, is interfering in matters that should be left to other wings of government. Moreover, its critics say that courts do not have the competence to understand complex, economic and technical issues.
Such criticisms have followed the Supreme Court’s recent decision regarding the implementation of pollution norms by automobile companies as well as its decision that two private power producers must honor their contracts to supply power at the pre-agreed prices even though the price of imported coal on which they rely has increased sharply. In these instances, the Supreme Court had not given any new decision. In the automobile industry case, it upheld a decision taken by the executive branch. In the power producers’ case, it upheld the sanctity of contracts voluntarily entered into by the parties.
Reality must be faced, whether one is from the left or right of the political spectrum. The future cannot be predicted too far. In the case of businesses, technological changes and geo-political uncertainties (especially when businesses become connected into global supply chains, as the Indian power projects were), make it very difficult to foresee all contingencies beforehand and factor them into contracts. Farmers have a very hard time too, predicting the weather and prices for their produce. In such cases, what should be honored for justice to be done? The legal contracts that were signed—which in the case of the infrastructure projects were clearly without coercion. Or, should considerations of the welfare of the farmers and investors, and the sustainability of their businesses and lives, over-ride legal contracts?
Experts in no discipline, not even economists, can have the ability to see all aspects of complex systems. Modern experts in social sciences, including economics, are becoming increasingly specialized. They know more than others do about a part of the whole, as do specialists in modern medicine. Therefore, one cannot expect to find any expert with a solution that will do justice to the welfare of the whole system. Therefore, adding an economist to India’s Supreme Court, as some economists are proposing, will not be adequate. Besides, economists (and other experts too) also have their ideological preferences. Those on the right of the political spectrum evoke the concept of moral hazard to deny farmers relief, while those on the left evoke it against forgiveness to large investors.
Many points of view, like the many blind men around the elephant, must be brought together to make sense of complexity. Moreover, in dynamically changing situations, conditions on the ground must be considered to understand reality. Therefore, good and just solutions can only come from a good process of participation of affected stakeholders.
A competent executive and unbiased courts are only two legs of the stool. The third leg is required for societal stability. The third leg is a systematic process of democratic deliberations to supplement the formal institutions.
Prof. Mark Moore of the Kennedy School of Government writes in Creating Public Value: Strategic Management in Government: “We might think of this activity (of public deliberations) as helping to define rather than create public value. But this activity also creates value since it satisfies the desire of citizens for a well-ordered society in which fair, efficient, and accountable public institutions exist”. In other words, the quality of the process of resolving economic and social issues and making public policy is a public good of great value in itself. It increases citizens’ trust in the institutions that govern their lives. Moreover, participative and well conducted multi-stakeholder processes increase social solidarity, which makes good societies.
India, an aspirational and democratic society on the move, is confronting multi-faceted challenges of growth. The expertise it needs is the expertise to design and conduct good, democratic public deliberations. Such processes, rather than experts, or fights on social media or the streets, will produce the best and most just solutions.