Opening a seminar of economists in Delhi on July 26 to discuss the three alternative scenarios prepared by the Planning Commission about the future of India, its Deputy Chairman explained that growth rates cannot be estimated by economic calculations alone. The quality and pace of implementation of policies and plans will determine the scenario that will actually emerge. NCAER has calculated what the outcomes of the three scenarios may be. The best, ‘The Flotilla Advances’ could produce 7.8% growth. Growth in the second, ‘Muddling Along’ will be 6%, and in the third, ‘Falling Apart’, growth can dip further to 4.8%.
An economist pointed out that since growth in the first year of the Plan may be less than 5%, 6% in the second year, and perhaps 6.5% in the third, even if growth in the last two years were to be 8%, overall growth in the Plan will be 6.5% The Deputy Chairman said that whereas growth may be less than 8% on account of performance in the first three years of the Plan, the point to note is the ‘deltas’ between the best and the other two scenarios. If the best is lower the other two are likely to be even lower, making growth in the second and third scenarios dangerously low. Therefore we must focus on the reasons for the deltas and these are principally issues of governance and implementation.
There are three principal reasons, other than external conditions, that will determine the average growth in the Plan. The first is that the first year of the Plan was lost because the Plan itself was not ready till the end of the year and allocations to the various sectors were finalized only in the second year.
The second reason is that with the upcoming election another two years may go by before a Government will get organized and begin to focus on improving governance and implementation. Thus three years of the Plan will pass by.
The third reason is poor governance and implementation. The Plan itself notes that without improvement in these critical areas the Plan’s results cannot be achieved in growth, inclusion or sustainability. The scenarios vividly illustrate the consequences of insufficient action on these fronts and also the need to improve the quality of the country’s institutions.
Both Amartya Sen and Jagdish Bhagwati, in their ongoing debate, acknowledge the need to improve human development in India as well as growth. However Bhagwati says insufficient growth will not produce adequate resources for human development programs. Therefore the question is, how much money do you need? India’s expenditures on health and education are wasteful. Too little trickles down to the intended beneficiaries. Since schemes are badly designed, even when the money is spent on what is specified, such as school buildings, the outcomes in terms of improvement of education are very poor.
Implementation must improve in infrastructure projects too. When projects get stuck due to many reasons such as land acquisition, environmental clearances, and disputes because contracts in PPP projects are badly designed, money lies idle. Such delays and disputes deter more investments into infrastructure which are much needed. FDI in many sectors has not been coming in. Opening up more sectors will not improve this. Because the problem is not that investors do not see the potential in the country, they are deterred by the muddles within. Even domestic investors, who do not need the Indian economy to be opened up to them, are hesitant to invest in the country and several are investing in projects abroad where they expect faster results.
NCAER’s economic model explains the imperative to draw in more investments especially in infrastructure. For the first time, NCAER has included human capital as infrastructure, in addition to physical infrastructure, because it has great potential to improve productivity in the economy. It is clear that to attract more investments as well improve productivity of the present physical and human infrastructure, improvements of governance and implementation are the keys. These are variables that cannot be quantified and therefore are not included in a computable economic model. However they cannot be excluded from understanding the performance of the system and the outcomes it will produce. Scenario planning enables these critical variables to be included too.
Another benefit of scenarios is they are presented in simple terms and not economic jargon. They can engage many people in a broader public discussion on the best policies for the country. Scenarios were used for this purpose in South Africa in the 1990s when the country had to be brought together with the abolition of Apartheid. The scenarios were prepared by a diverse group of people, black and white, cutting across the political spectrum, Left to Right. Presenting the likely futures of the country in pictures and metaphors supported by economic and social explanations, they could be understood even by people in villages. The India scenarios are a timely innovation in the country’s planning process and can be used similarly.