The legacy of command-control, though diminished in impact, has enshrined a sub-optimal mode of economic governance. It has legitimised the right of the state and its agencies to intervene incompetently in every economic activity. At the same time, it has impeded the state from stepping back, levelling the playing field, inducing competition, and regulating capably and fairly in a manner that engenders trust on the part of the corporate world and the public. There is a peculiar ?in principle? predisposition on the part of Indian officialdom to stay in the middle of whichever shifting intellectual continuum defines economic thinking at any time even when that makes no sense. Often this leads to the state?s inability to guide, encourage, enable and regulate. That is compromised by myriad conflicts-of-interest, e.g. when the state is an owner of enterprises and banks, as well as a competitor with non-state-owned players on the playing field.

In some ways this portrayal is paradoxical. Anyone with personal experience of working with elite members of the Indian Administrative Service (IAS) would find them to be exceptionally capable (unlike their political masters). They could hold their own anywhere in the world and in the private sector. In a different environment governed by different rules, they would outperform their counterparts in most developed countries. Yet, the sum total of their efforts impedes rather than facilitates India?s progress (though less so post-1990s). That is not because of their inherent qualities. It is because the political and bureaucratic system under which they toil detracts from rather than enhances their efforts and contributions. Over time that system has fostered a psyche throughout the civil service that is counterproductive to efficiency and effectiveness. Nevertheless, many of them have made country-changing contributions to designing and implementing reforms against the odds. These need to be more widely recognised and publicly acknowledged.

State can?t be both player and umpire

But, accustomed to decades of command-and-control, Indian policymakers and officials (policy-implementers) have become delusionary believers in ?make-it-up-as-you-go-along? heterodoxies of their own creation. Only they can understand and apply departures from orthodoxy and common sense, have the kind of knowledge, judgement and Solomonic wisdom that no one else has, can make the impossible trinity possible, know what the right exchange or interest rate should be at any given time, know exactly what the mix of capital controls will work or which derivatives should be permitted and which banned, etc. Because of this unshakeable belief in their own omnipotence, omniscience and omnipresence, it is unthinkable for such managers of India?s economy to accept that they might be wrong or that state cannot be a player while being a referee and umpire at the same time.

In India that is not seen as a non-sequitur or paradox. It is accepted as a way of life; just as corruption (intellectual and material) is seen by most Indians not as a cancer corroding India?s core, but as an indispensable lubrication that keeps the wheels of commerce and government turning.

Such beliefs have resulted in situations like RBI?the principal financial regulator?also being for 50 years the owner of the largest bank in India without the question of a conflict of interest being raised. Regulators in all sectors protect and favour the interests of structurally inefficient state-owned enterprises over other, better players. Adherence to these myths has encouraged an unhealthy ?politician-bureaucrat-crony industrialist? nexus to emerge that compromises India?s future. It has spawned a peculiarly Indian version of crony capitalism that is blind to damaging abuse of related party interests. Its legacy is visible in the wielding of untoward political influence by industrial groups aligned with particular political interests to obtain illegitimate entry and enshrine ?last-mover? rather than ?first-mover? advantage in a number of regulated sectors, e.g. infrastructure, mobile telephony and energy.

This digression into history has been essential in setting the stage for what needs to be done for India to become an equal member of the troika (America, China and India) that will shape the world as the 21st century unfolds. It is more a case of what needs to be undone rather than what needs to be done. India needs to dismantle its command-control apparatus of economic governance, along with the attitudes that underpin its application by officialdom that has evolved in a perverse way. For India to realise its destiny, extant dysfunctional economic governance based on command-control precepts needs to be replaced with guidance mechanisms that turn the state into an ?enabler and regulator? rather than remaining a ?controller?. In the 21st century, the state must transform itself to channel India?s entrepreneurial capacity rather than suppressing it or attempting to compete with it through state-controlled entities that are more political, less commercial, less efficient, less effective and less capable than non-state entities.

The disastrous consequences of earlier policy choices unfolded until the crisis of 1991 made a break with the past inevitable. When he became PM, Rajiv Gandhi realised instinctively that the poor choices made by his forbears had driven India into a cul-de-sac. He attempted to induce partial tentative reforms in the mid-1980s before his untimely demise. They did not have much immediate impact. But they set the stage for bolder reforms five years later.

Post-1991?with delicensing and trade/tariff reforms that rolled back (only partially) state interference in the economy?it has been a different story. Over the last two decades, India?s PCI has grown by greater than 5% annually on average?10 times faster than before. And that has happened with partial, half-hearted reforms! It has made it possible to imagine India?s PCI reaching the world average by 2035 and becoming a developed country by 2060. That would have been an impossible dream two decades ago. Imagine what could happen with bolder reforms which India?s government was committed to implementing in a properly sequenced manner over the long run.

What prevents that outcome is the entrenched legacy of command-control (i.e. mentality-cum-machinery) that guides India?s current economic maladministration, along with the political obduracy that has so damaged India. The debate over reforms is no longer about efficacy, pragmatism, ideology or theory. It is not even about inclusiveness and poverty alleviation. It is clear to almost every

Indian by now that inclusive development and poverty reduction depend entirely on rapid investment and employment through a growth strategy that plays to India?s labour surplus advantage rather than playing to its deficiency of capital. India must sustain an average growth rate of 9% (allowing for variations in a range of 7-11% to accommodate business cycles). Growth must be labour rather than capital intensive. The current capital intensity and lack of inclusivity of growth is due to labour laws that discourage companies from expanding formal employment in a manner conducive to inclusiveness being ensured.

Reform path is clear

That, in turn, requires reform to be reignited. The direction of reforms is clear. The path has been laid. What India has to do is walk down it. Reticence to reform further and faster is not due to uncertainty about what will work and what won?t. It is about the relative loss/gain of power and benefit that will accrue to political and administrative classes versus the entrepreneurial classes and aam aadmi. If reform tilts the balance away from political control of the kind that is presently being exercised, then reform will be blocked.

There is a frightening complacency in political circles about the need for, and urgency of, further reforms. It is matched by reciprocal frustration on the part of the populace and corporates about the lack of progress with further reform. Absent a crisis, India?s political leaders?across a spectrum that is as fractured as it is clueless about a coherent economic/financial reform agenda or how it should be sequenced? cannot agree on continuing reforms without which India will backslide.

To cap it all, India?s young, impatient, dynamic citizenry is now led (with a few exceptions) by a coterie of seasoned septuagenarians genuflecting to remote-control political leadership that is economically untutored. Such ?leadership? comprehends little other than short-term imperatives and compunctions of vote-bank politics; its horizon is the next election. Sadly, the UPA remains unconvinced that reforms can be designed intelligently to win votes. It remains seared by its own experience in 1996, and the NDA?s experience of 2004, whose lessons it has mislearnt. It is not that reforms lose elections but that reforms need to be carefully designed to win them.

Notions of time and urgency on the part of India?s leadership belong to the 19th rather than 21st century. It is inherently too risk-averse, cautious, conservative and timid. It favours reform by stealth, incrementalism and gradualism. It seems incapable of being bold, decisive, ambitious or audacious, when India is at a cusp which demands those qualities and attributes to be displayed. Its reluctance to act will compromise millions of Indian lives that could be improved much sooner.

(To be continued)

The author is an economics and corporate finance expert