Most policy is about the humdrum, not seismic, shifts in strategy. And in this humdrum world of the familiar things that we need and often do not get, information is more often than not, the key to success. We have two excellent recent experiences. Of important initiatives taken in the post-reform period ? both built on a lack of information, or wrong ones, which is worse.

The first is the power imbroglio. Readers might remember that in the Eighth (1992-97) Plan the state power sector wanted a huge allocation but got a fraction of it. So, the bogey was raised of protracted blackouts and a ?power famine?, if I correctly remember the emotive term that was used to terrify policy makers. The state power utilities had their numbers pat: so much power was going to industry, railways, domestic users, and so much to agriculture. Transmission & distribution (T&D) losses were always exact 19.23 per cent and so on. Each year, some electricity board was given a prize for having reduced its T&D losses from 19.79 to 19.23 per cent. Utter bunkum, but the veil of secrecy over the farce was complete.

So, our power policy was crafted on somehow getting generation assets on the ground. An Independent Power Producers (IPP) policy was developed and investors actively courted. State governments and the Centre guaranteed the financial returns. It took many years to figure out that generation was not the problem: but it was, as former Finance Minister Sinha put it, T&D, ie, Theft & Dacoity. But in the long years that it took to see the light, not only was valuable time lost in rectifying the business of distribution, the state utilities ran up huge losses and we inherited a slew of bad outcomes. Among them, the mess called Dabhol.

Others include IPPs that collect fixed charges, but pipe little or sometimes no power to the system, because the State Electricity Regulatory Commissions adopt the eminently sensible merit-based despatch system in tariff computation: the cheapest supplier gets first crack and so on. Since most of the IPPs are at the more expensive end of the spectrum, they idle, but fixed charges need to be paid. A most excellent lesson of how bad information cannot but lead to worse policy.

More recently, we have had the initiative on tax reform ? Value Added Tax (VAT). Another policy cast in the absence of facts. State governments (generally) never knew what commodities produced how much of the sales taxes; or what would be the impact of an extensive system of tax credit; or what the additional revenue potential of taxing retail sales was in respect of the prevalent first point taxation. They did not even know what the sales tax foregone was of the numerous sops that they had provided to enterprises in their states. We have been talking of VAT for a decade now. One would have thought that time surely was enough in doing the necessary data collection. Data that would enable policy makers make accurate quantitative estimates.

It is difficult to believe, but it is true, that in lieu of sound empirical studies, we still persist with the judgmental perspective ? good tax, bad tax, efficient or otherwise. But of course, administrators have to deal with the real world; judgmental merit is of little value. So, they have worked out what the ?revenue neutral? rate of VAT should be. Amazing, considering that the data does not exist to model it. When facts are not there, make assumptions. What else can you do? Collect the data first and then build the estimation models, I would think.

Why is it that we do not see the value of empirical study? A good hypothesis is just that: a hypothesis. It needs empirical testing. It is not that we lack a tradition of surveys. We have a service sector that grows and grows terribly fast, but we know awfully little about it. Surely, surveys can help us better understand our service sector, or how unincorporated businesses use financial resources. If we choose to tread the path to a ?knowledge economy?, it is imperative that we build the information base. There is no substitute for the facts.

The author is economic advisor to ICRA (Investment Information and Credit Rating Agency)