Portraits of reconstruct: How Indian and global economy undergoing period of dramatic changes | The Financial Express

Portraits of reconstruct: How Indian and global economy undergoing period of dramatic changes

An ambitious roadmap for India to change paradigms to achieve inclusive, sustainable growth that is also responsible and efficient

Portraits of reconstruct: How Indian and global economy undergoing period of dramatic changes
Recalibrate is an erudite rendition of administrative adjustability in the larger portraits of power.

By Prachi Mishra

The global and the Indian economy and markets are undergoing a period of dramatic upheaval since the last decade. A cascade of crises and shocks—interrelated and reinforcing— short as well as long term, mark the last decade. Just when systems were working to redesign the global architecture with climate agreements, disaster response, and sustainable development goals, to address emergent and emerging challenges, it faced the unique test of the Covid pandemic. Covid was truly an unprecedented shock, where the response to the shock itself triggered a global recession, with emerging economies still at some distance from output levels predicted by pre-crisis trends. Globalisation is also facing perhaps its biggest trial since the world wars of the twentieth century, amid the pandemic and the war in Ukraine. Even before the pandemic, and partly associated with the US-China trade war, global trade and cross-border investment were impeded. In fact, the war in Ukraine has intensified concerns about ‘fragmentation’ or the possibility of the world becoming increasingly bifurcated into blocs. As we contend with these profound shifts, making sense of their meaning and implications are a top priority for policymakers around the world.

India, with its increased integration with the global economy, did not go unscathed. India’s economy was weak in 2019, but appeared to be near a trough, and as the economy was starting to look up, the rising tide gave way to the Covid shock. Against this backdrop of unparalleled global and domestic developments, NK Singh and PK Mishra (henceforth Singh and Mishra)—two lifelong top administrators and practitioners—come together to make a convincing case for the need to ‘recalibrate’ and change paradigms. Recalibrate is a fruit of very close experience with real-time policy making of perhaps the most well-calibrated policy intellectuals one could look for.

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The book is bold and argues for “redefining the social contract—between citizens and the state”, including touching on fundamental issues like governance and reform of key public institutions, including those in the realm of finance and economics, such as the ministry of finance and the Reserve Bank of India. To quote from the book, “Clearly governance reform must be an important area for the PM because these changes will require overruling departmental prejudices, uncertainties and turf protection.” The book nicely complements insights at the macro level from Singh to an array of micro-level governance issues elucidated by Mishra with his rich experience from the state of Gujarat. In these shock-laden times driving the motto of recalibrate, the standout experience of Mishra in dealing with big crises like the massive earthquake in Gujarat provides a perfect backdrop for the thematic focus of this book. Just sometime back an autobiographical piece by Singh, The Portraits of Power, provided a uniquely entertaining account of the need for calibrating well. One of the essential features of that calibration is pliancy, flexibility and addressing demands of time. Recalibrate is an erudite rendition of administrative adjustability in the larger portraits of power.

The focus on agriculture in the book is important and getting it from the horse’s mouth—Dr Mishra, with his role as former Union agriculture secretary—is crucial. Globally renowned for large-scale disaster management, Mishra correctly highlights why progress on agriculture continues to be imperative and stresses the shift in emphasis from agriculture production and productivity to enhancing farmer welfare, the big paradigm change. Sustainability of agriculture and addressing risks and disasters are uniquely needed as part of the grand recalibrate. Even though agriculture contributes less than 20% of India’s GDP, it continues to employ close to half of its labour force and adds meaningfully to India’s exports. It is important from the point of view of sustainability too; for example, agriculture contributes approximately 15% of global greenhouse gas emissions. This is also an area where government intervention is essential given missing markets in different spheres such as credit, insurance and information. Given the crucial role of agriculture, one wonders what stalls India from achieving some of the set goals. For example, while agriculture exports from India are notable, as correctly pointed out by Mishra, it possibly is below its immense potential where countries like Vietnam and Thailand report two-three times worth of agricultural exports as a share of their economies. Indeed, the perception from the chapter highlights that agriculture is complex, has deeply entrenched political economy, with it being a ‘state subject’ based on the Seventh Schedule of the Indian Constitution, with restricted and mostly prescriptive role of the central government, and intricacies of Centre-state relations.

Moving to the area of fiscal, indeed, Singh has been a moderniser in his several roles—as the Chair of the FRBM Review Committee and as chairman of the Fifteenth Finance Commission. It is clear from the book that Singh is a believer in discipline and notes that even “common sense tells us that no one can live beyond their means in perpetuity”. He favours rules to discretion, as rules can offer support and signal commitment; and he believes in the need for an anchor. He argues for debt as a suitable anchor. In addition to several economic arguments, the FRBM Review Committee Report, which he chaired, also offers a non-economic, albeit powerful and convincing rationale that in the Indian ethos, ‘debt’, and ‘debt repayments’ are concepts that can be communicated easily to the public and are also embedded in the psyche of the ordinary citizen. The discussion is highly relevant at this juncture as the Covid-induced surge in debt in India is unique not only compared to its own history, but also bigger than that for the average emerging market. A major cost of high debt in India is foregone resources on account of strikingly high interest payments, which at almost 30% of overall revenues during Covid, are close to three times higher for India than the typical EM (see, for example, The Anatomy of Public Debt Reductions in India). Indeed, what better time to make a case for fiscal consolidation, for sovereign deleveraging, and to rebuild buffers, than that during an economic recovery cycle like the current one.

Singh argues for fundamental paradigm shifts and the need for, “a new National Debt Plan”, and “credible fiscal institutions”—such as an independent fiscal council and the need for a mechanism for parliamentary scrutiny of India’s overall fiscal strategy. While he argues against “unbridled fiscal deficit”, he does recognise the importance of achieving a balance between discipline and flexibility, for example, through introduction of escape clauses in fiscal rules in the event of large shocks. In fact, the idea behind the need for sovereign to deleverage during recoveries is precisely to offer a sufficient buffer for when country is subject to large shocks like the pandemic.

Finally, the book ends with a discussion of the Finance Commission with its emphasis on cooperative federalism. Most emerging and developing countries are embracing decentralisation as the form of governance to achieve higher economic efficiency, better accountability, and higher satisfaction of local population.

Singh elucidates how successive finance commissions have also walked a tightrope to balance needs and performance. The XVFC, for example, recommends substantially enhanced resources to empower local bodies, which is also linked to certain performance criteria.

Overall, the book draws on the immense knowledge and experience of the authors, and amid an unparalleled global and domestic macroeconomic backdrop, lays out an ambitious roadmap for India to transform, to change paradigms, so as to achieve an inclusive and sustainable growth for India, but one that is also responsible and efficient. This is a must read, as ‘Portraits of Reconstruct’ after the Portraits of Power.

Prachi Mishra is chief, Systemic Issues Division, IMF, and co-editor, IMF Economic Review

Recalibrate: Changing Paradigms
NK Singh & PK Mishra
Rupa Publications
Pp 344, Rs 795

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