Narendra Modi will take office as prime minister amidst great expectations but also amidst great nervousness. His basic message has been one of better governance with a clear focus on development. His record as chief minister of Gujarat, while subject to much debate, has broadly supported his claims to be able to deliver on both. And his image as a hands-on, decisive leader places him in favourable contrast with the government that preceded him. These are all valid reasons for the expectations. Against these, however, the enormity of the challenges that the new government faces, Mr Modi's relative inexperience at the central level and an untried and untested ministerial team outside the core group give reasons for some crossing of the fingers. Planning, prioritisation and constant monitoring and course correction are absolutely critical ingredients in a successful beginning.
The economic challenges are well known. The fiscal problem needs to be corrected quickly and in a sustainable way. Complete transparency about the fiscal position is a requirement, which the government must try and achieve in its first Budget. Only that will give it the room to push through measures to curb subsidies and, most importantly, the long-pending tax reforms in the form of the goods and services tax (GST) and the direct taxes code (DTC). The pressure on the current account must be eased as soon as possible. Food inflation, entrenched, chronic and a huge obstacle to an investment-friendly interest rate scenario, has to be dealt with firmly - most immediately by releasing rice stocks into the market to cool down the price pressure seen in recent months. The infrastructure sector is nowhere near playing the role of engine of growth that is expected of it. The supply-demand gap in many sectors is widening as a result of deep flaws in the current version of the public-private partnership model. The model needs to be upgraded, and quickly. The promise to promote manufacturing must be backed by reforms in labour market regulations, something that no government has been able to achieve even after two decades of going down the reform path. If more jobs are to be created in manufacturing - by the hundreds of millions - then many people need to be appropriately skilled. The list goes on.
A stronger PMO
But these reforms and others like them are essentially the outcome of efficient and focused processes. An impaired system of decision making is hardly likely to come up with correct and firm decisions. One clear weakness of the outgoing government was the perceived lack of authority that the Prime Minister's Office (PMO) itself had on the Council of Ministers and, through it, over the entire government apparatus. In contrast, Mr Modi as chief minister exercised total control over the state apparatus. Whether he can do this at the national level is certainly a question, as also whether it is desirable. However, what is beyond doubt is that the PMO must play a strong role in both co-ordinating across ministries and, very importantly, guiding inexperienced ministers into aligning their decisions with the broader strategy. This is an immediately implementable measure and will go a long way towards avoiding the pitfalls of excessive ministerial autonomy.
Beyond that is a move that many people have been talking about recently; drastically restructure the Planning Commission in terms of role and resources, including considering the option of shutting it down altogether. By all accounts, it has played an insignificant role in economic policymaking in recent years, not for want of trying but because its advice and inputs were simply not binding on either the central or state governments. The stature of its deputy chairman did not appear to translate into institutional influence or impact. The new government can certainly benefit from an institutional capacity for strategic thinking and that is what it should aim for. For this, it will require a completely different structure than the Planning Commission bureaucracy. Free entry and exit of experts, brought in to address specific issues and flesh out components of a broad strategy put together by the top levels, is perhaps the best way to get this done. But entry and exit cannot be confined to junior levels; this freedom has to run all the way to the top. And the antiquated Five-Year Plan approach has to be finally jettisoned. Long-term scenario planning, which, to be fair, the Planning Commission was attempting to introduce, needs to be institutionalised.
Reform the civil service
Yet, speaking of institutions and processes, even more radical transformations are required in the recruitment, incentive and appraisal processes of the civil services. It is striking that the country from which India borrowed the notion of a permanent bureaucracy, the United Kingdom, has long since abandoned it. The top echelons of the British bureaucracy are now accessible to all, including foreigners, based on advertisement and selection. The importance of specialised knowledge and experience in making good policy and implementing it effectively is something that the Indian system has always undervalued. In many ways, the economy has paid a price for this. The new government has an opportunity to bring about meaningful reform of the civil services and it should take full advantage of it. It is ironic that the Bharatiya Janata Party's election campaign is being rated as an outstanding success, but many of the brains behind it will not get any chance to play roles in government because they have few channels of entry.
The bottom line is that India's current problems stem less from an understanding of the situation and absence of solutions than from a lack of institutional capacity to implement those solutions. The most important legacy that the new government can begin to build is a thorough revamp of the institutional framework for policymaking and enhancement of the human and intellectual resources that these institutions can access. But once these are in place, all their activities need to be aligned towards common goals. This is difficult enough to do even in small organisations; it is a humongous task at the level of a country. But that's why politicians are elected to offices like that of the prime minister. To the extent that Mr Modi appreciates that his tasks are equally about articulating and championing the right solutions and creating the institutional capacity and willingness to put them into play, he will have got off to a great start.
