In each other's way

On major economic policy issues, the government presents a rather confusing picture to a world looking for clear signals and straight answers on policy positions. For some months now, there has been a very strong public difference of opinion between the ministry of finance and the Reserve Bank of India about the appropriate interest rate policy. The latter thinks rates must go up and acts accordingly. The former, without any direct control over rates, believes they shouldn't and is willing to use its ownership control over much of the banking system to neutralise the central bank's actions.

A few weeks ago, the Planning Commission and the ministry of finance aired different views on resources for the 11th Plan and the dispensability of the fiscal responsibility target of a zero revenue deficit by 2009. The Commission argued that postponing the target date by a couple of years would be justified in the light of the huge increase in social sector expenditures that were envisaged during the Plan period, while the latter saw such a move as a potential blow to the government's credibility on fiscal management. On this issue, the Reserve Bank of India came down on the side of the ministry, while in the matter of the government's ownership rights, the Commission sided with the ministry and against the RBI.

More recently, the arena has shifted to the issue of Special Economic Zones, with the ministry, the RBI and Sonia Gandhi all coming out with cautionary words and actions. The ministry of commerce and industry, the sponsor of the initiative, is apparently fighting a lone but determined battle, and that too without internal unanimity.

That there should be differences of opinion on contentious issues is not surprising. One, virtually all the players in the game of policy-making have significant credentials for the positions they hold and can be expected to assert their views on major issues, however disparate they may be. Two, the political platform on which policy should be based is itself hotly contested in public, leaving most people in confusion about priorities and the direction of movement on some key issues. Three, structural change in parts of the economy, like financial markets, has created the opportunity for autonomous action by the RBI, making it relatively independent of the government, should it choose to exercise such independence. But even after granting all these reasons, does the public airing of different views make for good policy and effective communication?

Clearly not. While good policy needs meaningful debate, it will suffer when every interested party defends a position regardless of the possibilities of convergence to a common middle ground. Debate has to end somewhere and, beyond that point, the government must speak with one voice on these and other issues. Let the RBI prevail on inflation and interest rates. Let the ministry of finance live up to its commitment to fiscal discipline. Let the Planning Commission develop programmes that maximise the impact of every rupee spent. And, let the ministry and the Commission together work out realistic resource requirements and ways of finding these resources without postponing deadlines. The rest of the world can then go back to exploiting opportunities in the Indian economy and stop worrying about who said what and why.