Power is India's latest 'real' crisis: This is how we can end dysfunctionality

Political, administrative and sociological reforms have to be worked upon simultaneously.

India suddenly faces an energy crisis because there is a massive shortage of coal for the power plants. Blackouts can’t be ruled out. 

The thing is this sort of mess is par for the Indian course. India lives from crisis to crisis. Real ones, not manufactured by the Opposition or the media. 

In a very large measure this is because market-oriented reforms generally and sectoral reforms particularly have been so very erratic in India. Our economic governance is a dog’s breakfast of initiatives, policies, laws and rules. 

This strange and quixotic approach is attributed to our supposed uniqueness that needs unique handling which only ends up being whimsical and idiosyncratic. 

Since 1991 many sensible reformists have protested about this uniqueness theory. They have insisted that India isn’t unique and that the normal rules of economics apply to it just as much as they do to other countries. 

In a very broad sense this is right. But on specifics it isn’t because accepted ways of economic governance are not used in India. It is in that sense that we are unique. 

Thanks to this, we get periodic paradoxes. 

Thus overall output is growing back to pre-pandemic levels but domestic consumption is not keeping pace. In fact, it is lagging far behind. 

The normal explanation for this would be that the excess output is being exported. But that is true only up to a point because India’s output of internationally tradable goods is tiny. 

Or consider this. If all the output is not being sold, whether to Indians or to foreigners, prices should be falling. Instead, they are rising. 

There are many more examples of such phenomena like from the stock market, the forex market, the money market etc. Wherever one looks, one finds the sectoral market in a major imbalance. 

Three reasons

There are three interlinked reasons why this is so. 

One is policy uncertainty caused by our perpetually skittish governments. This skittishness raises sectoral risk very considerably as governments look for instant palliatives. 

The second is sectoral regulatory practices that constantly sacrifice efficiency for equity. Regulators in India regulate like Indian drivers: as if what they do has no effect on other sectors. 

The third is the steadfast refusal of the bureaucracy to let go of control even when the political leadership is willing to do so. In the military, this is called insubordination. 

Overall, as a result, we lurch from one sectoral crisis to another sectoral crisis. Together they add up to the economy being in crisis all the time. 

This doesn’t happen in other large economies. 

Three solutions 

There are three possible ways for eliminating this dysfunctionality. 

The first is political. The second is administrative. And the third is sociological. 

All three have to be adopted simultaneously. Piecemeal adoption will only buttress our dysfunctional uniqueness. 

I think the political way has already been adopted by the two Modi governments. It’s willing to take risks that previously were unthinkable. 

Privatisation, farm reform, labour market reform, subsidies removal are all proof of this. The BJP has shown a lot of determination in pursuing the right objectives. 

The administrative way forward now is to abolish a lot of the economic ministries. They really and truly mess things up because they have to justify their existence. They also behave as if what they do has no impact on others. 

The sociological aspect concerns urbanisation and the growth of quasi-nuclear families in which just one or two members provide for as many as eight or nine members across generations, both vertically and horizontally. 

This has a huge impact on economic behaviour but it has not been assimilated by those who are paid to think about such things and integrate them into policy.