T N Ninan: De-risking the system

WEEKEND RUMINATIONS

The time to prepare for bad times is when things are going well. That begs the question: how might bad times hit India when everything looks so rosy? If one knew, preparing for the future would be easy. If one were to guess, though, one answer would be the advent of political uncertainty, leading to poor governance leading in turn to economic under-performance. And the tripwire that sets off this sequence could well be the next general elections, now 22 months away.

On their recent showing in various elections, neither the Congress nor the BJP seems to be in a position to improve on its present strength in the Lok Sabha (around 140 seats, plus or minus some, in a house with 542 seats), or even to hold on to today's numbers. That might change, but there is a strong likelihood that the smaller single-leader, single-caste, single-state parties will gain in strength. Coalitions built around a strong core, provided by one or other of the national parties, might therefore give way to more genuinely multi-party coalitions, or some variant of that perennial hope, the Third Front. Nothing can be forecast just now about what shape or form these coalitions might take, and who would emerge as the leader; it is easy, though, to drum up a list of a dozen likely names, going all the way from Sharad Pawar to Lalu Prasad, with Chandrababu Naidu and Buddhadeb Bhattacharjee in between, and with a variant of the Pratibha Patil kind of accident not ruled out (remember that Deve Gowda and Inder Gujral also happened). Even more important, if the BJP could get its way, who would it choose""Narendra Modi? And the Congress? In other words, little or nothing can be said about what kind of government the country might get, two years from now.

How should one prepare for this uncertainty? One way would be to assume that the system will continue to thrive, no matter what; after all, hasn't Sri Lanka's economy borne up well despite two decades of civil war? But any wise leader would say that a handful of competent economic managers have been in charge of the tiller these past 16 years, that this good fortune cannot be assumed for the indefinite future, and therefore that one must look for ways of insulating economic management from the political vagaries of an unpredictable situation, when the necessary decisions may simply not get taken. That means de-politicising as much of economic management as possible, and taking it out of the remit of individual ministers.

Is the Prime Minister prepared to do this, when his government has in fact expanded the role of the government in micro-management (oil price decisions, purchase orders by state-owned enterprises, appointment of the directors of the Indian Institutes of Management""to take a small sample)? Indeed, the inflation in the size of the Cabinet, introduced by Mr Vajpayee after the 1999 elections and persisted with by Dr Singh, is itself a cause of micro-management because people with narrow portfolios look for something to do, and what better answer than to intervene somewhere? Correctives for this range all the way from formally enacting price decontrol to privatising as many state-owned enterprises as possible.

The equally important question is how to prevent a good fiscal situation from being ruined""either by wrong-headed tax policies or by reckless spending. There is a fiscal responsibility law in place, but escaping from its prime ratios is easily done; so it is not an effective check. One option might be to subject all government programmes to an independent efficacy audit, as to whether the money has been well spent and the stated objectives are being served. Those that fail these tests badly should be debarred from any budgetary increases""which, for the officers concerned, would be punishment enough. Another would be to borrow the American idea that tax changes are written first temporarily into the law-books, and then confirmed as permanent only after some years, by which time there could be a different Congress or a new president in office. These or elements like them could be part of a broad strategy to de-risk the economy as a whole.