TCA Srinivasa-Raghavan: Know your policy-manager

LINE & LENGTH

To know what happens next to the economy, first figure out the policy manager's psychology.

For a little over a quarter century now, it has fallen to my lot to observe not only the workings of the Indian economy but also, far more interestingly perhaps, those who manage it.

The data on their behaviour which the latter has generated have enabled me to improvise a few rules. You can test these rules yourself. The first rule is:

"The number of managers who think things are getting worse equals those who think the opposite."

This bear-bull thing amongst policy managers has an important implication. No one really knows what is going on or what to do. But it allows Bernoulli trials for policies as also the leeway for everyone to cry victory and charge the opposition with defeat when one or the other outcome happens.

It would be wrong of me to provide "empirical" evidence here about these policy managers because many are friends. But those in the know will, I think, know to whom all I am referring. I belong to the latter category by the way, that is, those who think things are getting better and will continue to get better but not necessarily for the largest number of people.

My data, which have been inferred by me and not collected, and are therefore proprietary, also reveal several hidden characteristics amongst policy managers. These characteristics have a stronger bearing on policy than most people imagine, to the extent of sometimes of making a difference between a crisis and no crisis.

This has enabled me to enunciate rule number 2:

"Pusillanimity amongst managers of policy is bigger risk to the economy than ideology or opportunism or both."

The data also show that there exists a set of managers who not only think that things are fine if and only if they are managing, but also that the economy is going to hell when they are not. You can explain this as a natural human failing but then that raises questions about their objectivity and therefore the value of their observations on policy management.

A third revelation is the disjunction between macroeconomic and microeconomic policy. The latter, by and large, is undermanned because there are a large number of civil servants meddling with it. Generally we have too little policy and too many implementers.

This is the exact reverse of macroeconomic policy, where there is only one policy-maker and implementer, the finance minister""the meri marzi chap""and too much policy advice. The disjunction leads to my third rule:

"When the bears dominate macro policy, the bulls dominate micro policy, and vice-versa."

This is a major reason for debates on such miasmas as overheating, etc. No one has the slightest clue as to what is going on. Much the same is also true of fiscal and monetary policy. The consequence is usually a family spat between the RBI and the finance ministry, which makes the argument more overheated than the economy.

That leads to my fourth rule:

"Policy managers have fixations but don't know that and if they do know, they won't admit."

The fixations can be various: the fiscal deficit, money supply, the exchange rate, tariffs, subsidies, VAT, stock market, etc. This leads to what I call the policy monotone, and thus to mistakes, sometimes massive, and anyway too numerous to be enumerated here.

This leads to rule number 5, which is an inverse rule:

"Policymakers, that is, the politicians, can be punished by the electorate for their mistakes but policy-managers who give bad advice and goof up in implementation, can only be promoted. Also, the bigger the goof-up, the higher is the promotion."

Hark back. Recall who were at the centre of policy management and advice at various times. Make a list and see what happened to them.

In the light of these rules, we can now assess the policy debate at this point in time. Consider rule 2. If the faint-hearted have their way, we will slow things down in a manner reminiscent of 1995 and 1996. But rule 3 may counter that this time because liberalisation has come quite a long way and the micro economy responds less to macro policy now, not least because of the huge growth in the black economy.

Much, however, would depend on rule 4 and whether the finance minister thinks that in addition to being a policymaker he is also a policy manager. This would mean ministerial interference in implementation and then his fixation""10 per cent growth while I am F""would over-ride that of the others.

If things go wrong""and rule 1 says there is always a 50 per cent probability that they will""rule 5 will come into operation. The UPA will be kicked out and the managers will be promoted for reasons unknown. In the last 17 years, there is only one instance of the top managers being pushed out by the policymaker. That was in 1991. Since then, it has often been a promotion for those who messed things up.

These interplays and the system of rewards, incentives, predilections and preferences between the various dramatis personae make it extremely hard to get a fix on the direction in which economy will be taken in the next few months.