India needs institutional frameworks of emerging middle-income economy: Book

New Delhi, December 5 () India is expected to become a 3 trillion dollar economy, but lags behind in creating the institutional frameworks for an ambitious emerging middle-income economy, say two former officials of the ministry of finance.

Vijay Kelkar and Ajay Shah have published a book In the service of the Republic: the art and science of economic policy, which is at the intersection of economics, political philosophy and public administration.

India has reached average income, with an economy of USD 3 billion. We had great growth from 1991 to 2011, taking advantage of a new intellectual policy framework that was built from 1977 onwards. For the first time in the history of India, there was a substantial decrease in the number and proportion of people in poverty, they say.

According to them, the post-2011 period has seen a decline in optimism from 1991-2011 and this is a matter of great concern.

In the book, they tell about this poor performance and how to return to the growth highway.

The intensification of the 1977-2011 strategies will not be enough: what is required is to rethink the bases, the authors suggest.

They say that economic policy operates at the intersection of the economy and politics and that ideal political paths must be elaborated on blackboards, but then the conflicts of democratic politics develop and determine policy options in the real world.

Therefore, our analysis is based on both the timeless issues of the construction of the republic and the public economy. In India, the modernization of the political system and the economy is taking place at the same time, and they are feeding each other. In this process, the economic policy strategy must serve the broader objective of building the republic.

The foundations of liberal democracy - the principles of debate, the dispersion of power, the rule of law and restricted executive discretion - are essential to solve the economic policy difficulties that afflict India today, the book, published by Penguin Random House India, he says.

Kelkar, who served as Secretary of Petroleum, Secretary of Finance and Chairman of the Thirteenth Finance Commission of India, among other responsibilities, and Shah, who worked at the Indian Economy Monitoring Center, the Indira Gandhi Institute for Development Research and the Ministry of Finance, describe the demonetization episode as a major impact on the economy.

Even if a cost-benefit analysis showed that the benefits outweighed the costs, the fact that it was a major interruption should have been a consideration in the decision, they say.

The authors claim that there is a wide range of objectives that a state can potentially pursue through government action. But there is a big gap between dilettantism in public policies and the professional capacity to make it work.

We need the intellectual capacity to imagine how an intervention that sounds plausible will work.

A recurring theme of this book is the appreciation of the 'self-organized systems', of the uncoordinated decisions of the individuals who leave themselves, who discover the order for themselves.

The organic development of the economic system, with freedom in the hands of each individual, works better than the instructions at the top.

Referring to the problem of the rise and fall in Indian agriculture, they say that the price of onions increases under shortage; this attracts planting; the price of onions crashes in excess; this discourages planting; and so.

We suffer the boom and bust cycle in Indian agriculture because the state has disrupted the four stabilization forces: storage, futures trading, domestic commerce and international trade, they write. The state makes things worse by having tools like MSP and applying these tools incorrectly. A better intuition in the operation of the price system would greatly contribute to changing the policy stance, they added. ZMN SHD SHD