Learn, localise, lateralise to grow

India needs a new mantra for development, focusing on implementation and execution, not just on numbers.

Since the economic recession in the West, some observers have dared to say that the Emperor may be insufficiently clad. Economists have dominated the advisory councils of policy-makers. Now many people, even economists themselves, are questioning the foundations of their theories. We should know the whole truth before indicting economists.

Milton Friedman is popularly known for the statement, ‘The business of business is only business’ (which many business leaders are turning away from now). When he visited India in 1955, he warned Indian policy-makers about the dangers of their approach to development — too mathematically planned, too closed, stifling business. ‘He told us so’, commentators on India’s economic history point out.

And, thank goodness, we made the reforms in 1991.Friedman had said more than that, though. He began his memorandum to the government of India with a warning that, “There is a tendency not only in India but in most of the literature on economic development to regard the ratio of investment to national income as almost the only key to the rate of development…

In the opinion of this writer, this seems a serious mistake… In any economy, the major source of productive power is not machinery, equipment, buildings and other physical capital; it is the productive capacity of the human beings who compose the society. Yet, what we call in vestment refers only to expenditures on physical capital; expenditures that improve the productive capacity of human beings are generally left entirely out of account.”

The dominant paradigm of economics (and planning), to which Friedman had alluded, is growth of the numbers and by numbers. Whereas another paradigm is development of people and by people. In this paradigm, development is focused primarily on people. Indeed, India’s ‘demographic dividend’ — and consequent growth in the size of India’s GDP that economists foresee — cannot be predicated only on the large numbers of Indians. It will arise from improvement of capabilities, livelihoods and quality of lives of the people those numbers represent.

In an ongoing public debate among Indian economists, Jagdish Bhagwati and Arvind Panagriya are leading one side, and Amartya Sen is the talisman on the other. Both sides agree that development requires growth in the size of the economy as well as human development. The argument is about means and ends. How much growth in GDP is necessary before a nation can have improvement in its human development indicators?

Sen, and others on that side, show that several countries, including Bangladesh, have been able to accelerate human development at much lower levels of per capita GDP than India. An analysis by the Planning Commission of the performance of Indian states also shows that some states with lower incomes have performed much better on human development than richer states. Perhaps, as Friedman suggested, acceleration of human development must be the precursor to economic growth, rather than a later outcome of it.

The point is not how much water you must have in the overhead tank. But how leaky are the pipes that carry the water to the people. Rajiv Gandhi had said, before the economic reforms of 1991, that only 15% of money allocated for public welfare is translated into useful results. The rest is wasted in one form or another. Fifteen years after those reforms, with more water in the tank, Rahul Gandhi estimated the same high level of wastage of resources. Therefore, what the coun try needs is reforms in the ma chinery of implementation, so that people can get more bangs for the buck. This must be the core of our reform agenda.
    
India needs innovations in its architecture for imple mentation designed around three ‘L’s. First, Locali sation. Government programmes are too centralised with detailed designs determined by a controlling body in the Centre or in the states. One size cannot fit all. When the de sign does not fit a local need there will be wastages and poor outcomes. These are a large part of the 85% losses in transmission from the Centre to the periphery that both Gandhis observed. The gov ernment must be for the people and of the people. It must be by the people also: because partic ipation by the people in plan ning and execution is required to produce useful benefits.

The second ‘L’ is Lateralisa tion. Vertical silos that sepa rate government departments and schemes must be cut through. Also, organisational (and even ideological) bounda ries between the public sector private sector and the volun tary sector must be bridged to create working partnerships The formation of lateral part nerships across many bounda ries is required to produce re sults more effectively. The third ‘L’ is accelerated Learning. Local teams must learn to design good solutions and to implement them. States must learn how to enable more devolution.

And the Centre must learn how to support the states to accelerate improve ment in human development and economic growth. Local bodies can learn from each other, and the states from each other. Much can be learned from other countries, too. In ternational experts are im pressed by the systematic way in which Chinese policy-mak ers and managers experiment learn, and implement. The pace at which Indian in stitutions learn and change will determine how much longer India will take to im prove its human development indicators.

Starting with simi lar or even lesser endowments the nations that learn faster and implement faster, develop and grow faster, too. The final caution is this. Just as the ca pacity of the physical infras tructure must increase to sup port the pace of economic growth, tardy change of insti tutions and development of human capacity will be con straints on sustainability of India’s growth.