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Saturday, July 22, 2017

22.07.17 Policy Disruptors in Indian Economy

22.07.17 Policy Disruptors in Indian Economy

The recent policy decisions on demonetization of higher denomination of Indian currencies and implementation of Goods and Services Tax have generated so much heat and debate among the public – both informed and ill-informed. Everyone has become an expert commentator now. That includes me too.

Every government has been taking policy decisions as a matter of routine; however, some of them have disrupted people’s life so much that they were tantamount to life-altering changes.

In the past too, India had faced several policy disruptors that seriously altered the life of the common man. Some of them were:
1. Nehru’s socialistic policies towards industrialization of India through public sector investments, immediately after India’s independence
2. Green Revolution and White Revolution policies during the 1960s & early 1970s
3. Indira Gandhi’s decision to nationalize banks and insurance business during 1969 and after
4. Economic liberalization initiated by P.M. Narasimha Rao and F.M Manmohan Singh during 1991 and after
5. Demonetisation of higher value currencies during November 2016
6. Introduction of GST on 1st July 2017
There may be others too, but I am mentioning only a few major economic policy disruptors.

When every one of these policy disruptors came into effect, there were vociferous criticisms from several quarters and also widespread support from other sections.

Generally, people tend to react overzealously prematurely, not wanting to wait for some time for the policy changes to produce the intended results. As the decision makers in India have always had to take the impact of their decisions on their electoral prospects into account, they had also shown kneejerk reactions to public anger against some of their policy decisions, however well-intended their decisions were. Net result: the policy changes were introduced in half-hearted measures, slow paced, compromised on several counts, and marred by political calculations.

Probably, the people were never properly informed and educated on these policy changes. Probably, the decision makers failed to take the nation along while taking disruptive policy change decisions.

Yet, the fact remains that these policy disruptions have a long term effect; sometimes, it also takes time to fully realize the impact of these policy disruptions on people’s life. For instance, when Sri P. V. Narasimha Rao, the then Prime Minister and Dr. Sri Man Mohan Singh, the then Finance Minister brought in liberalization of economy during the early 1990s, there were widespread criticisms. Very little, people realized that many of these criticisms came from people with vested interests who never wanted to lose their control over things and events that they enjoyed during the license and permit raj. But, some 20-25 years down the line, today, if India is competing with some of the world economic powers in every front, the credit must go to the Rao and Singh combine. People of India, today, enjoys a lot more comforts of life because of economic liberalization. However, it must be admitted that even then, the liberalization was not done with full force as it should have been done because Mr. Rao government didn’t enjoy the support of the law makers and were apprehensive of people support. Of course, they were also under the compulsion to introduce those policy changes to bail out the country.

The same way, the recent disruptors: demonetization of higher value currencies and introduction of GST need to be viewed with the same long term approach. They were far reaching decisions, complicated, and will impact people’s life in different ways – benefitting some and affecting some. Yet, we need to wait for some time for these policy changes to bring about the intended effects. Somehow, I strongly feel that most people tend to rush with criticisms rather than wait. In this, unfortunately, most people tend to be misguided by self-centered politicians, media, and vested interests.

The major disruptors I have mentioned had all brought tremendous good for the nation and the people, in the overall sense, though there were some unintended negative effects too. For example,
1. The country became a strong producer of steel, cement, and electricity due to Nehru’s industrialization policy.
2.  India is now self-sufficient in production of food grains and milk.
3.  Banking and insurance spread to several small villages, benefitting millions of poorer sections of the people due to nationalization of banks and insurance by Indira Gandhi.
4.  Indians got access to several world-class goods and services that also induced positive changes in our standards of production and delivery of goods and services. We became more efficient and quality conscious. Millions of poorer families became affluent. All these happened due to liberalization of economy by Rao and Singh.
5.  The impact of demonetization is still to be fully understood. Only time will tell the positive impacts. The same with introduction of GST too.

So, let us wait for the full impact of demonetization and introduction of GST to take place. Hell is not going to break lose right now. There will be inconveniences everywhere. Vested interests will continue to criticize. Let us not be misled by people with vested interests. 

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