The Road Map For Making India Great:

Where is the theory of change, articulating the various causal links?

Anand P Gupta[1]

The Government of India’s 2019-20 budget presented by Finance Minister Nirmala Sitharaman gives a good idea of Prime Minister Narendra Modi’s road map for India.  The road map includes a vision for the country, with the budget flagging several points of this vision.  These include:achieving the goal of a US$ 5 trillion economy in the next few years; building physical and social infrastructure; pollution-free India; make in India with particular emphasis on MSMEs, start-ups, defence manufacturing, automobiles, electronics, and medical devices; water management; water transport; blue economy; space programmes; self-sufficiency and export of food-grains, pulses, oilseeds, fruits and vegetables; healthy society; and inclusive growth and financial inclusion (creating a social stock exchange for listing social enterprises and voluntary organizations).  The road map emphasizes the issue of our duty towards India.

While the road map needs to be articulated in detail, one might argue that it may also include the idea of internationalization of the rupee.

India urgently needs such a road map. Of course, it's very ambitious. But it’s not impossible.  Indeed, it’s very much doable.  But will this happen?

I have six comments and suggestions.

First, the road map places too much reliance on foreign savings to finance the investments that will be needed.  Is it advisable? What’s our contribution?  The Finance Minister seems to believe that our public finances are in good shape.  That’s not true.  Just consider this: the Government of India 2018-19 net tax revenue works out to 6.99% of India’s GDP, against 7.28% a year ago.  This clearly means that the growth in the Government of India’s net tax revenue has lagged behind the growth in India’s GDP.  This is not a good sign.

Disinvestment of public enterprises can help the Government in a big way in raising the resources required for financing the huge investments envisaged under the road map, but the Government is obsessed with the idea that it should, on its own or along with other public entities, hold at least 51% of the equity in the enterprises that it currently owns.  What’s the rationale for this obsession? 

In my view, an enterprise in order to be in the public sector must have huge positive externalities associated with it.  If one takes a careful look at the long list of Central public enterprises and honestly figure out the positive externalities associated with each of them, one will easily identify many public enterprises (e.g., Air India, Ashoka Hotel, Scooters India, Rashtriya Chemicals and Fertilizers, and Steel Authority of India) which can be privatised. 

We can also raise the fiscal deficit target easily by another three percentage points, provided we substantially improve the management of public expenditures.  The point that must be noted is that the relationship between public spending and the macro-economic situation is not linear.  Much depends on how public money is allocated and how efficiently and effectively it is used.

Further, given what’s going on, there is a need for an urgent review of the Government of India’s expenditures.  Should the Government do all that it is currently doing?  The Fifteenth Finance Commission may consider doing this review.

Two, we need to substantially improve the credibility of our data.  The whole world is monitoring our GDP data.  Did India really have a GDP growth of 8.2% during 2016-17, the year of demonetization?  And now we also have the issues of credibility of the Government of India’s net tax revenue data for 2018-19 and its fiscal deficit number for 2017-18.

Three, let’s not commit blunders.  If domestic manufacturing is to be promoted, let’s not do it through customs duty protection. Let’s do it by removing the cost disadvantages (e.g., higher freight and higher power tariff) that our domestic manufacturers suffer from.  The protection provided through customs duty has the effect of increasing the value-added at domestic prices, compared to the value-added at world prices, which, in turn, incentivizes our manufacturers to focus on the domestic market and not explore world markets. 

Four, the Finance Minister talks about transforming “India’s higher education system to one of the global best education systems.”  But how do we achieve this?  Take, for example, the case of IIMs (Indian Institutes of Management).  We now have as many as 21IIMs.  What’s the homework that the Government of India’s Ministry of Human Resource Development (MHRD) does before establishing a new IIM?  Does it try to locate someone like Professor Ravi Matthai?  The Indian Institute of Management, Ahmedabad is what it today is large because of the exemplary work done by Professor Matthai.  I think there is a lesson here for MHRD.

Five, the Finance Minister talks about UDAY (Ujjwal DISCOM Assurance Yojana) that was launched in 2015 to improve the operational and financial efficiency of the State power distribution companies, with the outcomes to be measured through (a) reduction of the aggregate technical and commercial loss to 15% in 2018-19 and (b) reduction in the gap between average cost of supply and average revenue realized to zero by 2018-19.  UDAY has failed in delivering these outcomes and the power sector continues to be in crisis.

UDAY has failed because the Government of India’s Ministry of Power did not develop the theory of change underlying UDAY and did not articulate the causal links between the interventions that it launched and their intended outcomes. 

Take, for example, the Ministry of Power’s assumption that the training that a DISCOM’s employees receive under UDAY’s comprehensive IEC campaign to check power theft, will equip them with the knowledge, skills and attitudes required to properly use the equipment procured for implementing that DISCOM’s project under UDAY, and that, as a result of this training, their behavior will change in such a manner that they will identify the people stealing electricity under their jurisdiction and report such theft to the concerned authorities so that appropriate action(s) against the people found stealing electricity may be taken.

Things did not happen the way the Ministry of Power assumed they will, as a result of which UDAY failed to deliver the intended outcomes.

Further, the Ministry of Power assumed that the concerned State Electricity Regulatory Commissions are manned by people who are independent and have the requisite domain expertise and that UDAY will create an environment which will allow these Commissions to determine power tariffs which (a) cover all necessary costs without any gold-plating and (b) do not provide for any subsidies, with subsidies, if considered necessary, to be fully funded by the concerned State Governments.

Again, things did not happen the way the Ministry of Power assumed they will, as a result of which UDAY failed to deliver the intended outcomes.

Will things happen differently when the various initiatives under the road map are implemented?  Will those responsible for implementing the various initiatives under the road map develop the theories of change underlying those initiatives and articulate the causal links between the interventions and their intended outcomes?  These are extremely important issues and the Prime Minister may like to mull over them.

Finally, the Finance Minister talks about Swachh Bharat Abhiyan, under which 9.6 crore toilets have been built since October 2, 2014.  But, as 3ie’s Shaon Lahiri and Radhika Menon recently pointed out, the Abhiyan “can be considered truly successful only if the construction of toilets leads to substantial improvements in people’s health. And that can happen only if toilets are used by everyone.  Our metric for defining success needs to be long-term changes in health indicators such as reduced child mortality, malnutrition, and stunting.”

To conclude, the road map is great.  But I have questions about its implementation.  While reading the Finance Minister’s budget speech, I felt like asking: is it the manifesto of a political party or the budget speech.  Looks like our policymakers are still in the election mode.  They should move into the implementation mode.  And the sooner they do that, better it will be for our country and for our people.

[1] The author is a former Professor of Economics, Indian Institute of Management, Ahmedabad.