Category: Policy

At the recently concluded 99th Indian Science Congress in Bhubaneshwar, Prime Minister Manmohan Singh lamented the decline of India’s scientific prowess relative to China and other nations, while listing several of the government’s initiatives to promote research and development. The press caught on to the comparison with China and largely ignored the achievements that the Prime Minister tried to draw attention to.

Scientific research and technological innovation form the bedrock on which nations build competitive economic strength in the globalized world. Research and innovation are also well-documented as engines of productive employment-generation and wealth-creation. Indeed, scientific research should have the mandate to create jobs and wealth for broader society. Moreover, scientific prowess is fundamental to national security and defence readiness – not only does it help in developing defense capacity indigenously, advanced military technology is imperative for India to play a meaningful role world affairs and to be secure given its antagonistic neighbors. In international relations, one is well advised to talk softly but carry a big stick.

In this sense, India’s national scientific strength is linked to and aligned with policies in the spheres of education and defense too. A nation’s capacity for scientific research and development (R&D) is tied closely to its higher education and research infrastructure. Without high-quality research institutions and the people to lead them, it’s impossible to have world-class research output. Manmohan Singh also claimed that Indian industry needs to dramatically increase research spending if India is to move towards spending 2% of gross domestic product (GDP) on R&D. It is true that India Inc can invest more in research – the Prime Minister can create incentives for the same by introducing more competition. Large sectors of India’s economy, such as power, mining, transportation, oil and gas, aerospace and defense could easily absorb substantially more private sector participation and increased competition. Many of these sectors are off limits to competition and are government-mandated monopolies or oligopolies. When firms have to compete for customers and profits, they are forced to innovate, and hence invest in R&D.

Manmohan Singh’s seven-plus year tenure as Prime Minister stands in marked contrast to other administrations – unlike others, he entered office when optimism was high and people looked to the future with firm expectations of a new India in the new century. India’s economy was poised for takeoff on the back of over a decade of continued economic reforms. An average GDP growth rate of around 8% since 2004 helped tax revenues almost double to nearly Rs 12 trillion for 2009-10. No government in the history of independent India has enjoyed such a financial bounty – most have had to deal with severe economic scarcity. It is in this background that the government’s record must be judged.

The UPA government’s policies in the areas of education and defence have hardly been beneficiaries of this abundance of capital in the treasury. Arjun Singh, HRD Minister in UPA 1, busied himself with increasing student quotas in central educational institutions. Where the debate should have been about capacity expansion so that there is enough opportunity for all sections of society, Manmohan Singh presided over the rationing of existing capacity first on the basis of caste, and more recently on the basis of religion, disregarding merit and capability. Ad hoc creation of new IITs is damaging their brand – no less an authority than C.N.R. Rao, chairman of the Prime Minister’s Science Advisory Council and one of India’s most distinguished scientists, has strongly criticized this policy. The reality is that without deregulating higher education and building privately-operated universities, India will never be able to meet domestic demand for higher education.

More recently, UPA 2 put forth the Right to Education (RTE) Act under the new HRD Minister Kapil Sibal. Besides enforcing quotas in private schools, RTE has put such draconian restrictions and regulations that many private schools will be forced shut. Study after independent study has shown how India’s poorest have rejected government schools and choose to enroll their children in private schools – but the government has ignored them all and enacted laws that hurt the poor the most. Separate from RTE, Kapil Sibal has tried to offer affordable computing to the poor by pouring public funds into the creation of a low-cost tablet computer, which recently failed conclusively in its first field trial. Despite consumer rejection of their misconceived pet project, the Minister and his bureaucrats have gone back to the drawing board, vowing to return with a better tablet by April. Does the government care about learning outcomes or is it simply too short-sighted to realize the grave damage its flawed priorities are causing by denying basic schooling to millions of children?

With millions of our citizens either denied access to effective schooling or divided on identity when entering universities, can we nurture the human capital needed to lead in science?

There is evidence to suggest that investment in defense research can spur scientific and technological advancement. In the United States, 55% of federal R&D spending goes to the Department of Defense, which has been a pioneer of several technologies born from scientific research that have had substantial impact outside of the defence sector. The Internet and GPS navigation are two such technologies.

Integration and cooperation between universities, research institutions and private industry can dramatically grow the pie and multiply quality output manifold. India never really had the money to make large investments and purchases for national security until recently, but it is time now that the research activities of existing institutions such as Defence Research & Development Organization (DRDO) are reformed. Recent research that DRDO has tried to commercialize include mosquito repellents, a spray that can keep clothes moth-free, body creams to keep away bugs, a high altitude toilet that was 15 years in the making, and a new fabric for bras. Clearly, India needs to rethink its defence research priorities.

China has managed to build scientific strength because it has made thoughtful and substantial investments in building universities and defense capacity. For India to witness a renaissance in science, it will also have to encourage symbiosis between defense spending, educational and research institutions, and private industry. Without such a holistic approach, comparisons with China will prove to be facile, and India’s tremendous potential to be a world-leader in science and technology will not be realized.

(Co-authored with Harsh Gupta.)

Originally Published: http://navam.in/1m5jZFh

Harsh and I have co-authored a piece on how liberalization brings structural dislocations with it. The solution is counter-intuitively not to stop liberalization, but to liberalize deeper and faster:

The fable of The Shop Around The Corner rings true in all market-oriented economies. Customized clothing makers in London’s storied Saville Row found themselves unable to compete with the onslaught of ready-to-wear high-street fashion, and many of them closed down. The street once famed for its bespoke tailors recently saw the opening of American casual wear chain Abercrombie & Fitch.

The catch is that the economies of London and New York are open and dynamic enough to absorb such change, since they are far more free from government control. This is simply not the case in India, and also why the government must design and sequence its reform policies correctly, following through with more market reforms if it indeed manages to push through FDI in retail.

Harsh and I have co-authored a piece on how government interference across industries hamstrings India’s economic performance:

The irony is that farmers and billionaires alike suffer the same fate at the hands of a nosy government that wants to needlessly interfere in economic activity. Farmers, of course, have it even worse – the government retains so much influence over their industry that they can’t even price their products themselves. The romanticization of poor farmers prevents us from thinking of them as private sector participants. Various agricultural commodities in India are still subject to strangulating regulations on aspects such as pricing, transportation, packaging and point of sale. Labour and energy markets for farmers continue to be distorted. Inefficient employment schemes make labour expensive during harvest season. Power availability remains inconsistent because most states – Gujarat being a notable exception – do not have the political courage to say no to free electricity. Of course, the effective price of something which is not available is not zero, but infinite.

More here.

Harsh and I have co-authored a piece on the Indian government’s irresponsible spending spree:

“My appetite is infinite and my greed is more.”

These words were uttered not by a banker or CEO from the top 1% of the income pyramid, but by finance minister Pranab Mukherjee. He was exhorting his officials to ramp up tax collection, according to a June report by the Press Trust of India. His government’s addiction to ever-increasing spending is decimating the nation’s balance sheet.

Harsh and I have co-authored a piece on the size of the Union Government:

Food, steel, communications, aviation, agriculture, petroleum, renewable energy, shipping, chemicals, tourism, coal, power, science & technology, broadcasting, textiles, mining, and housing. These are not just some of the fast-growing sectors in the Indian economy, but also the names of Union government ministries.

Each has its own budget, its own minister, and often a junior minister too. More importantly, in a narrow bid to protect its turf, every ministry becomes the biggest impediment to reform in that sector. Worse, government-granted monopolies in key sectors such as rail transport and coal mining are an unseen but substantial drag on the growth of the economy.

Much has been made of the theory that there are “two Indias” – one that is experiencing rapid economic growth and progress, and the other that is being “left behind”, so to speak. The political rhetoric of these two images of India does find some resonance with an ever-increasing middle class which is usually at odds to explain this newly-found prosperity.

It has also never been more important to understand what caused the shift from anemic rates of economic growth to sustained economic performance, and more importantly, hope and positivity about the future – so much so that India is now witnessing a reversal of the brain drain, with the best talent flocking to it. This reverse brain drain will partly address the human capital needs that India will have as it moves to the next cycle of innovation-driven growth.

Most people agree that it was economic liberalization that unshackled India’s potential, but not all recognize what that means. The process of economic liberalization started in the summer of 1991 under Prime Minister P.V. Narasimha Rao and was carried forward by successive governments through that decade. Under the NDA Government led by Prime Minister A.B. Vajpayee, the liberalization push reached a new high. Government-owned companies were sold off for the first time in India’s history.

Much of the corruption we are witnessing in the housing finance sector would be eliminated if India’s financial industry allowed a more expansive role for private players, for corruption and government discretionary powers go hand in hand. Take away discretion, and corruption too would be eliminated.

The first step that should be taken to bridge the two Indias is to offer connectivity so that they can talk to each other. Roads and telephones, and increasingly high-speed Internet access and low-cost civil aviation, are the basic building blocks and tools required for the formation of what economists term “social capital”, without which we won’t be able to break the cycle of extremism and discrimination based on identity and religion. Bihar Chief Minister’s Nitish Kumar’s resounding victory should be seen in this context.

Have you wondered why the religion- and caste-based politics of the 1980s and 1990s is losing currency in the new, emerging India? Part of the reason is increased access and connectivity that is binding the nation together like never before. Today, Indians can travel across the country via road or air, explore the cultures and diversity that make India so unique and interact with fellow citizens from other parts of India. Never before has this been possible for an “ordinary” Indian before in our history, and it has an immense qualitative impact on creating a common sense of nationhood.

Roads, telephones, the Internet and aviation enable people to do business with and talk to each other. This basic infrastructure forms the bedrock on which economic development can take place, and development alone is the panacea for religious and identity-based extremism.

This too is driven by governance and public policy. During the NDA term, over 4.5 crore telephone connections were made in 5 years, compared to 2.3 crore the previous 50 years. The Highways Ministry built over 25,000 km of roads and highways, compared to less than 600 km (that’s not a typo) in the previous 50 years. In 2003-2004, for the first time India’s GDP growth rate exceeded 8%, a feat the then-Leader of the Opposition had termed “Mungeri laal ke haseen sapnay”, in response to the Government’s projection.

Today, 8% growth is considered to be a given and India’s true potential stands at 12%-plus.

Since 2004, the liberalization process has come to a virtual standstill. We cannot bridge the two Indias merely by populist economics of taxation and redistribution – what we need is massive amounts of wealth creation and liberalization to harness our demographic dividend.

A few days ago, editor of Outlook magazine Vinod Mehta was on television describing India as having a free-market capitalist economy. This is typical of the discourse in the mainstream media – nothing could be further from the truth. I have said before that there are large, important sectors of the economy such as railways, banking and mining that are still nationalized. Till they remain in the grip of the government, our economic performance will be constrained and we’ll never eradicate poverty and identity-based fundamentalism.

India has only taken baby steps towards a market-based economic system. There is no doubt that there are a large number of Indians who continue to suffer glaring poverty, but the cure is not less liberalization but more.

The longer our government delays liberalization and the more excuses it invents, the longer India will continue to be poor and the more fuel identity fundamentalists will gather. Only markets can connect the two Indias and transform the poorer India into a prosperous India, not government largesse.

Originally Published: http://navam.in/1pzv6wN