How can Indian economy get back on track?

India Back On Track – An agenda for reform is the first show in a three part series that Network 18's Think India Foundation is producing in partnership with the Washington, DC based Carnegie Endowment for International Peace, one of the world's finest and most influential think tanks.

India Back on Track is based on a book that will shortly be published by the Carnegie Endowment, which has essays written by leading Indian thinkers. Network18's Raghav Bahl caught up with its co-editors Ashley J. Tellis, senior associate at the Carnegie Endowment of International Peace, Bibek Debroy, eminent economist and professor at the Centre for Policy Research and Dheeraj Nayyar, CEO of the Think India Foundation to discuss in the book.

The key themes discussed: 1) Greater faith in free markets, 2) The need to decentralize authority to the states and 3) Then emphasis on policy implementation rather than grand ideas.

Below is a verbatim transcript of the interview

Bahl: I have been watching the Indian reform programme from the early 1900s very closely and one of the things that strikes me is the diminishing faith in free markets over the 20 years. The first 10 years we seem to put much more faith and then we lost it. Is that something that comes through in your book as well?

Tellis: It certainly comes through in the sense that most of the suggestions in many of the issue areas clearly emphasize that you run away from markets only at great cost to your success. So, there comes a point where you cannot approach markets defensively. Part of the reason for the trend that you indentified was that the Indian willingness to consider markets in 1991 was not because of a philosophical transformation but as a response to crisis and so India did what was necessary to circumvent the crisis of the moment and when things got better, it was easy to go back to the bad old ways.

Raghav: The familiar faith or the suspicion that you have of the market.

Tellis: That's correct. So, now the question is when India has to make some hard choices about sustaining growth over the long-term, what is the best social institution we know to make that happen? The book makes the case quite compellingly that there is a role for the state and a very important role for the state. But, it cannot be to the neglect of markets, whenever and wherever necessary.

Raghav: So, specifically where would you emphasize the need to reignite the role of the markets?

Tellis: One would have to do that in almost every issue area that the book looks at. But, a very good example would be with respect to energy. There is a very compelling case to be made, that India is a very wasteful user of incredible scarce resource. Its foreign policy is driven by search for secure energy sources, a great deal of effort is made in national economy to economize on the use of energy and yet, the single best thing India could do which is to liberalize the markets for the consumption of energy, is something that India is very hesitant about or does it very falteringly.

Raghav: And stop-start. Went in the early 2000s, we went ahead and then we pulled back and now we are doing 50 paisa sort of month or 5 weeks for diesel. Among the other areas where free markets would need to get a quick play. What would you identify would be the first few priorities of the next government?

Debroy: I will like to make three very quick points.

Firstly, there has been a problem with regulation in India or its lack or its inadequacy. And because there has been that problem, there has been distrust of markets and therefore one is confused regulation with control. Consequently in the last few years we have seen control masquerading as regulation.

Second quick point I would like to make is this book is primarily targeted at a government in Delhi. There are only X number of things that the government in Delhi can do and there are several things that are in the domain of the states. But, to quickly give you an example of something that illustrates this difference between regulation and control and dependence on markets is technology.

By technology I mean something like BT technology.

BT technology, subject to whatever regulatory standards you have, the market would require that decision to be left to the farmers. So, why is the government in Delhi trying to preempt that choice and preventing that choice by farmers?

Raghav: That's an interesting example you raise because there seems to be now almost every mainstream party. And I was reading just now that even the BJP seems to believe that genetically modified crop technology is something that they would be suspicious of. So, this is going to be a very uphill battle for you to get people to be convinced about this particular example.

Debroy: But, there are examples across the spectrum, I would pick higher education also as a very good example of that, not school education because that again is partly the domain of the states but higher education is a very good example where we are again mixing up regulation with control.