In India, policymaking has been a complex process. It cannot be run by any one institution or person is the word coming in from former deputy chairman of Planning Commission, Montek Singh Ahluwalia.
"India being a democracy, it requires change of policy in the context of a consensus of the direction in which we need to go. That consensus has to be built by the political leadership," he said in an interview with CNBC-TV18's Shereen Bhan.
“It is also true that even when there is a broad consensus, there will always be opposition. Therefore, the political process has to continue even after announcing the intention, maybe moderating the reforms, so that you limit the unintended negative effects etc and that is what makes it a gradualist process," he further said.
According to him, what has been demonstrated in the last 30 years is that India is capable of changing policy. That is what happened in 1991. The need to rethink was there in 1980s but what 1991 did was completely change the direction of policy. At the same time, politically, it was very difficult for the Congress party to say that they are changing direction so they kept emphasizing continuity, which was fine because politically they found it easy, he said, while discussing the nuances of his book ‘Backstage: The Story behind India's High Growth Years’.
Ahluwalia has been an integral part of India’s tryst with economic reforms, pre-1991 and post 1991 as well. He negotiated for India with the International Monetary Fund (IMF) and spent almost a decade as deputy chairman of the Planning Commission.
Sharing his views on reform by stealth, Ahluwalia said, “There is a difference that I point out in the book between gradualism – which says look we are going to make a big change but to minimise disruption, the change is going to be spelt out over a period. In a way that is what former Prime Minister Manmohan Singh did in 1991, in the matter of tax reforms, in the matter of financial sector reforms. He said, we have to do the thing differently and we are going to take some time."
"The other is that you just point that we are going to do this but don’t specify over what time period, you just do it when it is possible. I call that an opportunistic approach. A third view is that you don’t even spell out why we need to change, you just change when it is possible and I call that reform by stealth.”
According to him, there is nothing wrong with gradualism. "We did have some gradualism, a lot of it was opportunistic but then in due course the attraction of reform by stealth crept in. So, you announce certain programmes and slogans but you don’t necessarily act in exact accordance with those slogans and that is unfortunate. We are now in a much more complex position than we were in 1991,” he stated.
“The economic problem in 1991 was very simple, the economy was not very complex, it wasn’t open and was overregulated. So getting rid of those regulations was a no-brainer," he said, adding that even if we took a little longer, it was clearly the right thing to do.
"Today the issue is not a simple one of no regulations versus regulations; it is handling an economy, which has become more complex, which is natural because it has now moved into a middle income status rather than lower income. Technology is changing fast, the economy is much more open and globalised and we also want to attract foreign investment," he added.
"So, how you handle these things in a manner, which signals to people that the basic elements of policy are continuing and that we do want to encourage the private sector because it is going to be a private sector led development. Therefore, policy is going to be conducive to private investment and conducive to integration with the global economy, a very difficult thing to do because the sort of people who push for private investment, very often also push for protectionism, which is a wrong thing to do,” he noted.