A Policy Question

The question is this. What specific policy change would meet the following criteria:

  • It would immediately start the process of unshackling the Indian economy (or even any backward economy) and put it on a path to reaching its potential
  • It would not involve any public expenditure (that is, it would not impose a burden on public finances)
  • It would be popular with the public (meaning it would be not opposed by any significant segment of the population) almost immediately
  • It would not involve the development of any new technologies
  • It would not be adopted by any politician, political party or the government (because it would hurt their narrow, financial interests)

Over the years of studying the matter of how economies develop, specifically the Indian economy (note the title of this blog), I have pondered that question and I believe the answer to be this. It is … wait! I should let you take a crack at it first.

Answer that question in the comments, if you will. You will not win any fabulous prizes if your answer coincides with mine. It would only mean that you have figured out what is holding back a country like India from advacing in the modern world.

In a few days, I will give you my answer to the question.

{Here’s the answer to the policy question: This Policy, Alone.}

Author: Atanu Dey

Economist.

23 thoughts on “A Policy Question”

  1. somehow create free markets? (Privatize banks, increase access to credit by orders of magnitude)
    – Make sure that people PAY for electricity. Having enough access to electricity creates automation that leads to higher productivity and thus wealth creation. Plan to double per capita power consumption in 5 years
    – Reduce regulations by 50% in 2 years. (land, labor and industrial permitting)

    Liked by 1 person

    1. Raj, creating free markets is a very broad policy move and it is likely to meet with considerable opposition from all sorts of interests. Paying for electricity will be hard to implement and would again face opposition — especially from farmers.

      Reducing regulation by x percentage is a good policy recommendation but it will be extremely hard. I’m looking for something that will be easy to do, will not face opposition, that will raise the sustained growth rate to the potential growth rate of the economy.

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  3. Stop funding government schools. Spend some more money and give education voucher instead to each student in India. Politicians can make grand show events where they can be seen handing over the voucher to kids and earn photo-op-points. Let students use school-voucher to go to school of their choice.

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  5. I guess Atanu and all of us commenting here are pro-free-market and a minority. I know for sure that majority is anti-free-market. It will take time to get folks to really turn pro-free-market. Till that time, we are at mercy of chance to get free-markets in bits and pieces.

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    1. It’s not that the majority is pro- or anti-free markets. It’s that the majority don’t know what free markets mean. In fact, they support free markets but don’t realize that they do.

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  6. Make loud noises threatening to take back ‘Aksai Chin’ and also invade Tibet.

    There’s nothing like a sound thrashing to wake a country up to its senses.

    Just consider, if 1962 didn’t happen, would India have the bomb or ICBMs and therefore ISRO and the space program?

    Such a policy could immediately make China cut all electronics and other high-tech exports to India, and force (one way or the other) Taiwan/S.Korea/Japan to also not sell to India. It could force India to wake up and start making its own high tech products.

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    1. This response to my question makes no sense to me. What is unclear about a simple question about a policy that meets all the criteria I specifically stated? Tell me what you consider that policy to be. Irrelevant stuff does not count.

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      1. Just the first sentence is the proposed policy:

        “Make loud noises threatening to take back ‘Aksai Chin’ and invade Tibet.”

        Which, of course, is intended to infuriate the CCP Politburo and make them at the very least impose tough economic sanctions against India.

        The proposed policy change meets ALL your given criteria:

        It would immediately start the process of unshackling the Indian economy and put it on a path to reaching its potential.
        COMPLACENCY (‘sab chalta hai’) is the root cause of the Indian government’s poor performance. AFAIK, no govt in history has ever got its act together, unless challenged from outside. A couple of examples:

        The Mauryan/Magadha empire sprung up as a direct response to Alexander’s invasion.
        Japan’s Meiji Restoration (https://en.wikipedia.org/wiki/Meiji_Restoration) was a direct response to Commodore Perry’s (https://en.wikipedia.org/wiki/Perry_Expedition) naval expedition.

        It would not involve any public expenditure (that is, it would not impose a burden on public finances)
        Merely making loud jingoistic noises will not involve much, if any, public expenditure!
        It would be popular with the public (meaning it would be not opposed by any significant segment of the population) almost immediately
        Most Indians (want to) believe that somehow their country is far superior to China. Just check Youtube.
        It would not involve the development of any new technologies
        Propaganda intended to enrage the CCP Politburo does NOT involve the development of any new technologies.
        It would not be adopted by any politician, political party or the government (because it would hurt their narrow, financial interests)
        The politicians know that if the proposed policy is implemented via the back-door, by a Jack Ripper type character (https://en.wikipedia.org/wiki/Dr._Strangelove), they will have no choice but to get their act together and actually make India as economically strong as China, instead of just making empty boasts. Naturally, they would like to avoid this at all cost.

        Essentially, a little THINKING-OUTSIDE-OF-THE-BOX policy.

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  8. Currency should be pegged, Integration with global economy with more positively will help some boom,
    If Govt of India understand the words As Reagan said ‘Govt is not a solution Govt is a problem’.
    Every thing will be in track.

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  10. Akbar once asked Birbal, give a single cause that lead to following three events.

    Horse got stuck.
    Paan got rotten.
    Roti got burned.

    Birbal replied : “because it was not turned”

    Similarly there is no point talking about all minor things that have got wrong with India. None of us have that much intelligence or knowledge or time. Let people be free and they will figure out what the problems are.

    One of the basic conditions of freedom is that people should be free to think. For that we need to have a diverse education system where different people try different experiments. We need to free education from government. This passed all the constraints mentioned by atanu.

    It would immediately start the process of unshackling the Indian economy (or even any backward economy) and put it on a path to reaching its potential

    Since I am a free market capitalist, I am going to pool money with others and start a new school board. Children from my school will be champions of capitalism and freedom. Someone else will start a school which teaches Communist thought and those children will be the champions of violence and state control. The better group and ideas will eventually win. More importantly when group X proposes a theory there will be millions available to debunk that theory.

    It would not involve any public expenditure (that is, it would not impose a burden on public finances)

    People will start their schools and boards with their own money without any funding from state.

    It would be popular with the public (meaning it would be not opposed by any significant segment of the population) almost immediately

    More schools that specifically cater to the demands of parents will be popular with parents.

    It would not involve the development of any new technologies

    Schooling is one of the oldest things people have figured out. I am told Indians were especially better at this having founded major centers of learning. Indian constitution treats Indians and especially Hindus with deep contempt on this specific issue and declares them unfit to run schools.

    It would not be adopted by any politician, political party or the government (because it would hurt their narrow, financial interests)

    Both Congress party and BJP have told us that such a change will not happen. One of the rare issues where they all agree and shake hands.

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  11. Here is a thought that meets all the constraints laid out by you. Slash income tax to zero – both individual and corporate. I would also eliminate capital gains tax. The relevant points are:
    1. India has a very narrow income tax base. So number of people affected will not be large but the effects will be powerful.
    2. Huge bureaucracy and paperwork will be eliminated.
    3. Investment will shoot up creating jobs.
    4. Consumption by middle class (salaried) will go up.
    5. Government can fund itself on GST and by selling many PSUs.
    6. Tax on expenditure will be far fairer than tax on income.
    Most importantly
    7. It will release entrepreneurial spirit and eliminate a big source of black money (why politicians will not like it).

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    1. Add a few more:
      1. Removing capital gains tax will make housing affordable.
      2. capital flight will stop.
      3. India will need to ensure that it is not classified as a tax heaven with the associated issues. This can be easily done with transparency.

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    2. Income tax and corporate tax together makes up 54.4% of India-Government’s-revenue. You cannot eliminate income-tax without reducing government expenditure or creating an alternate source of revenue.

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