Adapting Economy to Changing Trends
The Indian Economy has been showing an upward trajectory for quite a few years now. Nevertheless, in the conflict between figures and tangible end-results, the essence of how the wheels of an economy roll is missed out. Asia’s Century (i.e. the 21st Century) has much in store for a nascent Indian economy which has just set out on economic reforms. Exploring economies and economics as a discipline beyond the traditional neoclassical constraints is the necessity of today’s world.
‘Economics for the 21st Century’ was the theme around which Mr. Sanjeev Sanyal (Principal Economic Advisor in the Ministry of Finance) gave a fresh perspective. Under ‘Discourse- A Lecture Series’ organized by the Economics Society, on 1st October 2018, his remarks exhorted the newly inducted junior members to think beyond the conventional wisdom and have a penchant to take risks. Naturally, the Indian economy was the focus of the lecture but always in consonance with wider global economic functioning.
Mr. Sanyal began by identifying the economy as an ‘organic ecosystem’, constantly balancing its scales, rather than a ‘gigantic, Victorian steam-engine’ where the growth has to be regulated through constant interventions. The latter model exhausts the economy not only of an independent functioning space but also handicaps its responses to the changing trends.
During the course of the lecture, Mr. Sanyal raised certain pertinent questions as to how will an economy react to the implementation of a policy? This was then explained in detail with him introducing the audience to the concept of ‘context-change’, implying the change in the surrounding environment in which people operate. ‘Context-Change’ forms an integral part of the blossoming discipline of Economics – Behavioral Economics, pioneered by Mr. Richard H. Thaler. Elucidating upon this idea through the “Stanford Prison Experiment” and ‘Broken Windows Theory’, he established that the surrounding environment plays an important role in determining the actions of the people interacting in it. Essentially, Mr. Sanyal said that the context and environment in which we operate play a more important role in the success/failure of policies than what most economists recognize.
Mr. Sanyal talked about how an alternative approach to addressing long-standing problems gave favorable outcomes. He elaborated on how certain issues are being resolved by doing away with the conventional practices and adopting a new line of reform. For instance, toilets were never thought of as a remedy for health problems. Lack of toilets was an unaddressed issue in the path of general health. With the ‘Swachh Bharat’ Abhiyan making a necessary input by increasing households’ access to clean toilets from 36% to 93%, a significant decline in Child Mortality Rates was noticed. This correlation goes on to speak about how health benefits accrue well to people when they have access to sanitation.
Demonetisation, according to Mr. Sanyal was a ‘watershed’ moment, targeting the parallel economy. However, the wider idea behind the move was to emphasize on the
establishment of a ‘new set of rules’. Basically, through the shock of demonetization, the government wanted to send a message to the nation that ‘the time to reform had come’. This is why demonetization was followed by the introduction of ‘Goods and Services Tax’, action against ‘Benami’ properties and the ‘Insolvency and Bankruptcy Code’. This, according to Mr. Sanyal, is a classic example of ‘context change’.
Another important concept which Mr. Sanyal introduced was ‘Feedback loop and Adjustment mechanism’, which means reacting to flaws in existing policies on a regular basis. Giving an example, he stated how the GST continues to have problems which are being rectified constantly through this feedback mechanism.
Additionally, Mr. Sanyal expressed the need to bridge the gap between the theoretical and practical use of economics as a discipline. Sharing an anecdote from his years in SRCC during 1989-1992, he talked about how they witnessed the Soviet Union collapsing and India turning to market-reforms, even as the text-books suggested that the Soviet model of economic organization is sure to triumph. The present detachment between theoretical economics (in the textbooks) and practical economics (on the ground), requires one to move beyond the outdated textbook curriculum.
The lecture was followed by an interactive Q&A session with the students. Mr. Sanyal highlighted the need for collective support from the polity, judiciary and people to make reforms work. Speaking about judiciary’s role in reform-process, he stressed the need for the judiciary to focus on solving the 33 million pending cases rather than running cricket in our country. With respect to the rapid depreciation of the rupee, Mr. Sanyal lauded the government’s decision of letting the currency find its own level in the free market. He also touched the issues of black money, his own career trajectory and his reluctance to making India a ‘laboratory’ to experiment the Western concept of UBI. His reasoning behind every situation inspired the new recruits to delve into the wider aspects of economic affairs and made the session a memorable one.
Mr. Sanyal stressed the importance of being practical in our approach to economics and not limiting ourselves to the curves between the two axes. In totality, rational thoughts on themes of context change, behavioral economics and many more established a perfect ‘launching pad’ for all the new recruits of the Economics Society. Deriving inspiration from his words, the society seeks to push the boundaries of ‘Discourse’ and dialogue by ideating on a context change for the institution and the country.
By Nakul, Muskaan and Aman.