As opposition to cash transfers and FDI in retail shows, it is difficult to change the direction of Indian policymaking
In Greek mythology, Sisyphus was a frustrated man. He endeavoured to roll his rock up the hill, but the harder he pushed, the stronger were the countervailing forces that sent his boulder tumbling down. A shift in the direction of Indian policy is a Sisyphean challenge. Whatever be the merits of the desired change, the argumentative Indian will inevitably find reason to block its progress. Thus the twists and turns in the effort to bring succour to farmers by modernising the ?farm-to-fork? supply chain through FDI in multi-brand retailing. Thus the noise against the cash transfer scheme. Fortunately, in both these cases, the government has not given up and is slowly but surely making its way to the top of the hill.
Alfred Marshall, the father of modern economics, used the ancient Greek word ?organan? to nuance the purpose of economics. Organan means a tool; an implement designed to sort out mechanical problems. It is not a perfect instrument. It has to be modified and adapted to the nature of the problem and it provides the means to reduce inefficiencies and maximise possibilities. It does not offer a perfect solution. Similarly, economics is an ?apparatus of the mind? (this was Keynes?s description) that will not ?discover the final truth?, but can provide an ?engine of analysis? to find answers to existing difficulties. It is not a perfect apparatus and it needs to be continually adapted to changing circumstances and context.
Critics of the government?s efforts to shift the needle of economic policy, in particular on retailing and the distribution of public entitlements, should think of an organan when making their comments. The shift will not be a cure-all; it will not be perfect; it will not eliminate all waste.
There will be consequential costs and it may require mid-course correction. But it will be a step forward, and if the tools are upgraded in line with emerging developments, this first step could lead to larger steps towards resolving deep-rooted economic issues. Marshall and Keynes were clearly of the view that doing something, even if that something was imperfect in conception and rendition, would be more useful than standing still in the mire waiting for perfectly cloudless blue skies.
That there are arguments for and against multi-brand retailing and cash transfers is unremarkable. Our complex, diverse and pluralistic society does not offer one perfect solution to any problem. Every plausible suggestion can be challenged by an equally weighty counterfactual. The only way to break this intellectual logjam is to distil the fundamental verities. What are the incontrovertible facts? And how, when looked at holistically, do the costs and benefits of these facts stack up?
Take the case of cash transfers. There are five facts that no one but the hardened ideologue will challenge. One, the current public distribution system is inefficient. It leaks; it offers powerful intermediaries the opportunity to extract rent; and it does not reach a high proportion of the intended beneficiaries. Indeed, most struggle to secure their dues. Two, the government is facing a fiscal crisis. It cannot afford the financial consequences of this delivery deficit. The finance minister is hard pressed to meet his budgetary commitments and he must take steps to stem the cash haemorrhage.
Three, subsidies encourage unnecessary and wasteful demand and compound inefficiencies. That, in turn, engenders an unhealthily strong nexus between growth, consumption and environmental degradation. A major reason for air pollution and deforestation is the current system of subsidising fuel, in particular kerosene and diesel.
Four, there are millions in rural India that do not have the knowledge or capability to enter the economic mainstream. And those that endeavour to do so are foiled because of complexity and opportunism. Economic and financial inclusion is not a national phenomena. Finally, cash is but one of several vehicles by which public entitlements can be distributed. It offers choice.
Similarly, in the case of multi-brand retailing, there can be no denying that the farmer is caught in a vice of strong middlemen; that those who market perishable commodities long distance are on tenterhooks until their product has reached its destination and deemed acceptable by the purchaser because of the absence of cold chain storage facilities; and that there are thousands of small neighbourhood shops that would face some competition from the larger supermarkets.
These facts make clear that cash transfers will work well only in areas where the markets are relatively well developed; the financial infrastructure (for example, cash ATMs) have been put in place; the people are somewhat knowledgeable; and where education and social evolution have reduced the likelihood of wasteful expenditure (for instance, on alcohol). It will not work well in places where these conditions do not exist. They also highlight the indirect challenges. The PDS scheme has been in place for decades and huge tangible (such as warehousing, fair price shops etc) and intangible (the procurement pricing mechanism) costs have been ?sunk?. It will not be easy to replace this system.
And so it is with retailing. Here, too, the existing structures are embedded. Some geographies might be able to make the shift quickly. Others will get caught up in a tangle of vested interests. The government?s decision to allow the various states to decide whether or not to allow FDI in multi-brand retail has been driven as much by good economics as by good politics.
When seen through a holistic frame that identifies the ?incontrovertibles?, it is easier to draw a balance sheet of costs and benefits and draw conclusions. Based on the above listing, for instance, it is clear that in the case of cash transfers and multi-brand retail, there is a problem, but one that does not lend itself to a perfect solution. However, the tools and the economic apparatus do now exist to, at a minimum, commence the (possibly unending) journey towards a final solution. Sisyphus did not reach his destination because he did not adapt his tools. He kept at the rock with his hands and shoulders. The government, though, should succeed, because through aadhar and technology, it has improved its organan. Critics should now look to modernise their mental apparatus.
The writer is former chairman of Shell India. Views are personal
