Better transition planning
Business Standard, 7 April 2019
The post-election transition is a difficult and important time. As institutions in India are weak, a lot rides on personalities. There is a pileup of `debt' incurred from the previous period that demands attention and resources. There is a unique opportunity for long-term thinking. It is efficient to develop a transition team that will think about manifesto, CMP, staffing, and early actions.
Whether the BJP wins the elections or not, the next five years are going to be different. Even though the UPA won the elections in 2009, the nature of the UPA-2 was quite different. Even if a certain person, who occupies a certain cabinet portfolio in 2014, remains intact into 2019, that person has evolved, and the approach in 2019 will be different. And in practice, changes at the level of cabinet and officials are often found after elections.
Once the election results are in, the media will make a lot of noise about the greatness of the winners. There will be a certain euphoria in the air. Many people assume there is a `honeymoon period' where a new team has great opportunities. However, these transitions are difficult problems.
In India, institutions are weak, and hence individuals matter greatly. New people take time to understand the landscape and learn the ropes. A thumb rule followed by many experienced civil servants is to speak less and do less for the first six months in a job. When institutions are weak, the relationships between individuals and between institutions are fragile and learned slowly.
What is different about the first six months are the time horizons. It is possible to act with greater intellectualism in the first six months, as there are four years in which the fruits of this labour can be obtained. This gives time for implementing complex reforms, and for the economy to absorb the change.
As an example, it is politically easiest to combat protectionism in the first few weeks. The incumbents who are hurt by these reforms will complain in the first year. But by year 4, the full gains from improved resource allocation and productivity are reaped. By this logic, June to September 2019 is an ideal time to remove customs tariffs, data localisation rules, FDI restrictions, etc.
As time passes, decision making becomes more short-term when the next elections come closer. This leads to the accumulation of `policy debt'. Problems like sugar, IL&FS, Jet Airways, IDBI Bank, and off balance sheet fiscal operations are being dealt with in short-term ways in the last year leading up to the election. This accumulated `debt' has to be paid by the next team.
The period immediately after the elections is thus a time where the new team is unsure of itself, has to pay down the policy debt left from the previous year or two, and has the opportunity to find long-term solutions as it has the luxury of time. The best story of good work under such conditions is the July 1991 Budget speech.
When institutions are weak, personnel is policy. The puzzle of 2019 lies in bringing enough knowledge and debate into the early weeks, to lay the foundations for an economic resurgence by 2022-23.
Three kinds of mistakes need to be avoided. The first kind of mistake is that of only undertaking short-term moves to deal with the policy debt: the policy response to IL&FS in June 2019 should be different from that employed in June 2018. The second kind of mistake is to get carried away by the euphoria in the media and prematurely claim that the economic problems are solved. We should not believe our own press releases. The third kind of mistake is to not initiate a batch of difficult and long-term reforms -- e.g. 10 teams for 10 work areas -- which will yield results by 2022-23.
The defining problem of the economy is private investment. Fiscal, financial, and monetary policy comes together to create the conducive macroeconomic environment for firms to invest. Private persons are keen observers of the policy process, and respond to the prospect for improvement. When policymakers showcase teams and ideas, this yields rapid gains in the economy, as private persons become more optimistic about the economic environment. A strong performance on the inputs to policy (team, strategy, first wave of actions) in 2019 and 2020 will induce improvements in outcomes (private investment) in 2020 and 2021. Ideas and teams for economic reforms are the cheapest counter-cyclical policy.
How can political parties make the best of the first six months? Better planning holds the key. As an example, in the US, transition work starts in October, the election results come out in November, and the new team takes office in January. Four months of developmental work is in place before the new team takes charge. In India, we do not have these institutional arrangements. We go from cabinet formation in late May to Budget speeches in July and then February, by the seat of the pants.
How can we do better? Manifesto development is a good place where the objectives of the campaign are served while simultaneously preparing the mind for taking charge. Coalition governments have, in the past, negotiated `common minimum programmes'. This negotiation helps focus upon policy questions, and better development of a manifesto caters to better CMP negotiations, which in turn cater to better policy planning. A full planning process of the first year is required, identifying areas of work, concept notes for the work programmes, and the expertise.
General Eisenhower once said that the plan is useless, but the planning makes all the difference. Well before the election results, political parties need to get started on the planning process. This will prepare the mind, develop capabilities in key persons, and generate improved performance when the work actually starts. We can form a good prognosis about performance in the coming five years by looking at the intellectual capacity, and team coherence, of the key persons in leadership roles by June or July.
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