Political input in economic policy making


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This topic of “Political input in economic policy making” is important from the perspective of the UPSC IAS Examination, which falls under General Studies Portion.

What the editorial is about?

The need to shelter economics from politics and vice versa.


  • The political input in economic policymaking is becoming dominant as regional and state-level issues assume overriding significance.

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Policy continuity

  • The sudden withdrawal of farm laws last year and the repeal of the land acquisition ordinance in 2015 are two examples of policy backsliding in an otherwise decent record of policy continuity since 1991.
  • The overall trajectory of tariffs has been downward and average tariffs are now below 10 per cent compared to over 400 per cent before 1991.
  • As a favoured rule, domestic policy priorities should not be held hostage to external pressures, but they can and ought to be used to push through difficult and desirable domestic reform.

What hampers in achieving high growth?

Institutional Failure

  • The coal scam and the 2G scam are examples of the inability of institutions to keep pace with rapid growth.
  • As growth occurs, institutions also require sophistication, knowledge, and some (not complete) protection from political interference.

Relying on chance events to drive reform

  • Relying on chance events to drive reform might work in rare circumstances, but not when the aspiration is to become a $10 trillion economy by 2030.
  • Realising this target or even coming close to it will require sustained growth of over 15 per cent per annum in nominal GDP — that’s no mean task.
  • The golden period of India’s growth fetched an 8.1 per cent increase in real GDP between 2004 and 2009.
  • Even during this period, the growth story was cut short by the global financial crisis and devilled intermittently by institutional weaknesses.

Significance of a fiscal council in the budget-making process

  • Successive finance commissions and the Fiscal Responsibility and Budget Management (FRBM) Review Committee have recommended the creation of a fiscal council that, like the MPC, will bring transparency in the budget-making process.
  • The Monetary Policy Committee (MPC) in 2016, replaced RBI’s internal decision-making driven by the central bank governor to include three external experts to strengthen and bring transparency into monetary policy decisions.
  • This can be extended to other important government functions, such as the budgetary process.
  • The idea is simple, moderate the influence of the political agenda and powerful interest groups that could, and often do, capture the process.

Considerations on Policy Making

  • Policymaking is nothing if not art that invokes science when expedient.
  • Domain experts should be an integral part of the formulation process. Implementation can be left to the executive.
  • As more sectors (for example, the Gati Shakti initiative) engage the private sector, lessons from the last quarter-century should not be wasted — domain expertise is conspicuous by its absence in regulatory and policy institutions.

Way Forward

  • It is vital to create a cadre of professionals with technical expertise for the complex tasks of managing the policy processes.
  • The net needs to be cast wider so that politics and policy are distanced, not completely but certainly more than it is today.

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