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Understanding NITI Aayog’s action agenda

LiveMint logoLiveMint 03-05-2017 Pravin Krishna

On 23 April, NITI Aayog released its Three Year Action Agenda document, a comprehensive framework for proposed policy changes to be implemented in the short term in India. The Agenda is wide-ranging: It covers the different sectors of the economy—agriculture, industry and manufacturing—discusses the policies necessary for urban and rural transformation and a range of growth-enabling ingredients such as transport, digital connectivity and entrepreneurship.

As such, the Action Agenda forms part of a larger Vision Document which spans a seven-year strategy and a 15-year vision till fiscal year 2031-32. Let us recall the context. As of the end of the last fiscal year, the 12th Five-Year Plan breathed its last gasp, and as of 1 April, India is no longer officially a planned economy, with the old distinction between “Plan” and “non-Plan” expenditure, which lent the erstwhile Planning Commission its fearsome power, now relegated to the dustbin of history.

No longer do state chief ministers come to the imposing Yojana Bhawan on Parliament Street in Delhi cap in hand, but as equal partners in the development project in a new federalist conception. In short, India is now on the road to becoming a full-fledged market economy, with the legacy of planning behind us. But all governments need to look forward, if not explicitly to “plan” in the sense of the rubbished Stalinist five-year plans, but to set priorities and develop instrumentalities to achieve those priorities. That is the rationale for NITI Aayog’s approach.

A framework document of this scope could run the risk of saying something about everything, while offering nothing specific or actionable about anything. Contrary to the carping of some critics, this document pleasantly surprises. In just over 200 pages, it manages to inform, reason, and offer a distilled sense of priorities for policy reform.

The agenda describes well the fundamental dilemma concerning economic transformation of India: Roughly 50% of India’s workforce is employed in agriculture, which contributes only 15% of output. On the one hand, that suggests that workers should be moved away from this relatively low-productivity activity. On the other, it also requires that productivity in agriculture itself be improved to increase yields and benefit those workers who remain in the sector.

Equally, the service sector and manufacturing jobs that await workers exiting the agricultural sector are not always high-productivity jobs. Firms with less than 20 workers employ 72% of the manufacturing workforce and produce merely 12% of the manufacturing output. And nearly 40% of the services output is produced by merely 2% of the service sector workers, employed in the largest services firms.

These facts in themselves point to the urgent need for productivity-enhancing reforms—in agriculture, manufacturing as well as services. How can productivity be enhanced?

The Agenda offers a number of compelling proposals ranging from the use of high-yield seeds to improved irrigation techniques to the removal of the infamous tariff inversion problem (where the high level of trade barriers on intermediate inputs relative to final goods disincentivizes domestic production). In laying out these proposals, it also underscores the critical need to enhance the scale of production in each of the sectors: Landholdings in India are typically too small, the average manufacturing firm is small and under-productive, as are firms in the services sector.

On the issue of scale, a few proposals are especially noteworthy. To deal with small and fragmented landholdings, the document proposes the use of a modern land-leasing law that balances and protects the rights of the tenant and landowners as a potential solution.

For manufacturing, the document proposes the development of a few Coastal Economic Zones (CEZs) operating under a liberal economic environment (for instance, without the restrictive labour laws that bedevil the rest of the economy) and with an abundance of land—much as in China, where large firms, operating in its special economic zones, sometimes each employ hundreds of thousands of workers.

The document’s chapters on transport and physical connectivity, as also on digital connectivity, offer a detailed picture of the existing infrastructure framework, with many specific proposals on improving efficiency and closing gaps in coverage.

The government’s desire to leverage technology to improve efficacy, while laudable, requires a strong digital network and an ability to provide reliable end-to-end e-services. There is considerable unevenness across the country in access to the digital network and in the ability to benefit from such services. The Agenda highlights priorities in this area and offers its thoughts on how these gaps might be bridged.

The analysis and proposals provided in the Three Year Action Agenda range from the actionable to the aspirational. We shall, in the fullness of time, see how many of its proposals are taken up and implemented. Be that as it may, we believe that its primary contribution will be in serving as a base of knowledge and analysis to support any future discussions on policy reform; it should be welcomed.

Pravin Krishna and Vivek Dehejia are, respectively, Chung Ju Yung distinguished professor of international economics at Johns Hopkins University and resident senior fellow at the IDFC Institute.

Comments are welcome at theirview@livemint.com

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