Context: The Centre should focus on a broad policy framework rather than micromanaging industrial and developmental activities.
Micromanagement and associated issues:
Micromanagement is when matters that should be left for decision by a lower level are controlled and decided at a higher level.
The main problem with this is that the focus on the broad policy framework is lost because of the obsession with details.
For example, focusing attention on a few trees does not constitute a forest policy, which should deal with the totality of plant growth that would lead to greater respect for biodiversity.
At present, we see this trend towards myopic micromanagement in the Union government’s approach to industrial policy and to develop activities that have to be implemented by the states.
Micromanagement Indian Policymaking:
In Industrial Policy: The PLI reflects a micromanagement approach to policy that gives government officials, who have little experience of commercial activities, the discretionary authority to define what “win” means and to choose the “winners”.
It is a business-friendly approach, not a market-friendly approach and will lead to charges of favouritism and corruption.
In developmental efforts of the states: The budget provision for the conditional grants has gone up from Rs 3.4 trillion in 2020-21 to Rs 3.8 trillion in 2021-22.
Not only is there great diversity between the states, but also within the states.
A standardised approach imposed by the Union government is not suited for designing public interventions in sectors like agriculture, health/education, where policies must suit local conditions.
For instance, should the terms of a grant for drinking water supply be the same for Kerala and Rajasthan?
Way Forward:
Adopting a market-friendly approach: A business-friendly approach based on subsidies may show some immediate gains like the increase in the domestic production of mobile phones.
But a market-friendly approach will lead to broader gains that are not dependent on subsidies.
A market-friendly approach to industrial development will not try and pick winning and losing sectors or companies.
Government’s role: Beyond macro-economic and exchange rate management, it can address more specific factors that are holding back industrial growth and exports
Like inadequacies of infrastructure, inadequate research and development in industry, shortages of skilled labour, imperfections in the capital market for MSMEs.
Providing unconditional grants to the states: with perhaps some bias in favour of less developed states and improve upon the movements of migrant labour, power transmission and infrastructure for inter-state movement of goods.