Govt must not micromanage

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.