Conversations on Deregulation: Suman Bery, NITI Aayog

What did Indian policymakers get right on deregulation?

I think the best way of answering that in the city of Bangalore is to cite three tech-related successes. 

The creation of India's tech industry, which mushroomed after Y2K 25 years ago, which is not a long time. I don't know whether to call it deregulation, but it was a nice handoff between the private sector and the public sector. And I think what I really want to focus on here is that interface between the state and the private sector. I used the term the state, I meant the governments of all kinds. I think the example I gave is relevant for states, in particular, the kind of support that the central government and the Karnataka government gave to the creation of Electronic City and all that has happened. That's example number one, and we shouldn't take it for granted.

The second is Aadhaar, and linked with what was called initially India Stack, but is now called Digital Public Infrastructure or DPI. And I think there are a couple of, again, lessons from that. One, and I get this on the authority of people who know, I was at a conference in Hong Kong recently, and Michael Spence, the Nobel laureate, was pointing to the difference between India's DPI and what we've seen in the US and Alibaba in China, that this was based on open data, whereas a lot of the other examples were based on caged data. And so I think to have come up with an interaction between government and the private sector that led to an open architecture of DPI, it's been hugely successful and speaks to our ability to get things right. So that was actually two.

It was the Aadhaar and the implementation of Aadhaar, but also then the application of Aadhaar in an architecture that allowed a lot of innovation and was not caged within a corporate boundary. So those would be some of the things I think we should take pride in. 

What frictions still constrain India's reform agenda?

All modern governments have to walk the line between market-friendly and incumbent-friendly because, as Machiavelli said 500 years ago, whenever it was, the beneficiaries of reform are diffuse, the losers from reform can organize. And that's been true in monarchies, it's true today. So that's an element of governance at all times. 

I would make one point: former Chief Economic Advisor Arvind Subramanian, and he's a gifted phrase-maker. He gave us the jam trinity, but he also gave us a stigmatized private sector. And I think we are struggling against a legacy, which by the way is still reflected. I had to read out to the staff at NITI Aayog, the preamble to the Constitution, which was amended in the 70s, talks about a socialist republic, unlike the US, where on the whole government is distrusted, and entrepreneurs are venerated, and China after Deng Xiaoping to grow rich is glorious.

I think the legitimacy of the private sector is an issue that we still struggle with, even though in the kind of economy and society we've had, since indeed 1991, which is why you have the 91 project, it is the private sector which is meant to be the agent of change. And so smoothening the interface at the state level, at the central level, for public consumption between domestic private sector, the international private sector, and government, I think is a work in progress.

Where do you see India in 25 years?

In a career which was largely in public policy, a quarter century with the World Bank, and a quarter century since I returned from the World Bank, including now three years at NITI Aayog, I had a brief interlude as the chief economist of Royal Dutch Shell, located in Holland in The Hague. And Shell, because their investments have a life, as an oil and gas company of 30 years, decided in the 1970s that they did not trust projections, they preferred scenarios. Now, it took them 50 years to develop a scenario culture, and under no illusions that will happen quickly here, but Shell influenced Singapore, and Singapore, which is a well-managed society and economy, also complements planning with scenarios. So what I would say is that the worst way of thinking about India 25 years from now is on the basis of straight line projections.

Let me then talk a little bit about how the Prime Minister sees this. NITI Aayog is in the same building as the Planning Commission, but the Prime Minister abolished the Planning Commission, because he thought private sector market led society and economy should not think that the state was omniscient and should plan and I think that is also the sentiment at the Mercatus Center. 

So his vision as a politician is that this is about economic freedom, and giving people, ordinary citizens, women particularly, as well as men, the young, the freedom to realize their own aspirations. And so he talks about our journey to Viksit Bharat, developed India by 2047 as mass mobilization of the kind that delivered Indian independence 25 years ago. And so I think the India of 2047 is likely to be very unlike the China of today or the China of 2047. I suspect it would be somewhat closer to the US of the 1950s.

I think what is difficult to call is whether there will be more spatial convergence, because what we found in the 30 years since reform is that there have been economies of agglomeration, so coastal states in particular have done better. The impact of the energy transition could be just as profound, because mineral rich states or coal rich states, I mean, now the location of energy sources is much more spread out, it's more in the west rather than coal, which was in the east. I think the toughest call is where we will be in terms not so much of manufacturing value added, but manufacturing employment, because there the signals are all over the place.

AI adds a layer of complication. The formal aspiration is for us to be a developed society by 2047. And most people, including myself, have equated that in terms of the economy to how the World Bank characterizes different classes of economies, because they have to do that for operational reasons. And what that means is basically more than quadrupling our per capita income in 22 years. And that means growing at about 8% a year, whereas we've been growing at 6% 6.5%. We were lucky to have 8% in the last quarter.

That puts us somewhere like a Chile of today, slightly ahead of China. Today, China will cross the tape and become an advanced economy by World Bank standards. I think my final point would simply be that if that's what we want to achieve by 2047, then the next decade becomes that much more important, because the bigger you are, and richer you are, the harder it is to maintain that pace of growth.