#38 'No Train Lost Its Way'

Lost train, building an economic model, NDTV's own BCG matrix, simultaneously banning and buying a product and a foreign policy rant

This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?

India Policy Watch: Goodhart’s Law, our ministers in the dark and the evil BCG

Insights on burning policy issues in India

— Raghu Sanjaylal Jaitley

If there was a metaphor needed for the current times, reports about a shramik special train ‘losing its way’ last week would have been perfect. The Rail Ministry later clarified there was congestion in the usual route that prompted it to divert a few trains through a longer route. No train lost its way. The ministry had decided to run 300 shramik special trains a day to destinations mostly in UP, Bihar and Jharkhand. The congestion in a few sectors was inevitable according to rail officials. It is remarkable that with known routes, coordinated rail zones and decades of experience in running these sectors, we discover congested stretches post factum. And, we are unwilling to accept a single train mistakenly ‘losing’ its way as a one-off incident, but we are happy to concede poor planning leading to trains piling up, passengers being kept in dark about their routes, lack of social distancing, poor sanitation and many deaths on these trains. A genuine mistake is a sign of weakness that cannot be countenanced while generic mismanagement is fine since it can be brazened out. There’s a metaphor there.

Who was surprised by the Lockdown?

Turns out, everyone!

The Labour and Employment minister surfaced a few days back (maybe after this tweet of Shekhar Gupta) and gave a series of interviews that improved our understanding about decision making in this government. The Business Standard interview was particularly illuminating.

BS: Don’t you think the Centre could have handled the migrant issue better?

Minister: Lockdown was a sudden decision (emphasis ours) taken by the government to control the spread of the virus. Workers follow a particular time schedule in cities and they generally go back home for two-three months in a year. When the lockdown was enforced, workers got anxious about the disease and panicked. (contd.)

BS: Did we not anticipate that lockdown will create problems for the 400 million unorganised sector workers?

Minister: I am a part of the group of ministers which has to recommend suggestions for welfare of workers. We have discussed the need to create a national database for migrant workers to map their movement and skill sets.

He dodged the second question well. He turned it into what we plan to do in future. But what do we make of his response to the first question - the lockdown was a sudden decision? Sudden for whom? Surely for us. But for him too? The FM had given a similar statement while announcing the PM Gareeb Kalyan scheme on March 27. “We’ve immediately responded within 36 hours of the lockdown. We’ve first reached out to the poorest of the poor, who need help,” she said while announcing the 1.7 lakh crore stimulus.

If you didn’t know what the lockdown was and you went merely by these statements, you’d be forgiven to believe it was some kind of an act of God. Like a natural disaster had struck us and these ministers responded immediately. It is almost certain now there wasn’t any planning done before the lockdown among various ministries. None of them knew it was coming. I can’t get the picture out of my mind of the cabinet ministers watching the PM’s address all agog, not knowing what’s coming up and then scrambling at the end of it to put together a plan of action.  

How not to reform?

Going back to the interview of the Labour minister, here are two other interesting responses.

BS: India is a signatory to the International Labour Organisation (ILO) conventions and one of them says 60 hours of weekly work is allowed in India…

Minister: Two states have already reversed this decision. We were thinking of calling a meeting of all state labour ministers but it couldn’t take place due to the pandemic. We wanted to suggest them steps that they could take, keeping in mind the needs of the ILO conventions.

BS: States like Uttar Pradesh have proposed doing away with labour laws temporarily. What’s your view?

Minister: There is no question of removing labour laws. A proposal to do away with labour laws is not feasible in my view (emphasis ours). That’s why we wanted to have a dialogue with the states earlier. We will hold a meeting with them soon.

So, the labour reforms initiated with much fanfare by many state governments (including those run by BJP) aren’t really approved by the Centre. Clearly, the contagion of ‘announce first, discuss later’ seems to have spread among CMs too. It is difficult to imagine these flip-flops and uncertainties will give any confidence to global firms to move their manufacturing capacities to India. In any case, the premise that rigid labour laws were the primary reason these states weren’t attracting investments was questionable in the first place.    

Goodhart’s Law in Action

When a measure becomes a target, it ceases to be a good measure. That’s Goodhart’s Law. Simply put, an excessive focus on a single measure of success leads to abuse of that measure at the expense of the real target. People game the system.

A good example is this government’s focus on improving India’s rank on World Bank’s ease of doing business surveys. This has improved from 142 in 2014 to 63 in 2019 on the back of a few real reforms (IBC, GST) and a lot of ‘gaming’ the survey. The on-ground reality based on evidence hasn’t changed a lot. FDI in manufacturing, which the government aimed to increase as part of its Make in India initiative, has remained range-bound between $8-10 billion annually during the same period. Following the US-China trade war, when the first real reckoning of ease of doing business presented itself, India didn’t make much headway in attracting manufacturers looking for alternatives. Vietnam and Bangladesh were the two biggest beneficiaries. Their ranks on ease of doing business survey? 70 and 168, respectively.

As the government tries to control the narrative on unlocking of the economy, it should focus on the holistic targets than a few ‘easy to game’ measures. The targets aren’t difficult to pick – bringing household consumption back to normal, opening up of businesses and restoring supply chains, minimising bankruptcies and closing down of MSMEs, supporting state governments that are at the forefront of the COVID-19 battle financially and bringing labour force back to work. Every measure should be used only to demonstrate progress in achieving these goals. The growing tendency to talk up the measures (here, here and here) runs the danger of missing the woods for the trees. We will wait and watch.

NDTV’s BCG Matrix

Srinivasan Jain of NDTV ran a story on the mysterious role of the global consultancy firm, BCG, in India’s war against Covid-19. The prime-time slot this commanded and the way the story was pitched suggested some kind of scam was to be unearthed. Instead the 25 mins programme was quite instructive in everything that’s wrong with public policy discussions in Indian media. The irrational fear of an ‘American’ consulting firm advising the government, the narrow view this is a health crisis that requires only epidemiologists and health ‘experts’ to be in the control room and the turf protection instincts of former bureaucrats.

This might be a health crisis but the response to it requires a system thinking approach. The many missteps of this government (over 4000 circulars and clarifications issued according to PRS) since the time the lockdown has been announced can be traced back to its piecemeal approach. The ability to bring together data, run rigorous analysis and project possible scenarios and actions during a crisis isn’t easy. The everyday coordination among various ministries and states, tracking of initiatives and rapid responses in case things are going wrong require modern management tools and practices. If a government department considers it needs professional support during this time, it must be encouraged for its pragmatism. The former bureaucrats who were on this show seemed to believe otherwise. This idea that some kind of a non-state actor has been allowed to vitiate the sanctum sanctorum of policymaking is laughable when we consider the history of poor policy decisions in India replete with unintended consequences.

There is also a touching faith shown for epidemiologists and WHO in the programme. Epidemiologists are the new economists as this crisis has shown. They have crawled out of the woodwork in droves with models, assumptions and projections that vary widely and seem only useful in interpreting the past with the benefit of hindsight. The less said about WHO, the better. It has been consistently behind the curve in its response to the crisis and to expect it, as one of the participants in the programme argued, to provide guidance to the health ministry is a bit rich. What we have right now is a programme management, implementation and response challenge in a fast-changing environment. Health expertise is but one track in the overall programme to counter the pandemic. The steel frame of administration services might have a good track record in managing crises, but they should be allowed the discretion to add more capacity during such times. BCG or anyone else.

Additionally, the report had allusions to conflict of interest, whether BCG was being paid for it and perils of ‘client-driven research’. BCG, like many services firms (including homegrown TCS, Infosys etc), works for clients who compete fiercely in their sectors. There are established norms of client confidentiality in managing these conflicts. Also, what exactly is conflict of interest in a firm helping out the government in its war room during a crisis? The repeated images of the BCG website which states it works with private healthcare companies and conflating it with the question of conflict of interest was bewildering. What will they do? Take the Covid-19 data and auction it to the highest bidder in a secret underground corporate ceremony at Nariman Point? And, why shouldn’t it get paid for its work? The way this question is asked in the programme suggests there’s a moral sin in being paid for helping the government. In fact, we should be worried if the work is being done for free. There might be a conflict of interest in doing that.

It is remarkable after years of evidence of poor state capacity in normal times, there’s suspicion in bringing private sector expertise to help out during a crisis. This isn’t only about a single programme on a single channel. It is symptomatic of the resistance to change in almost every domain of the state that dovetails well with the illogical fears of our society towards everything that’s foreign, private and profit-making.

Lastly, we had almost a decade of a non-constitutional body in National Advisory Council (NAC) that decided on policy matters across a wide spectrum of social and economic issues often overriding the legislature. Some of those policies were good, most were terrible. NDTV seems to have its own version of a 2X2 BCG matrix that guides its views on which kind of support to the government is mysterious or not. It is difficult to recollect a single news programme where NAC members were subjected to this line of questioning. You can get away with a lot in the name of the poor in India.  

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PolicyWTF: Our Never-ending Love Affair with Freebies and Bans

This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?

— Raghu Sanjaylal Jaitley

Why can’t private hospitals who were given land at concessional rates or free of cost treat Covid-19 patients for free (or for nominal costs)? That’s the question Supreme Court (SC) asked the Centre this week. In early April, the SC had asked private labs to do coronavirus tests for free. We had then argued on how such moves are counterproductive – at zero price, the supply is zero. That ruling was subsequently changed. But here we are again. The belief that private hospitals are forever gouging their customers never gets old.

Let’s look at the economics of setting up a tertiary care hospital. A 300-bed hospital could cost up to Rs. 400 crores and nearly five years to build. Even with concessional land grants. Once it is operational, it might take another five years to recover the investments. That’s assuming the rules aren’t changed midway. The hospitals that receive land at concessional rates have to ensure 25 per cent of their OPD and 10% of their in-patient cases have to be provided for free to patients from economically disadvantaged sections of the society. Further, these hospitals have to adhere to a substantially lower rate card for patients who are enrolled in various state and central government-sponsored insurance schemes. There are also arbitrary price caps, whims of the state governments, changing insurance schemes and a complicated maze of regulations that encourage rent-seeking from the state to contend with.

A quick look at the financials of publicly listed hospitals will disabuse anyone of the notion that private hospitals are rolling in money. They are heavily debt-laden, their promoters have pledged their shareholding (many have exited) and most operate in the 5-10 per cent net profit range. Running a private hospital network isn’t good for your health.

The private hospitals have been hit hard like other sectors during the current crisis. OPD footfalls have declined dramatically during the lockdown and elective surgeries postponed. Going by media statements and analysts’ forecasts, it is likely private hospitals have seen their revenues slide by 50-60 per cent during this time. Unlike other sectors, it isn’t easy for hospitals to layoff their staff or doctors to conserve cash. A few states have already taken over private hospitals and set a price cap for treatment of Covid-19 patients. This has started impacting the delivery of services to patients with other ailments. The lack of quality PPE kits has seen a disturbing rise in positive cases among healthcare workers. There has been no specific relief package announced as part of the Aatmnirbhar Bharat announcements for hospitals. The healthcare sector isn’t a beneficiary of this crisis. Far from it.

As is often the case, the intention of helping the Covid-19 patients with affordable or free treatment is good but to force private hospitals to do this only distorts the market further. The private hospitals should have the incentive to bring additional capacity to support the state in treating the patients. By asking them to provide this for free at a time when they are struggling to keep their business afloat will lead to the inevitable. The supply of the Covid-19 treatment will be zero.   

How to time a ban?

There’s a pandemic hurting the economy. Agriculture is the only sector that might grow this year. What is absolutely the last thing you should do?

Plan a policy that hurts agriculture.

But that’s what the government has done with a proposal to ban 27 generic pesticides because of their bio-hazards. The draft gazette notification for banning these pesticides was issued last week. Companies can give their objections and representations within 45 days from May 14 before the final notification is issued after review of their objections.

Only 3 among these 27 are in the red triangle category (highest level of hazard) which should have been phased out. The remaining 24 have been used by farmers for decades without demonstrable downstream environmental or health risks. The domestic agrochemical industry revenues could be impacted by up to Rs. 8000-9000 crores. Also, the banning of these products would mean MNCs will import patented products into India which is likely to increase the per acre costs of pesticides for the farmer by two-three times. Not the best of times to burden the farmer. There’s hope that the ministry will hear out all the objections from the industry and the farmers and the list of pesticides will be pruned and their implementation spread over years. But you never know.

The list of banned pesticides includes Chlorpyriphos and Malathion. Their primary use?

Killing locusts.

You must have heard we have a small locust problem right now. 

To be fair, the gazette states these chemicals can be used for desert locusts but not for agriculture. But how will we determine end-use when someone is buying it. Also, we have a situation today where the locusts are on agricultural land across most of north and central Indian states. You will have to use it over agriculture land. Yet, we have put them up in this list. For context, only 2 countries have banned Malathion – Syria and Palestine. We will be the third. Separately, the Union government is procuring an additional stock of 53,000 litres of Malathion to control the locusts before the sowing of Kharif crops begin.

The same pesticide it wants to ban after 45 days.

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A Framework a Week: Hal Varian’s Tips on Building an Economic Model

Tools for thinking public policy

— Pranay Kotasthane

Building models is a useful exercise in public policy. But how do we go about building one?

Hal Varian’s 1997 chapter on How to Build an Economic Model in your Spare Time has some great tips which apply as much for constructing models outside economics.

The entire chapter/slide set is worth a read. But I’ll try to summarise a few key and counterintuitive points.

Getting ideas

The conventional view is that journal papers are a great place to get original ideas. Varian disagrees and says that through this method you’ll only get someone else’s ideas. Instead, he suggests that ‘look for your ideas outside the academic journals—in newspapers, in magazines, in TV and radio programs.’ He adds that ‘a shallower analysis may be more stimulating: there’s nothing like a fallacious argument to stimulate research’. After reading this, I am able to justify spending time on Twitter: the internet’s go-to repository for shallow analyses.

Postpone Literature Review

I often encounter researchers jumping into reviewing literature as soon as a problem statement comes up. Here again, Varian has a counterintuitive suggestion. He says:

wait a bit before you look at the literature. Eventually you should do a thorough literature review, of course, but I think that you will do much better if you work on your idea for a few weeks before doing a systematic literature search. There are several reasons for delay.

First, you need the practice of developing a model. Even if you end up reproducing exactly something that is in the literature already you will have learned a lot by doing it—and you can feel awfully good about yourself for developing a publishable idea! (Even if you didn’t get to publish it yourself . . . )

Second, you might come up with a different approach than is found in the literature. If you look at what someone else did your thoughts will be shaped too much by their views—you are much more likely to be original if you plunge right in and try to develop your own insights.

Third, your ideas need time to incubate, so you want to start modeling as early as possible. When you read what others have done their ideas can interact with yours and, hopefully, produce something new and interesting.

Giving a Seminar

Talking about your idea to others forces you to refine it. He adds:

The useful thing about a seminar is that you get immediate feedback from the audience. An audience won’t put up with a lot of the things that authors try to write in papers: turgid prose, complex notation, and tedious details. And, believe it or not, readers won’t put up with these things either! The trick is to use the seminar to get all those things out of your paper—that way, it may actually get read.

The paper has more great advice for people interested in modelling complex reality. For others, I’m sure it will inspire you to create a model of your own.

Matsyanyaaya: A Rant on the Foreign Policy Discipline

Big fish eating small fish = Foreign Policy in action

— Pranay Kotasthane

Amb Shivshankar Menon’s keynote speech in 2019 on what’s wrong with IR studies in India argued: one, Indian students are well versed with abstract IR theory but they find it difficult to apply these concepts to the real world. Two, the world which created IR theory as we know it now is changing. As the East occupies a more important position in international affairs, there’s an opportunity to rethink the discipline ground up.

In my view, this assessment symbolises a larger issue with the IR discipline which is that there are few axioms and even fewer deep insights that remain true across time and space. A few poorly written arguments will even mistake Kissinger said “xyz” or Kautilya said “abc” as sufficient proofs in support of their view. Without a strong foundation, the discipline is reduced to an assessment of the past to explain the present and predict the future. And that approach tends to be woefully inadequate.

Many IR studies resort to the historical approach alone and in my view, it is this compulsive historical bias that blinkers us from accessing the toolkits of other disciplines.

Which brings me to the second ailment — an appreciation of the foreign policy practice would require inputs from several other disciplines — psychology, economic reasoning, public policy, and behavioural economics being some of them. A historical approach can only form the base layer on top of which we need insights from these other disciplines. The goal of any policy discipline eventually has to be about proposing solutions to the problems at hand, even if the information available is incomplete and at times not enough.

So my contention is that rethinking the IR discipline should be focused a lot more on building this new toolkit from a wide range of other knowledge streams. Whether these streams come from the West or the East are secondary.


Reading and listening recommendations on public policy matters

  1. [Article] Sebastian Mallaby in the Foreign Affairs analyses Fed’s ‘whatever it takes’ response to the economic crisis.

  2. [Podcast] David Beckworth and Alp Simsek discuss the dual absorption problem within financial markets and using macroprudential policy

  3. [Article] Udit Misra in The Indian Express explains what the Q4 GDP data reveals about the state of the Indian economy

That’s all for this weekend. Read and share.

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