Institutions weakened, economy crippled (The story of Indian economy's structure)

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 Institutions weakened, economy crippled (The story of Indian economy's structure)

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• Economic planning process : The economic policymakers and reformers may be disappointed due to many reasons – over-enthusiasm, passive resignation of the powerful, or weak institutions.
• Slowdown in GDP growth : India's recent slow GDP growth is indication that growth engine is running out of fuel. Analysts have focussed on demand side and supply side. But what's missed is the "institutional framework".
• Wrong focus, wrong approach : As that crucial link is overlooked, the policy measures announced are banal in nature.
• What market-oriented model needs : India's economy is market oriented, and needs credibly strong institutions that support market's efficiency mechanism. When markets "fail", they play a major role.
• Pillars of market economy : These are - (a) private property, (b) free markets, (c) competition, (d) division and combination of labour, and (e) social cooperation. All these need institutions to work properly. 
• India's top 3 institutions : The central bank (Reserve Bank of India - RBI), the statistics organisation (Central Statistical Organisation - CSO) and planner (NITI Aayog) are key. All have taken a beating.
• Central Bank defanged : First came the Nov. 2016 demonetisation for which RBI wasn't in the loop fully. Then many steps were taken to erode the RBI's independence steadily.

1. On currency matters, it was bypassed.
2. On banking sector, it was questioned as the regulator.
3. Its reserves were siphoned away.
4. So what does RBI do now? Flexible inflation targeting.

• Repo rates : The only major tool with the RBI is to cut Repo Rates, which it did four times in 2019, only to get no tangible result in terms of economic momentum. Banks with huge NPAs didn't transmit the rates quickly.
• Data : Markets need credible and updated data to function well. The CSO's data series have been played around with - from unemployment data to national accounts. "Approvals" are needed before data release, putting a big question mark on the entire process. Markets realise the problem, and react negatively.
• NITI Aayog : There is no criticism from it, of government policies, and what it does is now routine. The space for correction is drastically down.
• What do institutions really do : They reduce uncertainties in human exchange. They help avoid sudden changes (something the present government does regularly).
• Better policy advice : The government must access (and generate) higher quality academic information, so that more meaningful decisions may be taken.
• Summary : By making institutions less effective, Indian economy is being ill-served, as the scope for sudden changes reduces investor confidence.

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