11/20/2017 How to get India's macroeconomic, microeconomic policies right - The Financial Express
http://www.financialexpress.com/opinion/how-to-get-indias-macroeconomic-microeconomic-policies-right/911692/ 1/13
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How to get India’s macroeconomic, microeconomicpolicies rightBy: Nirvikar Singh | Published: October 30, 2017 6:48 AM
In India, as elsewhere,crafting goodmacroeconomic policyis difficult.Measurement ofaggregates such asoutput and inflation isfraught withchallenges, and it ishard to build reliablemodels of the entireeconomy. (Image:Reuters)
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11/20/2017 How to get India's macroeconomic, microeconomic policies right - The Financial Express
http://www.financialexpress.com/opinion/how-to-get-indias-macroeconomic-microeconomic-policies-right/911692/ 2/13
TOP NEWS In India, as elsewhere, crafting good macroeconomic
policy is difficult. Measurement of aggregates such
as output and inflation is fraught with challenges,
and it is hard to build reliable models of the entire
economy. A few years ago, there was a somewhat
heated debate among prominent economists about
the merits of GDP growth as a prime objective of
economic policy in India, with claims made for
promoting “inclusive” growth and even non-GDP
measures of well-being such as health and education
outcomes. Implicit in disagreements on these topics were different ideas of how the
economic growth process functions in India, and the merits of trade-offs between the
welfare of different slices of society at a point in time, or across time periods. I did see a
formalisation of inclusive growth by Kaushik Basu when he was Chief Economic Adviser,
and Jagdish Bhagwati and Arvind Panagariya tried to capture different growth impacts
of policies with the concept of Type I and Type II reforms, but as far as I can tell, there
was not a sustained intellectual legacy of this debate in policy making. And we still seem
to have little idea of the detailed process of India’s economic growth. Policy for
controlling inflation is a hotly debated topic in India right now. The shift to targeting a
desired band for inflation, changes in what inflation measure should be used, and the
institution of a formal committee process have represented major shifts in the process of
policy-making. But there still seems to be little concrete knowledge on the process that
generates inflation in India, as well as the process by which changes in monetary policy
(chiefly, the policy interest rate controlled by the Reserve Bank of India) affect inflation.
The tradeoff between inflation and growth is also not well understood. One unavoidable
problem is that what people expect future inflation to be is a key variable, and
measuring this expectation, along with how it is formed and evolves, is not something
that has a solid history in India. Random shocks like demonetisation do not help in
figuring out what is optimal for monetary policy. It is also the case that economic theory
is an unreliable guide: the RBI Governor has expressed concerns about high fiscal
deficits fuelling inflation, but the link between such deficits and inflation is not solidly
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11/20/2017 How to get India's macroeconomic, microeconomic policies right - The Financial Express
http://www.financialexpress.com/opinion/how-to-get-indias-macroeconomic-microeconomic-policies-right/911692/ 3/13
established, either theoretically or empirically. Problems of measuring output add a
further layer of uncertainty to the process. Macro policy-cannot be based on controlled
experiments. Recently, however, economists have been showing that such experiments
can be a pathway to better micro policy. The work of Karthik Muralidharan in education
is a good example.
Here I offer my own take on some of his work. Over a decade ago, Amarjeet Sinha of the
IAS tackled the problem of low school enrolment in India with the massive Sarva
Shikshya Abhiyan (SSA). The SSA did increase enrolment, but learning outcomes stayed
poor, as NGO Pratham and several economists pointed out. Attention turned to the
process of teaching, and the absence of teachers from classrooms because of lack of
proper monitoring and incentives. Experiments showed that this could be addressed,
and some were scaled up into quasi-policy changes. Muralidharan, in particular,
explored the use of lower-cost “teaching assistants,” but to my mind, this risked being
“more of the same.” Muralidharan’s latest work is both simple and stunning. An
experiment in a single school in a poor area of Delhi showed that the right software can
aid learning dramatically. The reason is that students who are not taught effectively
early on get moved on to the next grade, where they are taught that level of curriculum,
but without the base to build it on.
As they move through grades, what the teacher teaches diverges more and more from
their level of comprehension: this is particularly true for mathematics. Software can be
customised and adaptive to a student’s level and even transitory states. Humans are
present to ensure the students stay on task, but don’t need to do more. The more the
software is used, the more refined it can become. The next step is to expand this
experiment to multiple locations, and to shift it from a separate, after-school location
(which it was) to being done within regular school times and locations. Certainly
unexpected nuances and obstacles may arise, but the ability of economists to design
good policy experiments and, in this case, use software to generate large amounts of
refined data, is striking.
Making the delivery of basic skills to large numbers of India’s children more effective,
and in as rapid a manner as possible, can be a huge win for the country. It can also
11/20/2017 How to get India's macroeconomic, microeconomic policies right - The Financial Express
http://www.financialexpress.com/opinion/how-to-get-indias-macroeconomic-microeconomic-policies-right/911692/ 4/13
validate the modern economic approach of paying close attention to details of behaviour,
technology and institutional settings. Of course, software and economists are useful, but
not essential. Several years ago, another IAS officer, Amarjit Singh, figured out how to
make a micro intervention in health successful, with the Chiranjeevi scheme for
institutional maternal deliveries in Gujarat. He noted at the time the difficulties of
replicating and scaling up that effort. But while macro-policy making continues to
struggle, at least there can be progress at the micro level.
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