Need new round of reforms to benefit from earlier ones

I started by looking at the past for economic patterns that could explain the present. Starting with the overall GDP, if we look at the five-year average over three decades since 1991, it is a flattened inverted U-curve. India’s growth, which used to remain below 6%, crossed this threshold in 1991-96 as the benefits of the 1991 reforms kicked in. Growth peaked at 8.5% for 2006-11 and, since then, has been inching down towards 7% and below. During this period, we have had three waves of reforms, one in each decade and each addressing a different part of the economy: Economic reforms in the 1990s; social/development sector reforms in the 2000s; and financial system (banking, bankruptcy, and taxes) and infrastructure (physical and digital) reforms in the 2010s. Together, these should have delivered sustained economic growth above 8%.

The world has changed dramatically, but is that the reason for the growth to taper off? Or are we reaching the law of diminishing returns without a fourth wave of reforms to unlock their full benefits?

I also looked for insights from my multi-year research on the successes and failures of large global companies. They also operate in a highly complex world and organisational context. After the 2008 financial crisis, this world has undergone a dramatic change because of geopolitical fragmentation, value-chain disruptions because of digital technologies and AI, higher competitiveness of local players, and power shifting to the digitally equipped consumer.

Despite decades of success, many have struggled to compete in this new market reality where the “local” (micro-market, country, interest group) dominates. They know what to do, but their traditional organisation model, designed for control by the global headquarters, is unable to meet the fast-changing and differentiated needs of local customers.

To succeed, incremental changes to the HQ-driven hierarchy were not enough. A radical reinvention that gave more authority to customer-facing teams, measured on outcomes, was needed. The role of the HQ had to change from control to enablement of these teams.

I wondered if India’s governance and regulatory model, built upon the 19th-century British model designed solely for control, now constrains the realisation of the full potential of the three waves of reforms. While there have been many improvements, modifications, and additions, the core philosophy (and the mindset of the people operating it) has remained that of control, even as the external and internal context has become far more complex.

The implications are huge. To move from control to enablement, we will need to reinvent our governance and regulatory model.

Where to start is an obvious question. I have laid out four reforms, built around cutting-edge practices that could be launched as the first tranche:

Build regulations with digital trust: With more regulatory transactions happening online, each of which leaves a digital signature, they can be designed for digital trust (e.g., companies’ money-back promises, transparent customer reviews) by using tools such as blockchain along with a set of trust-and-verify technologies. We must reinvent our regulatory regime with the trust-and-verify philosophy at its core, starting with the high-frequency, low-value regulations.

Professionalise and projectise execution: The growth of digital technologies have revolutionised programme execution in three dimensions: Ability to create clear ownership/accountability with targets; breaking the high-level objectives into smaller time-bound projects; building high-performance specialised teams which are metric- and real-time-data-driven. Our execution architecture that sits in the respective departments must be separated into professionalised entities that operate with these principles and are measured on outcomes and not activities (and budget spent).

Citizen is king: Data transparency, heightened customer expectations, and the need for local knowledge for success have meant that engaging them to create localised solutions is becoming a norm rather than an exception in the business world. There are enough case studies of government-led institutions, such as schools, that have seen success through the active engagement of customers (parents). Can we design our policies for active citizen (and industry) participation (and not just consultation) and, wherever appropriate, build ownership of execution for them?

Build district P&Ls: Companies have found that creating local profit and loss (P&L) ownership is critical to success. The equivalent micro-market for governance with its P&L is the district.

Today, our programmes and execution are designed vertically, with activities monitored for progress. Can we develop the district’s annual and three-year P&L by integrating all programme-level spending to be executed by a professional multi-skilled team led by the district magistrate? This will also help measure the productivity of money being spent and enable better prioritisation.

These are complex ideas of change and central to our political economy. Critics will say these are too radical and impossible to implement in a democratic, multi-stakeholder country like ours. But if we don’t dream the impossible, how do we go about achieving it?

Arindam Bhattacharya is senior advisor and emeritus partner, Boston Consulting Group. The views expressed are personal