GST And NBH: Case On Feedback Loops And Flexibility Based Thinking
At a lecture during the Thinker’s Sandbox in New Delhi, Sanjeev Sanyal, Principal Economic Adviser, spoke about the importance of feedback and adjustments during policy-making, which should regard the economy as a constantly evolving ecosystem rather than a Victorian-machine with a based on static policy changes, reemphasizing the dynamic nature of policy-making.
Elaborating on how we have begun to use this kind of feedback loops and flexibility based thinking to actually make policy today, he gave the example of the GST implementation. ”Now when the GST was introduced, it’s a very complicated thing. It’s something that’s likely to have all kinds of unintended consequences, very difficult to model. Nevertheless, there was some degree of modelling done. And there were many people who said that when we implement it, we should really tie down all the little bits and pieces and that we should not implement it in July 2017, but maybe a year later, perhaps after all the bits and pieces have been put into place, when we’ve thought it all through and modelled it down to the last bit.”, he said. However regarding the feedback and adjustment mechanism used for GST, he said “Instead what was done, instead, it was implemented in July 2017, knowing fully well that not all the systems had been put into place. Instead what was done was the fast-moving groups were created to take feedback and adjust. This was done deliberately because it was understood that no matter how great the modelling, you are going to not be able to tell the unintended consequences of all this. Instead, you have groups of people who can fix it along the way, knowing fully well, that in the first round it is not going to work smoothly. As it has turned out, as it happens to be, it has worked much more smoothly than the authorities had anticipated. We had anticipated much more complex problems while implementing it. So it is a feedback loop and adjustment based, fast moving and adjustment based.”
Using the same feedback and adjustment mechanism, he spoke about the NCLT resolution process. “Now the same thing is being done, with the cleaning of the NBH issue. The original thing was that well, the banking system did not work, we design and build another machine, something called a bad bank. Instead, what have we done, we have not created a new machine, we have decided to take the largest defaulters, and make them go through, the NCLT resolution process, using oversight committees and so on and so forth. Now when we talked about this, right, in the beginning, people said Oh, the NCLT has not been tested. We are absolutely aware that it has never been tried up. But the way we intend to deal with this is not by meticulously making sure the NCLT is perfect in every way before we take cases through it.” Adding further, he said, ”Far from it, this is about taking cases through it, feedback and adjust. And in the process of feedback and adjust, basically, the case laws will be created, precedents will be created, processes will be created. This is not a build it in the beginning machine, that is then designed in beginning and implemented later on. This is an ongoing process which is continuously happening because the system is evolving and we are adapting to it continuously.”
Speaking about the importance of viewing the economy as an evolving ecosystem, he added, “Because of the metanarrative, this meta-conceptual framework is not of the economy as a machine, but as an evolving ecosystem. Consequently, this is not about moving from one equilibrium to another, because there is no equilibrium in this. In fact, there is many of the standard tools or terms used by economists that do not exist in the universe. There is no such thing as a natural interest rate. There is consequently, no way that you can target a natural interest rate. What you do is you continuously look at the data, have a feedback and you adjust. What you are aiming for always, is what you can do, with the data that you have, continuously arising out of the system and you are adjusting to it.” Adding about how this is a good time in history for the feedback and adjustment mechanism, he said “Now it turns out, this is a particularly good time in history to be doing this, because in the past you had to rely on GDP data, or surveys or other things that give you data after a significant lag, sometimes a lag of years. But we now live in a world where we have access to all kinds of data, we have real time data from satellites, we have data from your electronic transactions, we have real time data from cellphones.” Sanyal further added, “And so using this real time data, it is possible to begin to manage the economy in a very different way than we have historically. I would argue that this is how you could have been doing anyway, but if we were going to shift to this new system, this is a particularly good time to do so.”
Sanjeev Sanyal was speaking at THINKERS Sandbox, an event held by THINKERS & Penguin Random House with YES BANK and the YES Global Institute as the Presenting Alliance Partner
