Preparing for disruptions induced by policies

Cars at an automobile plant at Manesar, Delhi NCR.   | Photo Credit: V. V. Krishnan

Often, reforms and polices which aim to weed out adverse practices are programmed to cause disruptions. However, though these disruptions are quite intended, they catch people off-guard. This reflects lack of preparedness and unwillingness to come to terms with reality. The recent slowdown in some sectors of the economy, though temporary, may carry lessons that will help India prepare for such disruptions in the future.

Slump in the automobile sector

Take, for instance, the automobile sector. For decades now, reams have been written about pollution, congestion, and accidents caused by the burgeoning number of automobiles in cities. Solutions that have been offered include shifting from owner-driven to mass transport systems that are more environment-friendly, less polluting, cheaper, faster and safer. That is why a dozen cities are building mass rapid transit systems.

At the same time, some think tanks have stressed the need for enhanced paratransit including taxis to complement public transport. They have pointed out that urban infrastructure cannot keep pace with the increase in the number of automobiles.

Today, the cost of owning a vehicle is so high and involves so many hassles that some may actually prefer taxis to owning vehicles, a trend seen in the developed economies. Logistics cost in India, at 13-14% of the GDP, is high compared to the developed world where it is around 9-10%. An ICRA study in 2018 found that post-GST, turnaround time for long-haul trucks reduced by at least a fifth as inter-State check posts were removed. This means that more trips are possible per truck and this could lead to a slump in demand for new trucks. Therefore, productivity improvement in one sector may imply catastrophe for another.

One would have imagined, therefore, that after years of planning, campaigning, and expenditure, Indians would feel vindicated as more people are using public transport and paratransit options in major cities. We should have expected vehicle sales to fall as a result of these changes and we should have prepared for alternatives. But irrespective of whether the current fall in sales of automobiles is a temporary effect or a symptom of the downturn of the economy, the response to it is worryingly indicative of how we might respond to future shocks. What if the same scenario plays itself out as a consequence of reforms and campaigns, at least in the big cities, in a few years? Would we refuse to accept that one of the aims — an intended disruption — of transport polices (i.e., promoting mass and public transport) may actually be happening before our eyes?

One sector’s gain is another’s loss

Wheeled luggage may result in porters in railway stations going out of business. Is that a reason to ban wheeled luggage or impose additional taxes on them? Cycle-rickshaws are slowly being phased out and are being replaced by motorised vehicles. Are we talking about the distress of the lakhs who may lose their jobs consequentially and providing them safety nets or subsidies? The fact that the coal or petroleum sectors are showing decline may not automatically imply that the core sectors are in the doldrums. The expectation should be that they will show decline, especially when India is investing so heavily in renewables. As more and more industries opt for captive renewables, thermal plants will become increasing stressed and SEBs may have to forsake their high-paying commercial and industrial customers.

In the short run, whenever such changes take place, disruption is inevitable. Yet, naively, we expect the change to be inconsequential. Or the industry hopes that growth in the sector will outdo the disruptive effects of the reform. For instance, the auto industry may expect the growth in rural areas to far outweigh the slump in urban areas, but this may not always be the case. All this speaks volumes about the confidence we have in our own interventions. It shows our stakeholders’ unpreparedness for the consequences of the country’s consciously undertaken reforms.

The inexorable march of technology, digitisation and ‘green’ public policies will inevitably have an impact on several industries, especially the polluting ones. National and societal welfare, the environment and ethical governance will start taking precedence over profits for a few. Several sectors of the old economy will need to brace themselves for more such shocks which will be permanent and inevitable.

T.K. Ramachandran is with the Indian Administrative Service. Views are personal

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Printable version | Oct 23, 2020 9:27:34 AM |

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