Answer

According to the World Bank, India’s GDP growth slowed to 4.4% in 2022, far below the global average of 5.8%. The Deep State, comprising bureaucrats and industrial elites, influences key decisions, often resulting in policies that stifle growth. Furthermore, resistance to lateral entry in policymaking has restricted innovation, limiting fresh perspectives. 

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India’s Economic Policy Framework Appears to Be Caught Between Bureaucratic Inertia and Global Aspirations

• Outdated Policy-making Processes: India’s economic policies are still formulated through traditional bureaucratic methods, resembling colonial-era practices, which slow down the response to evolving global challenges.
  For example: The closed-door policy making process during the budget formulation remains entrenched, hindering transparency and adaptation to global market changes.
• Lack of Lateral Entry: Despite calls for greater lateral entry into policymaking, India’s bureaucracy remains dominated by IAS officers, limiting innovation and expertise from outside government.
  For example: Government’s  calls for more lateral entry in policymaking were not fully implemented, continuing the dominance of traditional bureaucracy in economic planning.
• Resistance to Market-driven Reforms: India’s policy framework struggles to align with market realities, particularly in areas like FDI and trade liberalization, due to bureaucratic resistance.
  For example: The decision to remove Switzerland’s most-favored-nation status, without consulting external experts, shows the resistance to more market-friendly policies.
• Inconsistent Taxation Policies: The taxation policies, including high personal income taxes and tariff rates, conflict with India’s global aspirations to foster business and investment.
• Fiscal Deficit Targeting: The focus on reducing the fiscal deficit by increasing taxes, rather than through growth, reflects bureaucratic inertia and undermines global competitiveness.
  For example: India’s increased tax burden to reduce the fiscal deficit, without correlating it with growth in GDP, hampers long-term economic progress.

Positive effects of Interplay of ‘Deep State’, Taxation Policies, and Resistance to Lateral Entry in Policymaking and Economic Growth Trajectory

• Stability in Policy Formulation: Bureaucratic control ensures continuity and stability in India’s economic policy, reducing the risk of abrupt policy changes that could disrupt long-term growth.
  For example: The continuity in India’s fiscal policy allows for long-term planning in infrastructure and social welfare sectors, supporting stable growth trajectories.
• Expertise in Policy Implementation: IAS officers bring decades of experience in governance, allowing them to implement economic policies with deep understanding and knowledge of India’s socio-economic context.
  For example: The implementation of Goods and Services Tax (GST) saw bureaucratic leadership ensuring a smooth rollout across India’s complex tax landscape.
• Focused Revenue Generation: The deep-state framework, along with high taxes, ensures that the government generates substantial revenue, supporting large-scale infrastructure projects and social welfare programs.
• International Confidence: Resistance to excessive foreign influence in policy making ensures that decisions are made based on India’s needs, preserving national sovereignty while maintaining strategic autonomy. 
• Long-term Structural Reforms: Bureaucratic inertia can be a strength when it results in careful and deliberate implementation of long-term economic reforms, which may not yield immediate results but secure sustained growth.
  For example: The implementation of the National Infrastructure Pipeline (NIP) was a result of meticulous bureaucratic planning, aimed at achieving long-term growth goals.

Challenges of Interplay of  ‘Deep State’, Taxation Policies, and Resistance to Lateral Entry in Policymaking and Economic Growth Trajectory

• Excessive Tax Burden: The high personal and corporate tax rates, driven by deep-state bureaucracy, reduce disposable income and discourage investment, stifling consumption and growth.
• High Tariffs on Manufactured Goods: Protectionist policies, supported by the deep state, raise tariffs on manufactured goods, reducing India’s competitiveness in the global market.
  For example: The imposition of high tariffs on manufactured goods like mobile phones and automobiles has discouraged foreign investment in India’s manufacturing sector.
• Inefficient Resource Allocation: Bureaucratic control of policy leads to inefficiencies in the allocation of resources, preventing the effective use of capital in sectors that drive economic growth.
  For example: The excessive spending on welfare programs like subsidies, freebies without clear targeting, diverts resources from more productive investments in infrastructure and technology.
• Stifled Innovation: The resistance to lateral entry in policymaking limits the infusion of fresh, innovative ideas into the system, hindering India’s ability to adapt to fast-changing global trends.
• Inability to Attract FDI: High taxes and restrictive policies, combined with a deep-state mindset, deter foreign investors, limiting the inflow of capital that could boost India’s economic growth.

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Reforms for a More Dynamic Policy Ecosystem

• Incorporating Non-Bureaucratic Expertise (Lateral Entry): Allowing experts from various sectors, including industry leaders and academicians, to play a role in policy formation will infuse fresh perspectives and foster innovation.
  For example: The appointment of external advisors like Raghuram Rajan as RBI Governor brought new insights into India’s monetary policies, enhancing the overall effectiveness of the financial sector.
• Tax Reform to Encourage Investment: Simplifying and reducing tax rates will encourage greater investment in both domestic and foreign markets, stimulating economic growth and job creation.
  For example: A reduction in corporate tax rates in 2019 boosted business investment in India, with companies like Vodafone and Samsung increasing their operations in the country.
• Streamlining Policy Implementation: Establishing a more agile policymaking process, with a focus on rapid execution, can help India align its policies with global trends and drive faster economic growth.
  For example: The implementation of the Make in India initiative could have been faster if the bureaucratic hurdles for setting up businesses had been reduced.
• Promoting Public-Private Partnerships: Encouraging collaboration between the government and private sector will enhance the efficiency of public sector programs, leading to better outcomes in economic development.
  For example: The Public-Private Partnership (PPP) model in India’s highway construction sector has been successful in completing projects faster and with greater efficiency.

Reforming bureaucratic structures, embracing lateral entry, and streamlining taxation policies are essential for overcoming inertia and fostering a dynamic policy ecosystem. Strengthening governance frameworks and encouraging accountability can unlock India’s potential for sustainable economic growth and global leadership in the coming years.

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