Economic Survey: Top policymakers must ensure predictable policy actions

New Delhi: The government should ensure that the policy actions are predictable and provide guidance in order to check economic policy uncertainty, which greatly influences domestic as well as foreign investments in the country, according to the Economic Survey for 2018-19.

The document, which was tabled by Finance Minister Nirmala Sitharaman in the Rajya Sabha Thursday, stated that policymakers at the highest level must monitor the economic policy uncertainty index on a quarterly basis. "First, top-level policy makers must ensure that their policy actions are predictable, provide forward guidance on the stance of policy, maintain broad consistency in actual policy with the forward guidance, and reduce ambiguity, arbitrariness in policy implementation," the survey said.

To ensure predictability, the horizon over which policies will not be changed must be mandatorily specified so that investor can be provided the assurance about future policy certainty, it noted. While this will generate some constraints in policy-making, such voluntary tying of policymakers' hands has been undertaken several times - like in the case of the Reserve Bank of India formulating the monetary policy, it added.

The government must encourage construction of economic policy uncertainty sub-indices to capture uncertainty stemming from fiscal policy, tax policy, monetary policy, trade policy, and banking policy," it noted. Tracking these sub-indices would enable monitoring and controlling economic policy uncertainty, it added.

Besides, as organisations in the private sector compete and seek the highest level of quality certifications, government departments must also be mandated to similarly seek quality certifications, the survey said. "This process of certification will require training of personnel in following quality assurance processes and will significantly reduce economic policy uncertainty," it added.

The survey pointed out that economic policy uncertainty peaked in India during late 2011 and early 2012; and has since been declining with intermittent increases in between. The economic policy uncertainty in the country moved closely in tandem with global uncertainty until 2014, however, it started diverging since early 2015 and seems to have completely decoupled in 2018, the survey noted.

"In recent times, while the economic policy uncertainty has been increasing across the world, including the US, the UK and China, India's economic policy uncertainty has been falling," it added.