Re-examining Past Indian Policies using a Behavioral Economics Lens

India as of 2019, has been taking small steps towards utilizing these principles into its public policy structure. The 2019 Economic Survey, viewed as India’s flagship economic policy vision document, has an extensive chapter dealing with policymaking titled “Homo sapiens not Homo economicus”. The chapter’s intended rationale was to convey the use of insights from behavioral science in past public policies and recommends a nudge unit be set up in India with accompanying market mechanisms, incentives and laws. While the idea of introducing this nudge unit has been in the news since then, there has been no further updates regarding its progress. 

While the survey tries to look at past policies such as Pradhan Mantri Jan Dhan Yojana, Give It Up etc through a behavioral lens it fails to recognise the implementational flaws which, if considered timely could have resulted in an improved outcome. Most of the inefficiencies revolve around a lack of targeting around specific subpopulations characterized by policies such as, the unbanked population for PMJDY, above poverty line citizens in the case of the “Give it up” campaign etc. The advertisement campaigns which refer to these specific policies did not contain messages aiming at these subpopulations. A lack of literature which examines the ex post facto effects also makes it difficult to pinpoint the efficacies of these policies. In light of our recent fight against the COVID epidemic, campaigns such as “Beti Bachao Beti Padhao” can be revamped by highlighting the stories and efforts of female doctors and nurses (specifically of the latter, of whom 79.85% are women) who have worked long gruesome hours, managing both their professional and household duties. Further research can provide insights into various causal mechanisms and must be pursued as it can aid future policy designs. 

One of the biggest examples of implementational flaws is the demonetisation exercise of 2016. In the context of present data, existing literature shows that in terms of the stated goals, the effects of this policy have been limited at best (Lahiri,2020). At the same time, this large-scale experiment has had a significant impact on the country and its people, especially the middle- and lower-class citizens. The main objective of the sudden demonetisation was to restrain the rise in counterfeit currency and black money even though the scope of the scheme was widened later. Long queues in banks and shortages of notes were merely some of the few struggles that the average citizen had to experience at the time. Jayakumar (2017) provides an account of how most of the downfalls of this sudden exercise could have been better managed if ideas such as decision vs experienced utility, framing effects etc were considered during the initial formulation stages of the plan. While supporters of this exercise justify it by recalling the absence of riots and the “patience” of those who continued to wait in lines as an indication of support towards the prime minister as arguments in favor of the policy, a retrospective glance would say otherwise. While these actions are misinterpreted as revealed preferences, they only represent the decision utilities and are in no way indicative of the experienced utility of the economic agents or the success of demonetisation. Experienced utility is further classified into both real and remembered utility. Real time utility is that at the time of the experience and remembered utility being the utility after the experience. While the real-time utility associated with demonetisation is largely negative, the government could have influenced the remembered utility by minimizing the peak discomfort experienced then (proper planning and ready availability of new denominations) and by maximizing the happiness in the end. 

Re-examining the framing of a policy can also help provide better insight into why it failed to have the designed impact. The government utilized empirical-scientific (prosperous, corruption free economy) and moral frames (standing in line=patriotism) to support the exercise. But the drawbacks that come with these frames such as the high risk seeking behavior and greater tax evasion resulting from the empirical/scientific frame. An average Indian citizen may justify tax evasion in the country due to the low provision of quality public goods and services or even the widespread corruption. This allows them to have little to no moral qualms about the same. Therefore, it is vital that the government gain moral credibility before implementing this frame. An alternative would have been to use nudges targeted at the suboptimal group (tax evaders) by offering life or accident insurance covers to taxpayers or even giving tax exemptions for a decade of taxes paid etc. 

Through such analysis it is made clear to us that in a country like India where social and religious norms have a vital influence on human behavior; behavioral economics can serve as an important tool for instilling change. It must also be kept in mind that mere inclusion of these principles cannot result in the desired effects in the absence of proper implementation. 

References 

• Jayakumar, T. (2017). Behavioural Economics Perspective of "Demonetisation".

• Lahiri, A. (2020). The great Indian demonetization. Journal of Economic Perspectives, 34(1), 55-74. 

• Tagat, A. (2019, July 15). Opinion: India's cautious adoption of behavioural economics. mint. Retrieved August 24, 2022, from https://www.livemint.com/opinion/columns/opinion-india-s-cautious-adoption-of behavioural-economics-1563215954563.html