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What is Barbell Strategy & Agile approach used by GoI as Economic Policy

What is Barbell Strategy & Agile approach used by GoI as Economic Policy

Relevance:

  • GS 3 || Economy || Economic Planning || Planning in India

Why in the news?

The Economic Survey 2021-22 aims to illustrate how India’s economic response to the Covid-19 shock was informed by an “Agile strategy”.

Present Context- A new policy making approach:

  • Global crisis: In 2020, the Covid-19 epidemic triggered a once-in-a-generation global crisis, with the majority of countries experiencing a drop in GDP per capita.
  • For long-term gain: Faced with unprecedented uncertainty at the start of the pandemic, India prioritised preserving lives and livelihoods by accepting short-term pain in exchange for long-term gain.
  • This strategy was also tailored to India’s unique vulnerabilities to the pandemic:
    • Network effects: Since the speed with which a pandemic spreads is determined by network effects, a large population necessarily allows for a faster spread.
    • Human interaction: Since the pandemic spreads by human interaction, high population density, particularly at the bottom of the pyramid, intrinsically facilitates the pandemic’s spread at the outset.
    • Senior population: Despite having a low average age, India’s vulnerable senior population outnumbers other countries in absolute numbers.
    • Health infrastructure: An overwhelmed health infrastructure exposed the country to a massive supply-demand mismatch that might have drastically increased fatalities.
  • The Barbell strategy: Faced with a ‘black swan occurrence’ characterized by utter uncertainty and a once-in-a-century disaster, Indian authorities adopted a technique akin to the Barbell strategy in finance, initially hedging for the worst-case scenario and gradually modifying its response via feedback.

How did government put Barbell Strategy to use?

  • Unforeseeable exigency: The severity of the Covid-19 outbreak necessitated a swift shift in policy to meet the demands of the people. The Waterfall technique was unsuited to satisfy the necessities of this unforeseeable exigency due to the virus’s ever-mutating trajectory.
  • Virus’s threat: Recognizing the virus’s threat, the government chose to switch from a “Waterfall” to a “Barbell” strategy.
  • Economic flexibility through deregulation: As a result, the government implemented the supply side Barbell Strategy, which focuses on generating economic flexibility through deregulation and reforms, allowing the economy to better respond to volatility. On the other hand, it emphasised resilience through initiatives such as the Atmanirbhar Bharat Abhiyan, PLI, and others.

Understanding Barbell Strategy:

  • Combining two seemingly unrelated legs is a typical method employed in financial markets to deal with high unpredictability.
  • The Barbell method combines many safety nets to cushion the impact to society’s or enterprises’ most vulnerable members. It comprises a flexible policy response based on “Bayesian updating of information,” or, to put it another way, it use real-time data to discover, assess, and mitigate risk.
  • It’s quite similar to the popular ‘Agile’ paradigm, which employs feedback loops and real-time modifications. In a volatile context, the Agile methodology adapts by evaluating outcomes in short iterations and making modest

Agile Framework:

  • It’s a project and policy implementation framework that’s thought to be extremely effective at getting things done.
  • It was created in 2001 and is based on 12 concepts such as customer satisfaction, cooperation, adapting to change, feedback loops, and breaking project silos, among others.

How it is different from traditional approach?

  • Enabling innovators to innovate: As a consequence, existing regulatory frameworks must develop, and regulatory excellence is critical in this process for ensuring proper risk taking and enabling innovators to innovate while efficiently complying with proportionate regulatory framework.
  • Risk taking theory: Taleb developed the Barbell method, which is characterised by maximal certainty/low risk on one end of the barbell and maximal uncertainty on the other, as a technique of building anti-fragility, or the ability to gain from disorder, in risk management theory, or better yet, risk taking theory.
  • Regulatory framework and compliance: Barbell strategy-oriented regulatory framework and compliance management, in which both regulators and manufacturers/innovators use a Barbell approach to arrive at an ideal solution in regulatory making and compliance management. Finally, a conclusion is formed, as well as future work prospects.

Measures adopted:

  • Responsiveness and facilitates: Agile’s flexibility increases responsiveness and facilitates evolution, but it does not seek to forecast future results. This is why the Barbell strategy’s opposite leg is also required. It protects against unforeseeable undesirable events by putting in place safety nets.
  • Unveiled a slew of initiatives: As a result, the administration has unveiled a slew of initiatives aimed mostly at the poor and vulnerable.
  • Strict lockdown: According to the study, the first step toward this method would be to impose strict lockdown when cases were in March 2020.
  • Infrastructure: It gave us the time we needed to expand our testing infrastructure, set up quarantine facilities, and so on. Above all, it provided time to learn about the Covid-19 virus, its symptoms, and how it transmitted.

Why is the Agile Framework preferred today?

  • Loop-based policy-making: Although some type of feedback loop-based policy-making has always been possible, the Agile approach is especially relevant now due to the explosion of real-time data that allows for continuous monitoring.
  • High frequency indicators: Over the previous two years, the government has used a variety of high frequency indicators (HFIs) from both government departments and commercial entities to enable continuous monitoring and iterative modifications.
  • Such information includes GST collections, digital payments, satellite photographs, electricity production, cargo movements, internal/external trade, infrastructure roll-out, delivery of various schemes, mobility indicators, to name just a few.
  • These HFIs helped policy makers tailor their responses to an evolving situation rather than rely on pre-defined responses of a Waterfall framework.
  • Real time check and change according to the outcome and result.
  • Mostly used by the private sector in today’s innovation world where result is known but path doesn’t which require a comprehensive real time strategy.

Conclusion:

HFIs offer the benefit of being real-time and frequent, but they must be utilised with caution. Each indicator reveals, at best, a sliver of the picture. Furthermore, the data may be sluggish to update or contain inaccuracies. Policymakers can pick up useful indications in a quickly changing scenario, allowing for faster response and better targeting. As a result, employing HFIs to gauge economic trends in order to implement an Agile Policy Framework is as much an art as it is a science.

Mains oriented question:

Explain the Barbell strategy and the Agile framework utilised by the Indian government to handle the pandemic’s obstacles. (200 words)