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14 Economic Survey 2021-22

BARBELL STRATEGY, SAFTEY NETS & AGILE RESPONSE
1.17 The last two years have been particularly challenging for policy-making around the world
with repeated waves from a mutating virus, travel restrictions, supply-chain disruptions and,
more recently, global inflation. Faced with all this uncertainty, the Government of India opted for
a “Barbell Strategy” that combined a bouquet of safety-nets to cushion the impact on vulnerable
sections of society/business, with a flexible policy response based on a Bayesian updating of
information. As explained in last year’s Economic Survey, this is a common strategy used in
financial markets to deal with extreme uncertainty by combining two seemingly disparate legs.
As some readers will have guessed, the iterative leg of this strategy is the same as the “Agile”
approach that uses feedback-loops, and real-time adjustment.

1.18 The Agile approach is a well-established intellectual framework that is increasingly used
in fields like project management and technology development. In an uncertain environment,
the Agile framework responds by assessing outcomes in short iterations and constantly adjusting
incrementally. It is important here to distinguish Agile from the “Waterfall” framework which
has been the conventional method for framing policy in India and most of the world. The
Waterfall approach entails a detailed, initial assessment of the problem followed by a rigid up-
front plan for implementation. This methodology works on the premise that all requirements
can be understood at the beginning and therefore pre-commits to a certain path of action. This is
the thinking reflected in five-year economic plans, and rigid urban master-plans.
1.19 While some form of feedback-loop based policy-making was always possible, it is
particularly effective at a time when we have wealth of real-time data. Over the last two years,
Government leveraged a host of High Frequency Indicators (HFIs) both from government
departments/agencies as well as private institutions that enabled constant monitoring and
iterative adaptations. Such information includes GST collections, power consumption, mobility
indicators, digital payments, satellite photographs, cargo movements, highway toll collections,
and so on. These HFIs helped policy makers tailor their responses to an evolving situation rather
than rely on pre-defined responses of a Waterfall framework.

1.20 Notice that the flexibility of Agile improves responsiveness and aids evolution, but it does
not attempt to predict future outcomes. This is why the other leg of the Barbell strategy is also
needed. It cushions for unpredictable negative outcomes by providing safety nets. This explains
why the Government’s initial measures in 2020-21 were mostly about making food available
to the poor, providing emergency liquidity support for MSMEs and holding the Insolvency
and Bankruptcy Code in abeyance. Once these were in place, the Government made its way
forward by regularly announcing packages targeted at specific challenges. Contrast this with
the approach adopted by many other countries pre-committing to a particular response path.
The following discussion provides an overview of the safety-net measures used to cushion the
economy, while Chapter 2 provides a detailed analysis of how the fiscal mix changed over time
towards supporting demand through capital expenditure and the supply-side through measures
like production linked incentives. In line with Agile approach, this mix can be changed again as
per the requirements of an evolving situation.

Safety Nets used to Cushion Vulnerable Sections
1.21 The recognition of extreme uncertainty associated with a ‘once-in-a-century’ pandemic
meant that the Government opted for a careful mix of emergency support and economic policy