Shaking down the money-makers

Today India faces no shortage of money, tax revenues are bouyant, the savings rate high and foreign investment pouring in. The big challenge is to ensure that it is well spent. This is not as much an issue of the private, but of the public sector. To be precise, the government. Failure of delivery systems, essentially the governmental machinery is the biggest problem that our war against poverty faces. Bashing the rich is a lazy response to the challenge, but most favoured by politicians. This article was published in Hindustan Times May 29, 2007




Mohammed Akram Khan’s 86 per cent marks in his Class 12 Board exams may not strike you as being unique. But everything else about him is. First, he is a student of an Urdu-medium school, of a kind that routinely underperforms at the Boards. Second, he is the son of a semi-skilled labourer. Third, he is a Muslim, now accepted as a socially and economically deprived community in the country. But one thing that marks this young man as part of a growing majority in the country is that his role model is steel tycoon L.N. Mittal.

Khan’s aspirations do not have much of a political voice in the country where the wealth creators have just been told by their Prime Minister to curb conspicuous consumption, avoid ostentatious expenditure and display of vulgar wealth, and check executive compensation. In our populist democracy, where Oxbridge-educated socialists-turned-Marxists like Mani Shankar Aiyar determine the discourse, Khan is not ‘aam aadmi’. He is probably a misguided neo-liberal or, worse, a neo-conservative.

Manmohan Singh’s reversion to the sterile rhetoric of the era of faux socialism at the annual summit of the Confederation of Indian Industry last week took the assembled captains of industry by surprise. That wealth creation is at the heart of wealth redistribution is on spectacular display everyday in China, a party ruled by an orthodox Marxist-Leninist party.

The proposition is really quite simple. High economic growth rates mean the generation of more wealth. High growth comes from high savings and investment and is manifested by the magic of compound arithmetic. An annual growth rate of 3.9 per cent, as we had in the 1970s, doubled our per capita income once in 18 years, whereas an average annual growth rate of 8.5 will do the same thing in about nine years. For philosophers, ideologues and the well-off, that difference does not matter. But for the young and the poor like Akram, it does.

Economic growth ensures that more resources can be harnessed through direct and indirect taxes by the government for public health, education, employment generation and even outright subsidies to aid the poor. Low-growth rates mean that you have less and are unable to create that critical mass of assets — physical and intellectual — for the poor to break the cycle of poverty. The battle between the concept of wealth creation and redistribution has long been over. The collapse of the self-consciously distributive State, the Soviet Union, coincided with the other much more egalitarian-minded revolutionaries, the Chinese, changing direction almost 180 degrees.

The hero of the war was Deng Xiaoping who confronted the issue of the bankruptcy of Marxist ideas by declaring that “socialism does not mean shared poverty” and that “to get rich is glorious”. China not only stood that Marxist-Leninist dictum on its head, but also threw out the Maoist notion of self-reliance and mastered the dynamics of export-led growth.

What is actually striking is the fact that in the past three years, the UPA has done remarkably well, in policies of wealth creation, resource generation as well as distribution. Tax revenues have been buoyantand figures show that in the last three years, government spending on agriculture has gone up from Rs 3,262 crore to Rs 8,090 crore; educational spending from Rs 7,024 crore to a staggering Rs 28,684 crore; healthcare from Rs 6,000 crore to Rs 14,000 crore; rural development from Rs 11,320 crore to Rs 29,020 crore and grants from Rs 18,269 crore to Rs 38,403 crore. These are large numbers, but look at them carefully and you can see the plot.

When the UPA came to power in 2004, it made a self-conscious effort to push what are called policies of ‘inclusive growth’. This meant not only greater investment in the social sector, but also efforts to push controversial social engineering legislation such as quotas in higher education for the OBCs and Muslims. But even while pressing these policies and expenditures, the PM clearly articulated a belief that economic growth was central to the UPA’s policies and that the economic growth path “if sustained for a decade or so, will enable us to eradicate the ancient scourges of mass poverty, ignorance and disease to a very substantial extent”.

Bashing the rich used to once make electoral sense. That age is — or should be — gone and the Congress has not quite grasped that one of the consequences of rapid growth is that it has created an aspirational surge of people for more, rather than less consumption.

Since it was a celebratory week — that of the UPA’s third year — the government did not face really hard questions about its own record of failures, first among these being the inability to move on reforming agriculture. Sunil Mittal, a businessman and currently CII President, is particularly miffed at the government’s failure to harness industry to the cause of agricultural change. Agriculture remains an insulated area, a votebank of backwardness and poverty that the political class drools over. Yet, the suffering and pain from its stagnation are manifest all over.

Perhaps a bigger failure has been the inability to get the administrative machinery to ensure that the money the government pours into a project will yield results on the ground. The most spectacular failure is that of the Sarva Shiksha Abhiyan, especially in the northern states where the enrolment ratio remains less than 50 per cent. Despite a huge increase in outlay, governments have been unable to deliver. “A child is enrolled but there is no classroom. If there is no teacher and there is no teaching, why do you blame growth?” Finance Minister P. Chidambaram asked.

Chidambaram also provided a perspective on the PM’s statement that corruption was growing like cancer in the road construction sector. Between 2000 and 2006, the government released Rs 22,527 crore for the rural roads programme. The amount that was actually spent,

Rs 21,025 crore (93 per cent), was for 220,956 kms of road, whereas only 120,577 kms (roughly 55 per cent) have been completed. The minister clarified that the difference had not all gone into someone’s pocket. It also represented half-finished roads, unused road-building material and so on. In short, managerial and governmental failure.

India stands at the cusp of history in terms of its own transformation. Losing political nerve in the face of elections and persistent incapacity of the government delivery systems will delay the process of ending those “ancient scourges” of mass poverty, disease and ignorance. They will also be a hindrance to India’s emergence as any kind of a regional or global power. India’s military power, though considerable, plays less of a role here than understood because of the country’s historical inclination against exporting it. It is economic growth that will provide India a central strategic role in Asia and the world.

Annus Mirabilis

This article on India's wonderful year that was. Published in Hindustan Times December 27, 2006 'It's been a good year, arguably the best since we became an independent nation. We have never been as well off as we are today.' This is how our long-standing columnist and well-known author Khushwant Singh wrote in Hindustan Times last Saturday. Despite his brief infatuation for Sanjay Gandhi and the Emergency, Singh is no court historian. His work, both as columnist and writer, spans the country's history since Independence and his telling of the fads and foibles of our leaders and politicians have won him a legion of fans. Remarkably, this latest pronouncement comes from a 91 year-old whose leitmotif could well have the 'good old days'. In his piece, Singh led off with the quintessential 2006 phenomenon that has so warmed the cockles of the middle class's hearts -- the judiciary's message to the rich and powerful that no one is above the law. But at the core of the good times lies that other phenomenon powering the country's self-confidence - economic growth. With three years of 8 per cent plus growth, there can be little doubt that the country's economy is now on a sustainable fast growth path. With almost all domestic constraints, barring infrastructure, more or less eliminated, India is poised for a manufacturing revolution which should be able to make a bigger dent on the poverty and unemployment front. Our economics have perhaps changed the quality of our relationship with neighbours as well. In the past years, we have witnessed political upheavals in three neighbouring nations - Nepal, Bangladesh and Sri Lanka - and India has not been named as a malevolent meddler by any of the significant parties. Indeed, New Delhi's subtle handling of the Nepal crisis exemplifies this changed situation. To begin with, there were scores of alarmist reports about how the Nepalese and Indian Maoists making common cause to destabilise the country. But India persisted on the middle path and, if Nepal follows the current trajectory, there will be little to worry about in the future. Scare-mongering on a large scale accompanied that other great foreign policy achievement - the Indo-US nuclear deal. Some see the nuclear agreement as an Indo-American thing aimed at undermining our nuclear weapons programme. The facts, however, are that the Nuclear Suppliers Group - made up of the P-5 members of the UN Security Council and all significant industrial nations - has more-or-less accepted India's nuclear weapons as a given, and are moving on to get India to join their club. For this process, the NSG has made the US the lead negotiator: the Indo-US agreement is the key that was needed to open 45 doors. Contrary to some perceptions, the decision of the world's hegemonic power to stand its nuclear proliferation policy on its head is not an event. It is a process through which a rising power is accommodated at the high table where nations that effectively run the world are seated. Their interest in doing so is both altruistic and expedient - they want to ensure that India's rise does not disrupt the world in which they have a great deal at stake, as well as to seek out opportunities for profit, both political and commercial. Much the same process took place with regard to China in the Eighties and Nineties. Celebrating the good times is also a time to reflect on the bad ones the country has gone through. The bad times have been many -- the bloodbath of Partition, the Kashmir wars, the assassinations of the Mahatma, Indira and Rajiv Gandhi, the Bihar famine, political breakdown leading to the Emergency in the mid-Seventies, the terrorist movement in Punjab, the Kashmir insurgency, the economic crises of the mid-Sixties and of 1991 and so on. In the scale of bad times, nothing could be worse than the November of 1962. The defeat of the army at Namka Chu was inevitable, given the location of the Indian positions, but the subsequent disasters of Se La and Bomdi La is something the country will not forget in a long time. Its ripples were felt across the country and the resulting panic led the army and the civil administration to abandon upper Assam for a brief moment. Tezpur was evacuated, the prisoners in its jail freed and its treasury emptied into the Brahmaputra. In New Delhi, the architect of non-alignment, Jawaharlal Nehru wrote an abject letter to the President of the United States proposing a military alliance. Those were indeed bad days. But so were those in 1990 and 1991 when the country was in the grips of social turmoil, former Prime Minister Rajiv Gandhi was assassinated and economic crisis led creditors to demand that we fly our gold reserves to London. At the time the writ of terrorists ran across the most prosperous state, Punjab, and the Kashmir rebellion was at its peak. Today, separatist insurgency still afflicts Kashmir and the North-east and the Maoist cadre has the free run of large tracts of territory in central India. Yet, all those fighting the Indian State know they have little or no chance of ever prevailing, even locally. With a limited number of nuclear weapons, India also has the ultimate weapon against external threat and blackmail. We may not be the strongest military power around, but we are not that badly off either, and we have shown that we are a great deal more resilient than many countries around the world. One reason why there is a general air of caution over celebrating the good days upon us is the 'Shining India' effect - the hyperbolic tendency to irrational exuberance that grips the middle-class to the point of excess. Even today, large parts of the country and its people continue to live in the thrall of poverty, illiteracy and disease. A recent Unicef report pointed out, for example, that India's maternal mortality ratio (MMR) could be as high as 300 per 100,000 live births, with some states like UP and MP recording more than double that figure. There are several reasons for this, but the primary one is that not many women, especially in rural areas, receive skilled medical attention during childbirth, and they don't get this because there is no infrastructure of rural healthcare across large swathes of the country. The persistent MMR problem is only one manifestation of the deep rooted illiteracy-disease-poverty cycle that afflicts the country. In the past 50 years, an enormous amount of money has been spent to break this cycle, but to little avail. In great measure the problem has been managerial. Both the state and Union governments have failed to provide the kind of leadership - political and bureaucratic - needed to deal with the situation. They point to one key area that the country needs to do something about - the quality of its urban and rural management. It has already become apparent in India's teeming cities that the colonial-era administrative structures and styles are unable to cope with the complexities of the challenge they face. Yet, none of the recent governments have come anywhere near reforming the system. Every government claims that it is doing so, yet ground realities, especially chronic problems like MMR, show that things go on as before. Yet, the good news is, and Khushwant Singh is its privileged harkara, that the country may have arrived at a critical mass of people - call them middle-class if you will - with a level of education and income that can sustain the chain reaction of growth and prosperity.