The Hindu Business Line : Problem of governance, not economics

What the economy needs most is growth without increase in disparity, best done through faster increase in the incomes of the poor. As a solution, suggests low-cost capital to help the poor and a relatively high-cost strategy for the rich.

Worry about unemployment has begun to take root in college campuses.

Under democracy one party always devotes its energies in trying to prove that the other party is unfit to rule — and both commonly succeed and are right.

– H. L. Menken

This is a saying that fits our political parties too except that we have not two but any number of parties. India is a poor country with innumerable problems, many of them intractable. Commonsense indicates that in a general election political parties will discuss and debate at least some of those issues and suggest what they would do to resolve them. Unfortunately, India’s elections are not moved by commonsense. In the entire debate during the current elections, no party has a word to say on any of the problems that beset us.

Indifferent to progress

The purpose of a general election is to win votes. Unfortunately, many of our voters are indifferent to progress. I recollect asking villagers in a poor area of Tamil Nadu what they wanted most. They were unanimous about a bridge over a nullah for a lane that led to their burial ground. The villagers were very poor; they used to get barely one full meal a day. They were all labourers who went to the tehsil headquarters every day selling their physical labour. Their needs must be many but all that they wanted was a bridge to their burial ground over a nullah which was unlikely to flood more than once or twice a year.

On the other hand, the middle class has several worries, typically, corruption, insecurity, criminalisation, unemployment, increasing disparity and inflation. All over the country, several middle-class groups have expressed their concerns on issues of this kind. They are overwhelmed by a feeling of helplessness because politicians of all hues are unanimously disinterested on such issues.

In these meetings, a number of issues are raised. Recently, a top journalist of the country gave out over 20 such issues but declined to suggest any solution with the retort: I am a journalist trained to ask questions but not to answer them!

Conceded we do need journalists who will raise questions, even unpleasant ones, we also need some one who will look for answers. Regrettably, there are few of them. Even if they suggest solutions, there is no one among business houses, politicians and bureaucracy to listen. Each one of them lives in a world of uncertainty and yet is not disposed to listen to advice — unless it is from an international ‘expert’.

For instance, in the case of the economy, there is a general feeling that whatever may happen to the West, China and India will pull through. That optimism should be weighed against pessimistic business forecasts, loss of export markets and general decline in the economy. Will the Indian economy balance an increase in local consumption to match loss of exports? No one is certain.

State is crucial

In the past 25 years, businesses have been moved by what is known as the Washington Consensus — a list of axioms proposed by John Williamson, an economist of the International Institute of Economics. His axioms were based on the view the market corrects itself and is best left alone to do so. Hence, the state should do all in its power to strengthen the markets and, for that reason, deregulate as far as possible.

Fifty years ago, Professor R. H. Tawney explained the opposite concept: It is not till it is discovered that high individual incomes will not purchase the mass of mankind immunity from cholera, typhus and ignorance, still less secure them the positive advantages of educational opportunity and economic security, that slowly and reluctantly, amid prophesies of moral degeneration and economic disaster, society begins to make collective provision for needs no ordinary individual, even if he works overtime all his life, can provide himself.

In other words, the state is crucial for any modern economy and that holds good for India too.

The real danger

The nuclear deal, the NREGA and Bharat Nirman are claimed by the Congress party as their greatest achievements, with the JNNURM as an honourable mention. Will expanding these achievements restore the growth rate of the country and generate enough employment for the increasing numbers of youth that are entering the labour market? Do the other parties have any better solution?

According to reports, there are so few jobs for graduates that banks have been forced to offer special relief to outgoing students.

Hence, on college campuses (even among a few IIT graduates) worry about unemployment has begun to take root. Their numbers can become uncomfortably large soon, very soon. That is a real danger.

So, the first question I would like to raise is what policies do our politicians have to generate at least a million non-farm jobs every year for the next five years? Should not that question reign over corruption, criminalisation and the like? Will de-corruption and de-criminalisation create jobs of that order?

Decreased demand

The problem India is facing is one of decreased demand — both in exports and also in local purchases, such as housing. There are still demands for education and healthcare as well as for water and energy that the country is unable to meet. As, in the immediate future, growth in exports is unlikely, the demand increase has to be raised from within.

If so, how can we do it? Do our economic policies help in meeting the existing demand and in creating fresh demand too?

The fact remains that while the country has grown rapidly, disparities between the rich and the poor too has increased alarmingly. It should be a warning (unfortunately not much heeded) that Naxalite uprisings are greatest where disparities have increased most. Should we treat Naxalism as a problem of security or as a problem of unacceptable disparity?

In the prevailing circumstances, I suggest that what the Indian economy needs most is growth without increase in disparity, best done through faster increase in the incomes of the poor.

Two-part strategy

As a solution, economists are suggesting reduction in interest rates to enable private businesses to expand rapidly. Unfortunately, private businesses may use low-cost capital to build more houses for the rich, expand star hotels and such other artefacts that help the rich more than the poor.

Therefore, I suggest that what we need is a two-part strategy — low-cost capital to help the poor and a relatively high-cost strategy for the rich. Give low interest loans only for activities such as rural development, schools, hospitals, water supply, energy and dwellings but leave the rest of the economy to be handled normally.

The government does provide these services in-house in government establishments. Unfortunately, in most cases, the quality of service leaves much to be desired. The costs are high but the quality is poor.

Hence, we need a system in which the state ensures that quality is good but prices are kept low by letting the purveyor have low-cost capital. The IITs, the NITs and the Central Schools have enjoyed that facility but not the other services.

Here is a problem not of economics but one of governance. Governance is one of the issues repeatedly raised by the middle-class. Regrettably, no political party in the country is talking of better governance.

(To be continued)

(The author is former Director, IIT, Madras. blfeedback@thehindu.co.in)
(This is 250th in the Vision 2020 series. The previous article was published on April 13.)

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