India needs to leverage welfare gains to enable productive economic participation of the poor in the economy(REUTERS)
India needs to leverage welfare gains to enable productive economic participation of the poor in the economy(REUTERS)

The missing link in India’s governance

Both the ease of living and ease of business are laudable goals. But bridging the two is essential
By Yamini Aiyar
UPDATED ON SEP 25, 2019 11:06 PM IST

Even as finance minister Nirmala Sitharaman valiantly attempts to rescue the economy one press conference at a time, the real challenge confronting economic policymaking today found unexpected expression in Prime Minister Narendra Modi’s speech at Houston on Sunday. Aimed primarily at showcasing India’s arrival on the global stage and consolidating support for India against the backdrop of Jammu and Kashmir, the speech also sought to send important signals on the economy.

The idea was to showcase an India well on the path to progress committed to equality and inclusion, and reassure global business of the commitment to economic reform. Perhaps, for this reason, a significant part of the speech was dedicated to the achievement in promoting “ease of living” and “ease of business”.

But showcasing aside, the speech also served as a reminder of a critical missing link in the current economic policy framework. It may be of limited concern to US investors looking for an investment-friendly environment — but that ought to be a central concern for policymakers at home, if India is to get back on the growth path and steer the long-term course toward stable, inclusive economic growth.The missing link is the absence of a coherent policy framework to enable “ease of living” to result in India’s poor becoming active participants in the economy and drivers of growth.

The contents of the PM’s speech were in themselves familiar and unremarkable. The goal of a $5 trillion economy, plans for increased investment and improved infrastructure, easing regulation and reductions in corporate tax, all found mention. Importantly, Modi went to great lengths to emphasise the importance of his “ease of living” agenda. “Any nation expecting fast development has to have welfare schemes for its citizens,” he said. Ease of business is important, he reminded his audience, but “so is ease of living”. Unsurprisingly, achievements against all the government’s pet flagship schemes — sanitation, cooking gas connections, financial inclusion, rural roads — found pride of place in the speech.

As policy goals, these twin commitments of ease of business and ease of living are exactly right for a country where growth has been unequal and poverty remains a serious challenge. But there is a deafening policy silence, of which the PM’s speech is an important reminder, on what it will take to bridge ease of living and ease of business. In fact, India risks ease of living becoming a substitute for a serious engagement with the challenge of ensuring that India’s poor become active participants in the economy.

This is best understood by contrasting the objectives of flagship ease of living schemes with the challenge confronting India’s labour market. Economist Radhicka Kapoor’s recent analysis of the Periodic Labour Force Survey (PLFS 2017-18) highlights two important realities of the labour market. First, despite ease of living, an increasing number of men in the 30+ working age group are withdrawing from the workforce. This could well be a result of gloomy job prospects and failed job searches. The irony here is that Indian employers continue to struggle with talent shortages, suggesting a clear mismatch between the quality of the labour market and industry needs. Second, a disproportionately high percentage of labour is self-employed or engaged in casual labour, where average earnings are considerably lower than the recommended national minimum wage needed for meeting basic needs.

This data highlights that a vast majority of India’s working population is underemployed and trapped in low-paying activities. Yet, most of the ease of living flagship schemes, or rather schemes this government interprets as politically relevant enough to make it in to the PMs mega speeches, while achieving important goals in and of themselves, do little to directly address India’s labour market challenge. It is telling that a number of Modi 1.0’s early agendas directly linked to the labour market challenge like Skill India and Make in India find little political mention today. This is an area where the government is genuinely struggling. Even more important, education, which lies at the heart of the labour market challenge, has consistently found itself on the political periphery of the ease of living agenda.

Rathin Roy has provocatively argued that the Indian State is slowly transitioning from a development State to a compensatory one. The core objective of a development State is to deliver, he argues, stable economic growth and public (and merit) goods like health and education. A compensatory one compensates for government failure to achieve these objectives through schemes and cash transfers.

Modi’s ease of living agenda risks doing just this. Mine is not an argument against welfare schemes, rather for re-prioritisation of the welfare focus, and creating a policy environment that leverages welfare gains to enable productive participation in the economy. In other words, it means moving beyond the current medley of schemes toward a systematic policy framework that links the twin goals of ease of living and ease of business.

When it comes to ease of business, the reforms of the last few weeks, including the radical move to reduce corporate taxes, will, at best, help arrest the current slowdown. The long-term structural challenge of a growth path that excludes a majority of India remains. For living to be genuinely “easy”, Modi’s economic policy must confront this challenge head on.

Yamini Aiyar is president and chief executive, Centre for Policy Research

The views expressed are personal

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