Not a fine balance
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Not a fine balance

The economy is on autopilot and the government must now ensure that its benefits reach the poor, writes Arjun Sengupta.

india Updated: Apr 05, 2007 16:30 IST

The ‘aam admi’ as the object of development, was spelt out in a February 2004 Vision Document of the Congress: ‘Towards an Expanding Economy, a Just Society, Freedom from Hunger and Unemployment’. Prepared by the Congress’s Economic Affairs Department, it reflected the line given out by Congress President Sonia Gandhi, which brought the party back to power. The Congress manifesto and Common Minimum Programme were only elaborations of that vision, built on three propositions.

First, that economic reforms were necessary to promote high economic growth, but that they were only a means leading to a society without hunger, poverty and unemployment, with universal healthcare and education. Second, a growth programme would first develop agriculture to look after poor farmers, and then social development. Third, policies should be designed and executed for the most vulnerable groups with full accountability to the people through grassroots organisations.

While the NDA government was identified with a small minority benefiting from the so-called ‘India Shining’ phenomenon, the Congress was upholding the cause of the ‘Other India’ — the India of the poor, vulnerable and excluded. This, together with the Congress ideology of secularism and independent foreign policy, brought the party back to power.

But what has been its performance so far, in terms of this original vision? The Indian economy has been growing at a high rate. If we evaluate economic policies for their impact on GDP growth, the policy-makers must be complimented. But in terms of their impact on social justice and the welfare of the common man, the verdict can be different. The aam admi would hardly agree that they have benefited much from these policies.

Take just three areas — agriculture, employment and social development. In agriculture our growth performance has been very low in the last three years. But none of the policies recommended for increasing agricultural growth confront the basic issue that the aam admi in agriculture depends on holdings of less than four acres today. According to the 2002-03 Farm Survey, 94 per cent of the farmer households belong to holdings of less than four acres, another segment (4.8 per cent) to holdings between four and 10 acres and a small portion (0.8 per cent) to more than 10 acres. Programmes for agriculture seldom address the problems of this 94 per cent. The overall credit to agriculture might have doubled, but very little of that has gone to these marginal farmers. All policies for dry-land farming, expanding cooperative credits, research and transfer of new technologies or unleashing the second Green Revolution must be designed in a manner that these marginal farmers can benefit most from them.

Total investment in agriculture has remained only around 1.8 per cent of GDP when the overall investment-GDP ratio has gone up to 34 per cent. Even out of this small amount, less than a quarter is public investment and the rest is private. It is hardly likely that these small holders will have the capacity to invest on their own. They depend almost entirely on public investment for irrigation, water management and research and technology. Only programmes for increasing public investment in agriculture can benefit these marginal farmers.

About employment, the Economic Survey states that the unemployment rate has increased from 2.78 per cent in 1999-2000 to 3.06 per cent in 2004-05 because the growth of labour force was higher than of the work force. However, the increase in the rate of employment was 2.48 per cent between 1999-2000 and 2004-05 compared to 1.57 per cent between 1993-94 and 1999-2000. But during this period, the employment growth in the organised sector was negative, implying that the entire increase took place in the unorganised sector.

This is the sector that is most neglected in our country, where labour is completely unprotected, with no minimum wages, no social security, no work establishment with sanitation, electricity or even a proper roof over heads. Workers seek employment there because the alternative will be starvation. Even the Approach Paper for the 11th Plan talks about targets for generation of employment opportunities, almost all confined to the unorganised sector. Any employment policy of the UPA government must clearly spell out how to increase the absorptive capacity of workers in that unorganised sector, how enterprises there can expand, how their productivity can increase with increased earnings, how they can participate in a growing economy. Neither the Budget nor the Economic Survey — nor the Approach Paper for the 11th Plan — spell out any of these policies.

These unorganised sector workers must be the target population for upgrading their conditions of living in any programme. A feasible programme providing social security for unorganised sector workers, providing insurance for health, death, accident, disability and maternity as well as old-age pensions has been worked out. The total cost of implementing this programme would be less than half-a-per cent of GDP and would provide protection for 36 crore workers throughout the country. The programme is still awaiting clearance from the government.

There is also a model for expanding productivity and marketability of small, marginal and tiny sector units in the unorganised sector in the form of ‘growth poles’. They can be regarded as mini-SEZs that do not require much land, but can increase their outputs and employment significantly by utilising their inter-dependence and economising on common services of infrastructure, marketing and finance. They can be given a tremendous boost if those clusters of small micro-enterprises and their developers receive even a fraction of incentives that are given to the SEZs. Programmes must be designed to improve the technologies, skill-formation, marketing capacity and credit facilities for this sector. A strategy for expanding employment of the aam admi will have to necessarily centre around the development of the unorganised sector.

About social development programmes, the Vision Document states that these have to be implemented through decentralised systems of delivery and accountability by local-level institutions, gram sabhas and panchayats. The concept of governance is not confined to the question of corruption, but is really dependent on developing a process of accountability, of focusing the responsibilities and setting up mechanisms of monitoring and enforcement, possibly with the participation of civil society according to notions of public-civil society partnership. The financial allocation for these programmes must be adequate, but mechanisms should be established for their full implementation through Centre-state coordination. Much of the social development programmes in education, health, sanitation, childcare or mid-day meals have been granted substantial additional funds in this Budget. They may still be lower than what the different ministries have demanded and no doubt convincing cases can be made for increasing the allocation. But it is most important how these funds are utilised.

The Rural Employment Guarantee Scheme, which clearly benefits the common man, has used up only about 37 per cent of the allocation, though several districts have shown higher performance. Similar is the record of the Integrated Child Development Services (ICDS), the National Rural Health Mission (NHRM) and the Sarva Shiksha Abhiyan. The crucial task is to make the positive results of some areas universal and directly impacting the aam admi.

The economy has now reached a stage when the rate of economic growth can accelerate without much effort from the government, if it does not roll back on reforms. An economy with a 34 per cent rate of investment, a 32 per cent rate of saving and a $ 180 billion foreign exchange reserves is set to move on auto-pilot. The government can devote itself entirely to social development and work towards channelling the process of economic growth towards the uplift of the common man. Feasible programmes exist for doing so, provided the government remains true to its commitments and the vision that got it to power.

Arjun Sengupta is a Rajya Sabha MP and a former member secretary of the Planning Commission

First Published: Apr 05, 2007 06:28 IST