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Passengers in waiting

The government must realise that people and the private sector don’t need it as a benefactor. They would prefer GoI as a facilitator, writes Partha Mukhopadhyay.

india Updated: Mar 16, 2012 22:56 IST
Partha Mukhopadhyay
Partha Mukhopadhyay
Hindustan Times

Somewhere in the bylanes of Englishbazar in north Bengal, there is a small well-to-do house that belongs to a rickshawallah who has been in Gurgaon for over 20 years but plans to go home someday. Today, he and his two sons, both of whom are drivers in Gurgaon — one of them ferrying airline pilots to and from the airport — have a combined household monthly income of over Rs 50,000. He himself earns over Rs 10,000 a month. His two grand daughters go to private schools with fees that exceed Rs 1,500 each.

The Indian growth story is full of such unlikely happenstances, made possible by the openness of our society and economy, and the enterprise of our people. It is, perhaps, asking too much from our government to appreciate their dynamism and respond to their craving to participate in the growth story.

Inclusive growth has, for much of the time that it has been around, been framed as growth with redistribution, where those on the train leave behind a few scraps, or even a feast, for those staying behind on the platform. Rarely is it seen as a ticket for the train. But, as in real life, so too in metaphor, people are crowding into unreserved compartments, often ticketless, but determinedly on the train. Less than half of the working population today remain as rural agricultural workers. The others work in menial occupations to create opportunities for those that follow, younger siblings or children. Can a Budget provide them more hope?

In the backdrop of Dinesh Trivedi’s bravado and the overnight reduction in Employees’ Provident Fund (EPF) rates, there was some expectation that the finance minister would depart from his tradition of presenting workman-like Budgets that harked back to the old days. That was not to be.

Nor was it easy. How can one help people to prepare to participate in the new economy? The answer is best discovered locally, for it is not clear whether the best way to provide hope or — more mundanely — education and healthcare is by building a school or a centre in a village, or by connecting it to a nearby town with a better road. It is unlikely to be found in yet another central handout, which, despite noises to the contrary, continues to be fashionable in this Budget.

The number of households whose members defecate in the open in Kerala, the mecca of decentralisation, is only 4%, compared to over 40% in neighbouring richer Tamil Nadu. Does this say something? States and, a fortiori, local bodies do not have buoyant revenue sources. Over 2001-02 and 2007-08, as the Union tax to the gross domestic product (GDP) ratio rose from 8% to 12%, the state tax to GDP ratio rose by less than half a per cent. A more participation-friendly budget would mean devolution of funds to local bodies, well beyond the R18,655 crore earmarked in this Budget. It would take a different conviction to bite that bullet.

These funds cannot come without a reduction in subsidies. And a clear message in this Budget is the embracing of technology by the finance minister, if not the government, as the means to rein in major subsidies, which comfortably crossed Rs 200,000 crore this year. The fertiliser subsidy is a particularly inequitable example of anti-participation, as it goes disproportionately to richer states and richer farmers. Instead of redirecting resources to other regions and farmers, a mobile-based Fertiliser Management System (mFMS) will accomplish this inequity more efficiently, since the initial effort is to transfer subsidies to retailers, as in today’s scheme of public distribution system (PDS) fair price shops.

Aadhaar, the other technology fix, will be rolled out in 50 districts. It can deliver efficiently to targeted beneficiaries, and more importantly, enable the flow of funds and the associated material to be traced, but it is no silver bullet. It works only if the targeting is properly done through some other method, as Aadhaar, by itself, cannot target. Without improvement in governance to reduce the exclusion error and actively use the traceability made possible by the platform, it would result in better delivery to the wrong people.

A deeper worry is whether the government would try and absolve itself of responsibility, once funds are transferred to an Aadhaar-linked account; thus substituting cash for a lack of public services and support. The much reviled Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is a case in point. When viewed as an “effective floor wage rate for rural workers”, as the finance minister did in his Budget speech, it assists many more people than its immediate beneficiaries, by providing greater bargaining power in a monopsonistic (where there is only one buyer) local labour market. If it were to become a mere cash transfer scheme, this influence on the local labour market would be severely attenuated.

There seems to be a growing tendency to believe that India can grow without an effective government. Can we really foster participation by trying to be the first large country in history to provide basic education through the private sector? That is a chimera, with Charybdian overtones. While the participation of the private sector is imperative and necessary, their growth depends crucially on an ability to build on a firm bedrock of good governance.

The continuance of growth depends crucially on rekindling their confidence, sitting as they are today on a pile of cash, wondering whether to invest. The plethora of tinkering with rates, regardless of declarations of intent regarding the Direct Tax Code (DTC) and Goods and Services Tax (GST), and the apparent attempt to reverse the Vodafone verdict does not help them make up their mind.

The government needs to realise that neither the private sector nor the people are looking for it to be a benefactor. Rather, it needs to learn to be an effective facilitator and appreciate that one’s participation cannot happen without the others.

Partha Mukhopadhyay is senior fellow, Centre for Policy Research, New Delhi. The views expressed by the author are personal.

First Published: Mar 16, 2012 22:53 IST