Chanakya's New Manifesto: To Resolve the Crisis Within India (31 page)

The results are the same in other areas too. The propensity of states to give free power to farmers is a case in point. As journalist Swaminathan Aiyar says: ‘State Electricity Boards were given a rescue package of
41,000 crore in 2002, after which they were to behave responsibly. Alas, their combined losses now exceed
100,000 crore, mainly because of free or highly subsidized power to rural farmers.’ But who does this subsidized power benefit? Citing the example of Punjab, Aiyar says that, ‘83 per cent of Punjab farmers have small or marginal holdings, and no tubewell at all. Free power benefits 17 per cent of the richest farmers, some of whom have 150 tubewells.’
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What’s more, with free power on tap, rich farmers persist in using old pumps that guzzle electricity and have no incentive to move away from practices like farming high-water-absorbing crops such as rice.

So, what are we to infer from all this? First, while the creation of an inclusive society is a desirable, even essential, goal, the granting of inefficient top-down subsidies is not the way to achieve it, especially when the government is very close to being bankrupt. In fact, given the large sums wasted or siphoned off from such huge but ineffective allocations, it can be argued that government subsidies subvert the creation of an inclusive society by unproductively diverting funds that could have been used for the genuine benefit of the underprivileged. All subsidies which are economically unsustainable need to be phased out, including the subsidies on fuel, kerosene and diesel. They put an enormous burden on the fiscal health of the economy, one consequence of which is reduced resources for productive steps for social inclusion.

Second, grand announcements of ambitious goals is no substitute for initiating actual change on the ground. The Right to Education (RTE) Act is another example that illustrates this. The commitment to provide quality education to all children between the ages of six and fourteen—as the act boldly promises—sounds impressive, but there are no provisions in the act which actually indicate how this will be brought about. Ninety-three per cent of our children study in government-run schools. These schools are hallmarks of neglect almost without exception; teacher absenteeism is rampant; 50 per cent of all public schools do not have electricity or a separate kitchen; student attendance rates are falling; dropout rates are unacceptably high; the quality of education is beyond dismal; discipline enforcement is primitive; educational tools are close to nil; and funds are always scarce or improperly utilized. The RTE Act provides no workable remedies or penalties to rectify this disastrous state of affairs. In fact, the HRD ministry in its most recent report to the Consultative Committee of Parliament admitted that as many as 12.59 lakh posts for teachers in primary and upper primary schools have not been filled. Even so, the RTE Act compels all unrecognized private schools—where a great many children prefer to study given the shoddy condition of government schools—to close down. Further, it requires even recognized private schools to match government school salaries, which could raise the school fees for children by more than five times. Quite clearly, the act is good only as a statement of intent, and promises to do more harm than good.

Thirdly, misconceived State altruism popularizes social tokenism, of which the decision to reserve 25 per cent of seats in private schools for low-income children is a case in point. The decision, which was upheld by the Supreme Court in April 2012, is a good step towards breaking down social barriers and elitism; but since private schools are limited in number and, as already stated, the vast majority of children have no option but to study in government schools, it achieves very little. Worse, it opens a new window for corruption, by mandating government agencies to certify which children are from ‘weaker and disadvantaged sections’. The opportunity for corruption is further enhanced because the act requires the government to finance the 25 per cent reserved seats in private schools. Anyone familiar with how Indian officialdom functions will understand immediately the opportunities this provides for graft.

Merely increasing budget allocations, although again well-intentioned, is not the right answer if the rest of the government infrastructure of utilization and implementation remains the same. For instance, the latest union budget increase by a substantial 22 per cent (to over
25,000 crore) the funds allocated for the Sarva Shiksha Abhiyan—the national programme for elementary education. Similarly, it announced a 29 per cent increase (to over
3,000 crore) for the programme for secondary education—the Rashtriya Madhyamik Shiksha Abhiyan. Even in education, it has established as many as six national missions for sustainable agriculture and micro irrigation, oil seeds, agricultural extension and technology, horticulture, and protein supplements. However, if past performance is an indicator, new schemes or enhanced funds will remain under- or un-utilized or be siphoned off by the agencies charged with implementing them.

An objective assessment reveals incontrovertibly that when overall economic growth rates are high, the poor are benefitted more than when growth falls and populist policies are pursued. While growth by itself is not enough to deliver relief to the poorest of the poor (and we shall discuss later what needs to be done about this), there is little doubt that high growth rates definitively reduce the number of poor. In the decade after the economic reforms of 1991, when growth rates for the first time rose to around 8 per cent per annum, more people were raised above the poverty line than in the previous three decades of so-called socialism. A distinguished economist has stated categorically: ‘Evidence that poverty has declined since India began to liberalize in the 1980s, that the acceleration in growth to 8-9 per cent range since the mid-2000s has resulted in accelerated poverty reduction and that these trends hold for each broad social group rather than just the aggregate population is as irrefutable as it gets in social sciences’
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For more recent trends, Swaminathan Aiyar provides hard statistics: ‘Record GDP growth of 8.5 per cent between 2004-5 and 2009-10 has reduced poverty at a record rate of 1.5 percentage points per year, double the 0.7 percentage points per year in the preceding 11 years.’
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‘That growth and poverty reduction are highly co-related is a fact that needs to be emphasized only in a country like India’, writes economist and investment consultant, Surjit S. Bhalla. ‘Despite a relatively small increase in the average growth rate, poverty decline accelerated from a 1.2 per cent rate in the NDA period to double that rate in the UPA period, 2.4 per cent’.
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Estimates reveal that if India has a growth rate of 9 per cent per annum for the next five years, it will take ‘75 million Indians out of deep poverty and give hope to at least as many more in the subsequent five years if the 9 per cent GDP growth rate holds’. Thus, even a 2 per cent difference in growth rates—from the current rate of around 7 per cent—‘can make a significant difference to the lives of millions of Indians’.
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It is imperative, therefore, that the economy retains its high growth trajectory in order to impact the lives of the poor. But growth is not an undifferentiated monolith. Jean Dreze and Amartya Sen speak of the importance of ‘growth mediated development’ where primacy is given to equity, but surely this cannot mean allocating huge sums of money for inefficient government schemes that fall far below expectations in meeting their targets and nurture an entire infrastructure of institutionalized corruption. The answer lies in ensuring that growth also occurs in those sectors of the economy which are directly related to the interests of the poor, and which provide them the right opportunities to haul themselves above the inhuman poverty line.

One fundamental problem is that, notwithstanding its potential for growth, the structure of our economy is skewed. The service sector, which employs the least number of people, accounts for 56 per cent of our GDP; industry, which should be providing gainful employment to a very large segment of the population, has only a 28 per cent share; and, agriculture, on which the bulk of the population subsists, produces a meager 16 per cent of GDP.

If the sector which accounts for around 600 million people, most of them unacceptably poor, has such low productivity, how can poverty ever be eradicated from our country? As we have seen earlier on in this book, agriculture has been the most neglected sector of India’s growth story. For decades now it has grown at a national average between 2 to 3 per cent per annum. The reforms of 1991, while beneficial for other sectors of the economy, largely bypassed urgently needed change in agriculture. And, nothing of substance has been done ever since. Agriculture is the only part of the economy which continues to grow at what was derisively dismissed as the Hindu rate of growth in the years preceding 1991.

The key to India’s poverty reduction programme and its vision for a more inclusive society is a second revolution in agriculture. The Green Revolution in the 1960s was the last time agriculture saw a qualitative change in productivity. For fifty years since then too little has changed except MSPs being increased annually for populist reasons. An increasing spiral of ineffectively delivered subsidies has been mistaken for agricultural investment; in fact, ‘almost 80 per cent of the public expenditure going to agriculture is in the form of input subsidies (fertilizers, power, irrigation)’, whereas ‘research clearly shows that marginal returns on agri-investments are up to five to ten times higher than from agri-input subsidies. Economics is quite clear on this. Investments take time to fructify, but they are more sustainable to give benefits’.
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Higher agricultural productivity, even with wide discrepancies in the social structure and size of holdings, will have an effect on poverty levels. With increased productivity, wages and incomes go up; higher food production impacts absolute levels of hunger; savings increase, and investments grow; production inputs and technology are upgraded. In the groundswell of productivity, even the poorest benefit, and subsequent well-planned interventions can ensure that this trend is strengthened. It needs reiteration that every rupee that is added to GDP from farming is twice as effective as other steps in reducing rural poverty.