[Reader-list] Reg: Series of Articles on India & Its Development - 1

[Rakesh Iyer]

Link:  http://www.frontlineonnet.com/fl2821/stories/20111021282101000.htm

Article:

*Changing priorities*

C.P. CHANDRASEKHAR

*In planning, pursuit of profit was not seen as being in the social
interest in the post-Independence years, but now profit is the sole motive.*

FOR two decades now the Government of India has pursued a policy of
accelerated liberalisation, dismantling controls, diluting regulations and
making the state a facilitator of private investment. It is not that the
presence of the state has diminished during this period, but that its role
has been transformed. This transformation meant that the nature of
development planning in India had to change too.

Not surprisingly, the Planning Commission has periodically sought to
reinvent itself. However, no clear new role or function has been identified
and placed in the public domain for national debate. Hence, the change that
the organisation is registering needs to be gleaned from its many documents
and actions. One such document that is of relevance is the Approach Paper
to the Twelfth Five-Year Plan. That “perspective” document has been
prepared by a Commission constituted by the United Progressive Alliance
(UPA) II government, which was expected to accelerate the reform agenda
since it was not constrained by the need for support from the Left with its
bias in favour of an interventionist mode of planning.

But any analyst seeking clarity on the direction the Commission is taking
will be disappointed by the Approach, which reads like a collection of
stray ideas on what could or needs to be done rather than a document
offering a holistic and “new” approach. Yet, the aspect of economic
performance that the Commission highlights and the elements of a future
strategy that it emphasises are indicators. They permit an assessment of
the direction in which it has moved and is moving, even if in
muddle-through fashion.

There are seven key components to the Approach. First, as expected, it
makes much of India's recent high growth trajectory of around 8 per cent
during the Eleventh Plan. And it makes the sustenance and acceleration of
that high growth a central component of the Twelfth Plan agenda. To that
end, it sets a growth target and computes the necessary resources. Growth
is targeted in the 9-9.5 per cent range over the Plan. Providing for
substantial foreign savings to the tune of 2.5 per cent of gross domestic
product (GDP), the required domestic resources are then computed (allowing
for a suitable value of the incremental output that would be delivered on
average by each unit of investment). This is routine stuff, and its value
depends on whether the underlying assumptions are realised. What is
important is the strong emphasis on GDP growth and the fact that the
required resources are to be garnered through inflationary means such as
greater indirect taxation and enhanced prices and user charges for public
goods and services and not through direct taxes on incomes and wealth.
*

What is inclusiveness?
*

The second component of the Approach is its declaration that the Plan
should be inclusive. It would have been useful if the term “inclusive” had
been better defined and a suitable set of measures of inclusiveness
identified. For example, it would have been innovative if the Approach
Paper had identified what kind of distribution of the incremental output
projected over the Plan among different percentiles of the population would
qualify as even minimally inclusive. This would have required stating that
given the current levels of inequality and the high levels of economic
deprivation, a proportionately larger share of additional income should go
to those at the bottom of the pyramid for growth to be seen as inclusive.
As it stands, inclusiveness is reduced to the realisation of some set of
vaguely defined targets with regard to indices such as the poverty ratio or
employment.

It hardly bears stating that this is the easy way out. Consider for example
the poverty ratio, which the Commission's document claims (on the basis of
the Suresh Tendulkar Committee's definition) came down by 8 percentage
points between 1993-94 and 2004-05 and declined at 1 per cent per annum
between 2004-05 and 2009-10 compared with 0.8 per cent per annum earlier.
Hence, though the reduction rate is lower than the Twelfth Plan target of 2
per cent per annum, the improvement is underlined with a promise that it
will continue.

Unfortunately for the Commission, not long after its Approach was released,
a controversy over an affidavit it filed in the Supreme Court established
the laughable nature of the poverty line metric (of Rs.26 and Rs.32 a day
per capita in rural and urban areas) although it was based on the more
accommodative Tendulkar report.

Even with regard to employment, the Approach focusses on the fact that an
increase in the number of persons in the 15-24 age group entering education
brought down the rate of growth of the workforce between 2004-05 and
2009-10. This, together with an associated decline in the unemployment
rate, is flagged for self-congratulation. It is another matter that in a
country with a huge backlog of the unemployed, the rate of growth of
employment has come down and much of the employment being generated will
not qualify as decent work. In sum, neither the perception of what
constitutes inclusive growth nor the way it is measured is anywhere near
satisfactory. What seems to matter is growth, with suitably defined
inclusiveness thrown in as an add-on.

In keeping with this kind of an “approach” is the discussion of plans for
crucial social sectors such as education, health, drinking water and
sanitation. In most of these areas, the target is not public spending
relative to GDP or per capita, but a carefully chosen set of outcome
targets. Since outcomes can be varied and some targets more easily reached
than others, this allows for the realisation of some “soft” goals without
adequate progress. Moreover, it allows for a policy of “collaborative
provision” by the public and private sectors to realise these targets, with
little emphasis on either the quality or the cost of such provision.
Recall, too, that increasingly a large share of those costs are met by
private individuals “out of pocket”, even though there are far too many in
the population with missing or shallow pockets.

This focus on “outcomes sans substance” brings us to a fourth noteworthy
component of the Approach Paper, which is its emphasis on “flagship
programmes” (numbering 13 in all), such as the employment guarantee
programme, the National Rural Health Mission and the Integrated Child
Development Services (ICDS). Many of these programmes have much to commend
them and are inadequately effective only because they are extremely poorly
funded (and not just because they are leaking buckets as is often claimed).

But what is at issue is the “programme-based” character of the
inclusiveness drive, with diminishing attention to the exclusion inherent
in the character of the growth process under liberalisation. This makes
inclusiveness or the exit from poverty and deprivation the outcome of state
patronage, which is largely bestowed by the Centre through its centrally
sponsored schemes. This has come to characterise the way in which the
delivery of a range of services such as education, electricity or water is
presented as well.
*

PPP approach
*

The mode of delivery under this patronage system is also being changed,
with the notion of the patron being expanded to accommodate private
capital, especially the corporate sector. This brings us to the fifth
component of the Approach, which is the growing use of the public-private
partnership (PPP) instrument (now euphemistically redesignated as
people-private-public partnership by the Approach document). The number of
times this term appears in the Approach document is perhaps an indicator of
how much this system is being pushed.

There are a number of problems with this mode of delivery. It replaces
public provision with private provision, with the responsibility of the
state now focussed on ensuring that the private “partner” delivers. Since
in the new environment the private partner has to be incentivised rather
than controlled, the government's policy stance is one of persuasion –
through state contributions in kind (land, supporting infrastructure, and
so on), through freedom in pricing, through monetary support to ensure
“viability” (viability-gap funding), and so on. Not surprisingly, agencies
such as the Comptroller and Auditor General (CAG) have had to note
repeatedly in performance audits that the private partner has not delivered
on obligations. However, the government has let that pass.

Finally, PPP involves regulatory forbearance when it comes to assuring
quality, making the end-user pay higher sums for services of poorer quality.
*

Treatment of agriculture
*

The sixth important component of the Approach is the manner of treatment
afforded to agriculture – a sector that has experienced a persistent crisis
with the viability of crop production under challenge due to rising costs,
slowing productivity growth and inadequate increases in end-product prices.

While lamenting that the poor performance of this sector is “a weakness in
the economic performance thus far”, the Approach blames it on the fact that
agriculture is a State subject, on inadequate reform rather than inadequate
investment and on the failure to improve the “institutional framework in
which agriculture and related activities take place”. The latter, though
vague and ambiguous, is possibly a veiled reference to the government's
otherwise expressed desire of the need to afford a bigger role to the
corporate sector and foreign capital in agriculture and related activities,
including distribution.

Finally, the Approach has a completely skewed view of the global context in
which the next Plan will be launched. Currently, the world is not only
experiencing one of the worst crises since the Great Depression, but the
four-year-old crisis is refusing to go away and is threatening to
intensify. For an economy like India, whose dependence on exports
(particularly of services) has increased significantly and which has
accumulated a large volume of footloose legacy financial capital in its
markets, vulnerability to an export slowdown and a flight of capital is
indeed high. An effort to reduce this external dependence is, therefore, a
must.
*

A chance to reassess
*

Moreover, a lesson delivered by the crisis is that the policies of
deregulation and freedom for markets (especially financial markets) pursued
since the 1980s have built into the system weaknesses that finally resulted
in the crisis. For countries like India that have not (as yet) gone too far
down this track and are fortunately placed within the global system, this
offers an opportunity to step back and reassess their own programmes of
unrestrained liberalisation.

Unfortunately, the Approach Paper sticks with the agenda of reform and the
dream that liberalisation will help India emerge as the third largest
economy in the world, and possibly overtake its much larger and more
dynamic neighbour, China.

When these key elements of the Approach document are combined, it is clear
that underlying the platitudes is a strategy that starts with the
presumption that the system will continue to sustain growth and the role of
the state is merely to facilitate this by incentivising corporate activity.
This requires a tax and expenditure regime that skews the distribution of
the gains from growth in the direction of the rich and wealthy.

To compensate those who will not benefit adequately, a case is made for
inclusiveness. This involves, besides underlining the presumption that the
benefits from growth will trickle down, special flagship programmes to do
the very things development should do: provide employment, address poverty,
improve health and ensure education for all. Moreover, even this process of
furthering a citizen's rights by making it an outcome of state patronage is
to be now undertaken in collaboration with private capital, which will of
course charge a “fee”. “Inclusiveness” is therefore one more element of a
strategy of favouring the private sector.
*

Perspectives then and now
*

Seen in this light, there are some obvious and fundamental changes in the
Commission's perspective today relative to the 1950s, and the 1960s,
especially the period that began with the Second Five-Year Plan in 1956. To
start with, at that time, the role of the government and, therefore, of the
then significantly powerful Commission, was seen as one of delivering an a
priori, planned allocation of investment across sectors and ensuring
technology choices in each of those sectors, which would not merely raise
the rate of investment and growth in the economy, but do so in ways that
would reduce external dependence and vulnerability and concentration of
wealth and income.

This is not to say that these objectives were realised in any adequate
measure. But that was because the government failed to implement the
institutional changes, resource mobilisation requirements and regulatory
frameworks needed to make the strategy successful.

Now there is no strategy, and the expectation is that incentivising private
activity will deliver growth. The government's role is only that of
ensuring that the infrastructure needed to lubricate growth is made
available and that some effort is made to compensate those who are
marginalised in the process of growth. But even this is to be undertaken in
partnership with private capital.

This effort to guide investment in planned directions in the
post-Independence strategy was seen as requiring reining in the working of
markets, driven by the private thirst for profit. Markets were not
considered benign and were seen as inequalising and prone to failure.

Moreover, private gains were seen as substantially different and most often
in conflict with social benefit. The pursuit of profit was therefore not
seen as being in the social interest, even if it delivered growth for some
time. As opposed to this, the current notion seems to be that the planner
should follow the market, driven by the profit motive, enhancing its
outcomes and compensating for minor imbalances.

Finally, in the decades immediately following Independence, the emphasis
was on protecting political freedom by ensuring economic independence.
Reduced exposure to volatile foreign markets and restrictions on the
operations of foreign capital were seen as essential for carving out the
policy space needed to pursue a planned strategy of development. That
strategy was not one of insularity but was combined with independent
engagement with the world system.

Today, the astute “planner” is supposed to gauge what is needed and
collaborate with powerful global players to ensure that India gets ahead of
its peers and emerges as a second-rung leader.

Thus far the claim is that is this changed role for the state and its
planners has delivered much. It may have, for a few, for some time. But
that too is now under threat.