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As the new Congress Government is settling down at the Raiseena Hills of New Delhi, ‘reforms with a human face’ is the new buzz word in the administrative circle. That is natural and the most pragmatic approach to assure investors on the one hand, who are worried about the fate of reforms, and to assuage the feelings of the Indian electorate on the other, which so summarily rejected the ‘India Shining’ campaign of the former Vajpayee government. The general masses felt deeply let down by the new pace of economic change, which, they felt, benefited mostly the middle and upper classes. So when the chance came to show their anger and anguish, they did it by opting for a change. Similarly investors, both domestic and foreign, are wary of the leftist partnership within the coalition government. The new government has given positive signals to both in one go. Now there are clear signs of change, but hopefully they are positive signs.
So far as the investor’s case is concerned, it does not hold much water. In the present dispensation investors have certainly no grounds to worry. What better situation can one ask for when the two chief architects of liberalisation – Dr. Manmohan Singh and Mr. P. Chidambaram – are themselves commanding the realm of affairs, with the former the Prime Minister and the latter the Finance Minister. Both have great credentials and have clearly shown in the past their grit and determination to carry on the process of reforms by all means. They did it so well in the worst of circumstances way back in 1991, and began a new era of reforms and development in India.
Mr. Chidambaram has once again reiterated his commitment to the task of furthering the process of reforms. He has identified the correct objective. He says he wants to be the ‘Investment Minister’. What India desperately needs is investment, public and private, above all in infrastructure, education and healthcare. Reform is about removing obstacles in the path of new investment.
In the final outcome when the voters threw out the National Democratic Alliance, they did not vote against Atal Bihari Vajpayee or for Sonia Gandhi. They voted against the wretched condition they found themselves in. They badly needed roads, water, electricity and above all employment opportunities. It is time for India to usher in a new era of real prosperity with people’s needs and aspirations taken care of. Today, the new government has the opportunity to turn the protest by the people to chart out a new beginning. It can offer the people of the country hope and a future they can look forward to.
The real challenge before the new Indian government is to ensure that the benefits of high growth and development do not remain confined to the middle class only, but also trickle down to the large masses, which are still poor and backward. That shows an urgent need to broadening the base of reforms, to include those that have so far been left out of the process. The people of India are impatient for change. And they want real change, not cosmetic changes.
That obviously brings us to the Manmohan Singh government’s prime focus: this time around it will not be secularism or terrorism but the economy and all that comes with it. To understand the economic compulsions of the present government, one has to take a trip back in time. In 1991, when the Congress took over power in New Delhi under the leadership of Prime Minister P.V. Narasimha Rao, it was faced with a catastrophe of unimaginable proportions. The economy was in crisis with the country’s foreign exchange reserves touching rock bottom. The situation was so desperate that to secure a loan from the International Monetary Fund, the country had to pledge a portion of its gold reserves. What was needed was a total overhaul and when that was done, courtesy the then Finance Minister Dr Manmohan Singh, the economy was provided the kick-start it needed. The changes became apparent when the end of licence-raj was signalled with the first strokes of the liberalisation process. Since then every government has followed the path of liberalisation – though the speed has varied.
The strong base for liberalisation allowed Indian corporate honchos to go ahead in their business without the government putting obstructions of any sort; they could choose where to set up their manufacturing units and when they wanted; and raise capital and venture abroad. The process permitted foreign businesses to own large shares in their Indian units, or even to put up their own companies in India. As a result, sectors like information technology, business process outsourcing, pharmaceuticals, and automotive components have boomed.
This time Dr. Manmohan Singh and company have inherited an economy growing at more than 8 percent a year and quite far from crisis. In fact it was this high-growth performance of the economy that inspired the NDA government to coin their ‘India shining’ catchline. Indeed, the country was “shining” up to certain level, while masses continued to live with numerous hardships and few opportunities. The economy had grown at a rate, which experts felt, would mean that it would double within a decade. Foreign reserves stood at more than US$100 billion and India was being touted as the most favoured destination for offshore back offices.
There are clear signs that the new coalition government under the umbrella of the United Progressive Alliance (UPA) is stronger than it looks, since nobody on its side wants a return of the last government, let alone another election. With the Common Minimum Programme (CMP) in place and decided in consultation with the leftist partnership there appears to be no such contentious issue which can create problem. Even leftists have now realised the importance of carrying on the process of reforms and are putting no unnecessary pressure on the government over privatisation or other such issues.
As such the CMP seems to be less ambitious than Congress’s economic manifesto with its 10 percent annual economic growth, “abolition” of unemployment, hunger, poverty and illiteracy. The CMP has set quite ‘achievable’ goals before the government like the annual growth of 7-8 percent, alleviating poverty, helping farmers, empowering women, and raising spending on healthcare and education. This is what they call ‘the reforms with a human face’.
The task, however, of adding “a human face” to reforms is not an easy one. The election outcome was a reminder of dismal ground realities. An estimated 300 million Indians survive on less than $1 a day, and 160 million lack access to clean water. According to the UN’s human development report last year, around 47 percent of Indian children under the age of five were underweight and malnourished. Naturally, most of the poor are in the countryside, where more than 70 percent of the population of India lives and where reform is needed most.
The CMP is stacked with new rural initiatives to turn into new leaves. There are plans to double credit to rural areas, for example; many farmers have too little land and too much uncertainty about the future to be willing to invest. Mr Chidamabaram has promised complete managerial autonomy to the state-owned banks – the obvious lenders. The reform of the grain-procurement system is also on the cards. At present, the government offers a “minimum support price” to rice and wheat farmers. In practice, this is setting the market price and represents a subsidy.
The Manmohan Singh government is especially concerned over shrinking employment opportunities for youth, despite India’s 6 percent GDP growth in the past decade. In view to this, new policy initiatives are likely to focus on expanding employment opportunities by creating a climate conducive to investment in the organised manufacturing sector. Along with vastly expanding credit facilities for small-scale industry and self-employment, the services sector is also proposed to be given support to realise its full employment potential. The new financial policy will boost the creation of new jobs in other areas such as textiles, handicrafts, horticulture, agriculture, forestry, agroprocessing and village industries.
The most revolutionary of the CMP’s prescriptions for reforms’ face lifting is its proposal to enact the National Employment Guarantee Act to provide legal guarantee for at least 100 days of employment on asset-creating public works every year at minimum wages for at least one able-bodied person in every poor and lower middle class household. The Prime Minister himself is taking keen interest in the implementation of this proposal and its various implications. Although analysts have estimated that the employment guarantee programme would need astronomical sums of money, the Finance Ministry officials are confident that the additional requirement of funds will not prove too huge a burden. They have already planned means to raise this additional fund.
It was also on the behest of the Prime Minister that the government announced an urgent debt relief and enhanced credit package for farmers. The farm credit flow will be stepped up by 30 percent to Rs.105,000 crore.
According to Mr. Arjun Sengupta, a former executive director of the IMF, who helped draft the Congress’ economic manifesto, a self selecting group of 50 million families might apply under the employment guarantee programmed. His estimate, assuming a wage of 50 rupees ($1.10) per day, is that the scheme would cost 250 billion rupees ($5.6 billion), or about 1 percent of the GDP. But, he says, it would replace other entitlements for the poor costing 180 billion rupees. Besides meeting the basic needs of the very poor, the scheme would bring two other benefits: jobs and much-needed infrastructure. It has been estimated that today about 40 million Indians are looking for work. That is already more than 10 percent of a labour force growing at 2.3 percent per year. A vast, cheap labour force could go to work on road improvements, rainwater reservoirs, irrigation channels, dykes and community centres. Even close to the cities and highways, roads soon peter out into pot-holed dirt tracks. Three quarters of cultivated land is unirrigated and dependent on the monsoon.
Some economists, however, are deeply sceptical. “Food-for-work” schemes have been widely used before. Critics say they have done little either to reduce poverty or to produce useful public assets. Implementation becomes swamped in a cascade of petty corruption.
Mr. Vinod Vyasulu, of the Centre for Budget and Policy Studies in Bangalore argues that such schemes can do some good, provided the works and the disbursement of money are handled at the lowest level of elected government – the village council or panchayat. This would not eliminate rent seeking, which is taken for granted. At least at the panchayat level local people can assess the legitimate rent and, every few years, vote bad leaders out.
As such, the troubles envisaged in implementing the employment-guarantee proposal are mirrored in every initiative. And there are plenty of them. A World Food Programme study of one poor district of Chhattisgarh state found it had 400 central and state government schemes dealing, no doubt sensibly enough, with poverty and social services. But most rural families were blissfully unaware of these schemes.
Besides its new emphasis on the rural economy, the government has signalled a shift of spending towards education and health. Over five years, spending on education is to be raised to 6 percent of GDP (from about 4%), with at least half of that going to primary and secondary schools (up from about 2.6%), while health spending will go up to 2-3 percent of GDP.
Again, it is hard to quibble with the goals. The conditions of primary and secondary government schools are lamentable in many parts of the country. The World Bank says that the number of out-of-school children in the 6-14 age range has fallen remarkably, from 39 million in 1999 to 25 million in 2003. But that is still one quarter of all the world’s truants. India’s problem is not favouring tertiary education at the expense of younger children. A recent IMF conference in India heard research showing that, on any given day, 25 percent of teachers are absent in any government school. A wonderful idea to raise enrolment, attendance and nutrition – the nationwide provision of a free cooked midday meal in schools suffers from similarly patchy delivery.
If basic services in the countryside suffer from too little government, much of the rest of the economy suffers from too much. There is an urgent need to strike a balance in the governance. Close monitoring of policies and implementations is one way to check the prevailing malpractices.Presently after all is said and done, there is no reason to be pessimistic. Rather one can now really say that one day India will shine brightly. One day, soon enough.
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