June 19, 2021
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Best Of Times, Worst Of Times

Two important reports confirm excellent growth prospects but there are warning signals beeping loud and clear: increased inequality, serious lack of infrastructure, spiralling petro-prices...

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Best Of Times, Worst Of Times

The latest report to the Prime Minister by his Economic Advisory Council is yet another confirmation of India’s excellent economic prospects, and that the current year might well be the fourth consecutive year of eight per cent growth. Yet, the report doesn’t ignore the warning signals beeping all through: half the year’s fiscal deficit targeted was spent in the first three months; credit demand has boomed so much that total outstanding is now at three-fifths of GDP with personal credit doubled in two years; money supply and inflation pressures are unabated, with petro-prices still not adjusted to reality; and there is still a serious lack of infrastructure on the ground. 

This very well argued report on the macro economy needs to be seen side by side with another recent assessment, the World Bank Development Policy review of India, essentially a micro picture. This report has no quibble with India’s explosive potential; it merely investigates the problems in the way of a) rapid and inclusive growth, and b) increasing accountability for improved service delivery. While doing so, it finds that in the last 15 years, a step forward has often been accompanied by two steps backward. While India has indeed the best of the world in many areas, it is also the worst of the world in many others. 

In fact, as the Economist recently pointed out, from being hyphenated with Pakistan as a troublemaker, India is now hyphenated with China as the rising power. That in itself is an adequate pointer to the sheer progress it has made in the past decade. However, it is also accepted in many parts of the world that even as India’s potential to reach high growth is unquestioned, its ability to distribute even some of that growth to its poorest and most underprivileged people is seriously in doubt. 

The bank report, Inclusive growth and service delivery: Building on India’s success, sheds a lot of light on the sources of this doubt. It builds on some of its predecessors, the Bank’s previous work on India’s water sector, child malnutrition, health care, education, wages, etc, to show how progress varies from state to state, and is sometimes converted into regress. 

Most of it is due to failure of government/administration—the state has abdicated and the private sector smoothly fallen in step. Between 1999 and 2003, the percentage of children fully immunized against childhood diseases actually fell from 52 per cent to 45 per cent. There were two reasons for this. The government services either didn’t deliver or delivered at a higher cost than declared. For one, private expenditures accounted for almost 80 per cent of total health sector expenditure, proving that people didn’t depend on the government. Less than one in five births now happen in public facilities, while private care births have doubled. For another, among government functions, health care had the biggest share of low-level bribery or corruption—27 per cent, proving that public sector services are not really as free and cheap as it seems. 

Water in Bangalore was available for 20 hours a day in the 1980s; it is now available for 2.5 hours. In Delhi, attempts by the local water board to raise fees are frustrated by corruption charges, even as people spend a minimum of Rs 262 per month and enormous time to compensate for irregular or low supply as against monthly board charges of Rs 141. Even in villages, tubewells now supply 80 per cent of the water, leading to groundwater depletion, fighting against irrigation command areas that have so obviously failed to do their job. The same goes for education. Between four and seven children out of 10 in urban areas of 10 states now go to private schools, while many educated in government schools cannot even do elementary maths. 

All this has hampered, and often distorted, the percolation or spread of growth. Wages have gone up much higher in the highest-earning brackets than in the lowest. While China and Brazil made little no progress in reducing inequality from the 80s to the 90s, India actually increased inequality by a third. The super-rich grew their income three times from the late 80s to the late 90s, while farmers grew more and more impoverished and are now a vanishing tribe.

It’s a conundrum that cannot be solved easily. Nor can this task be delayed much longer. 

The essential question that Manmohan Singh needs to ask of his government and perhaps also himself is: how to make the rich and the powerful work for the poor and the powerless? The civil servants, the politicians, the industrialists—what is their incentive (and disincentive) in serving the people at the farthest end of the administrative machinery? It is for the government to think that one up and fast.

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