What the economy needs now: Less government, better governance

It is commonly accepted that the national economy is in dire straits. We are not sure at what rate it is now growing. But one thing we know for sure is that we have fewer new jobs, investment has slowed down to a trickle and something is seriously amiss. What the Economy Needs Now, a compilation of prescriptions by some of our most distinguished economists, might have been just the clutch of straws for us to hang on to. The book has been edited by a collection of blue riband economists headed by Raghuram Rajan, Gita Gopinath, Abhijit Banerjee and Mihir Sharma.

There are 14 prescriptions in all and each one of them is by a shining star of India’s economic and policy firmament. Each prescription is short, to the point and addresses the issue of concern directly. It covers all our concerns. But is this the book that Narendra Modi needs to read? Particularly since each chapter is organised with precise brevity. But I wonder if the immediate implementation of the many prescriptions will solve our problems.

The problem with short prescriptions is that they are inevitably trite. What is being prescribed are well known, like paracetamol for a flu. Take for instance the prescription for healthcare by Abhijit Banerjee. There is nothing new in what he suggests, save for the idea that we need to build a new district hospital in every district to parallel the existing ones. I agree that the old district hospitals are now mostly beyond redemption and gradually need to be shut down. This is just about the only new policy idea I could spot in what the doctors prescribe.

Big issues

In a book that features such luminescent names, I would have expected more. For instance, either Raghuram Rajan or Gita Gopalan could have addressed the issue of declining capital expenditures and how the government could reverse the trend. We now have a system that mostly takes care of itself leaving the poor people of India to take the hindmost. That is the problem with the book. When it doesn’t grapple with some big issues, what it suggests is mostly anodyne.

Agriculture is still the mainstay of employment. Neelkanth Mishra starts well by letting us know that way back in 1880 the Indian Famine Commission “had observed that India had too many people cultivating too little land”. This about encapsulates the current situation also. While as a percentage the farmers and farmworkers have reduced as a part of the workforce, in absolute terms they have almost tripled since 1947. This has led to a permanent depression in comparative wages but has also led to a decline in per farmer production due to fragmentation of holdings.

The average farm size is now less than an acre and it keeps further fragmenting every generation. The beggaring of the farming community is inevitable. The only solution to this is the massive re-direction of the workforce into less skilled vocations such as construction.

But Mishra misses this entirely. Neither does he mention the fact that almost two-thirds of the farmlands in India are rain fed and increasingly dependent on tube wells for irrigation. Free power has led to uncontrolled extraction of aquifer water and wasteful use. Massive water harvesting is the answer. But there is hardly any government in our villages, so who will undertake the job of getting the tens of thousands of water harvesting structures built?

Another aspect to this reality is to see how the contribution of agriculture to the GDP has declined to around 13% even as the proportion of people still dependent on it remains at about 60% of the population. In 1947, the share of agriculture was about 70% of the GDP. The growing regional disparities further compound the widening urban and rural disparities.

Never before has the Bharat and India been more vivid. Our social scientists are still unable to fix a handle to this because the class, cultural and ethnic divides still elude a neat theoretical construct. Yet there can be little disagreement that there are two broad parts to this gigantic country and one part is being left behind.

The late Sharad Joshi, who had founded the Shetkari Sanghtana, the farmer’s organisation centered in Maharashtra, was a United Nations bureaucrat before he returned to rural Chakan near Pune hoping to enjoy a pastoral life assisted by an UN pension. He bought a farm and then for years tried to extract a living income from the soil. His experiments with rural life led him to understand the disparities that plague the rural and urban sectors. He discovered that the rural economy was still being exploited and savings were extracted from it by adverse terms of trade.

He also discovered that the experiments in nationalism such as a reversion to a regional language were only confined to the rural areas where the state provided education still is mostly in the vernacular. To convey this to his large following of farmers he explained it very pithily and with stark imagery. He said the struggle was between Bharat and India.

Left behind

India is where we see the instruments of government such as the police, some local government and all the many administrative arms of our government. It is in Bharat that the vestiges of government mostly disappear. The nerve ends of our public administration do not reach down to the millions of villages and localities of urban India. Where is the government when plastic choked drains are to be cleaned? Where is the government when a leaky tap or hand pump is to be fixed? Who will empty the tens of thousands of new septic tanks that have been constructed as a consequence of Swachch Bharat? As a matter of fact in most of our villages there is no government presence at all, save for the occasional schoolteacher in the village school.

It is very clear now that one country, India,has been moving and doing well. Bharat is being left behind. Indeed so well is India doing that an Oxfam study revealed that that as much as 73% of the growth during the last five years accrued to just 1% of the population. This does not mean it is just the tycoons of Mumbai and Delhi who are cornering the gains. Government now employs close to 25 million persons, and these have now become a high-income enclave. The number of persons in the private and organised sector is about another ten million. In all this high income enclave numbers not more than 175 million-200 million (using the thumb rule of five per family). Much of the consumption we tend to laud is restricted to just these.

The challenge is now to expand this high wages enclave. This is easier said than done, when we realise that over four-fifths of the labor force is in the unorganised sector and the vast majority of these are unskilled and uneducated. Income transfer schemes will only put many of these in the consumption loop, but without addressing the problem of low productivity that blights the economy.

Administrative reform

But who will carry the required development to the people? Realising that government doesn’t extend very much beyond the tarmac connecting the towns of India every prime minister since Rajiv Gandhi had made the reform of public administration his number one priority. Yet our economists and social scientists generally tend to ignore this aspect of the national challenge – how to get better government, or as Narendra Modi pithily phrased it, less government and better governance?

The challenge of bridging this gap is our biggest policy task. So one would have thought that when a over a dozen of our top economists come together to write prescriptions for the national ills, they would point to the nature of the regime inherited from the colonial era as being a major impediment. It has for long been a maxim of public administration that the nature of the regime determines the outcome. We can have no real prescriptions for our many conditions without addressing this.

What the Economy Needs Now (Juggernaut).