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LATEST NEWS UPDATES | Changing priorities by CP Chandrasekhar

Changing priorities by CP Chandrasekhar

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published Published on Oct 7, 2011   modified Modified on Oct 7, 2011

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.

Frontline, Volume 28, Issue 21, 8-21 October, 2011, http://www.frontlineonnet.com/stories/20111021282101000.htm


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