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LATEST NEWS UPDATES | Poor Performance by SL Rao

Poor Performance by SL Rao

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published Published on Jul 12, 2010   modified Modified on Jul 12, 2010

India is incredible (after shining), with the fastest growth rate, an emerging demographic dividend and innovative brains for the globe. But the vast majority in rural India — employed in agriculture, small-scale and tiny industries, self-employed, and with no assets — does not find it so. This government, claiming inclusive growth for the grossly deprived and poor, has not taken actions to bring down prices of essential food items, unprecedented for over 30 years. Instead, it raised the prices of petroleum products. Their cascading effects on other prices have, for the poor, cut the quality of food intake, sapped their already low nutrition levels and made them more vulnerable to disease. There is hypocrisy behind this claim of inclusive growth.

The Indian economy has shown significant growth rates over the last seven years. But India’s human development indicators are well behind many countries in Asia. Despite improving since 1995, we lag well behind countries with whom we would like to be compared, Brazil, Russia and China. Growth in India has not led to comparable development for the poor.

Top Indian economic policy-makers say that prices will fall after a few months. Poor consumers — mostly on daily wages, paying very high prices for family food — cannot wait. They have been paying more as compared to five years ago — 35 per cent more for rice, 18 per cent for onions, 45 per cent for sugar, 70 per cent for tur dal, 56 per cent for petrol, and 40 per cent for diesel. Against last year, food prices are up by 18 per cent. Policymakers mouthing “inclusive growth” sound hypocritical when deprivation is rising because of actions (raising fuel prices) and inactions (not using grain stocks to bring down prices).

One indicator of massive deprivation is that over 500 million Indians are not connected to electricity and burn biomass — mainly crop residues, dry twigs, leaves, branches and cow dung — in dingy and unprotected huts (only 19 per cent of rural households live in pucca houses) without toilet facilities (87 per cent). This indoor smoke pollution has led to India having the highest incidence of tuberculosis in the world (138 per 100,000 households versus 99.7 for the world as a whole), with other adverse effects as well on the health of women and children.

Ours is a services driven economy, not driven by the ‘real’ economy of agriculture and industry. Agriculture employs 52 per cent and, with industry, should be producing goods to raise the living standards of the poor. But rural India earns 85 per cent less than urban, showing the latter’s deprivation. Of the extremely marginalized scheduled tribes, the many scheduled castes and Muslims, the worst off are the STs who have lost land rights and livelihoods, and become easy fodder for the Maoists.

The government should be building their capability through health services of adequate quality, accessible to all, by providing opportunities for quality education, developing skills and good sanitation, ensuring clean drinking water to prevent illnesses of the chest and stomach that are common in rural India. The human development report of the United Nations Development Programme (2006) shows that only 73 per cent of children has full immunization against TB, and 56 per cent against measles; 22 per cent of children with diarrhoea are receiving oral rehydration and continued feeding; 48 per cent of women between the ages of 15 and 49 are using contraceptives; 43 per cent births are attended by skilled health professionals; the number of physicians per 100,000 people is 80; 20 per cent of the population is undernourished; 45 per cent of children are under-height for their age, and 30 per cent of children are with low birth weight. Poor health and nutrition care led to an infant mortality rate of 62 and mortality rate of 540 per 100,000 births, higher than in most comparable Asian countries. This is also true for education.

India’s spending on health and education is not comparable to others. As per cent of gross domestic product in 2003, public expenditure on health in India was 1.2 and private 3.6, while in China the comparable figures were 2 and 3.6. Public expenditure on education was 3.3 per cent of GDP in India, and 10.7 per cent of total government expenditure against 2.2 and 12.7 in China. Government expenditure to GDP in 2003-04 on health was 1.2 per cent, education 3.7 per cent, military expenditure 3 per cent and debt servicing 2.8 per cent, demonstrating the inability of the government to assign resources to improve people’s capabilities. Serious administrative flaws and corruption made even this spending largely ineffective.

On present demographic trends, India will have the largest youthful population in the world by 2030, boastfully called a demographic dividend. But investments in health and education services — development of skills and administrative and monitoring systems that ensure all have good quality in both — is necessary to reap benefits from a youthful population. Without these it could be a demographic disaster.

Inequalities in India are less than in China, but India is also said to have the fourth largest number of billionaires and the largest private holdings in banks overseas. Urban households spend three-fourths more and save nearly double than rural households. Inequalities by occupation, region, location (urban-rural, big city, small-town), education, and so on, are wide and growing as demonstrated by surveys conducted by the National Council for Applied Economic Research.

The combined fiscal deficit of governments at the Centre and the states is estimated in 2009 to have actually crossed 11 per cent, as in 1991. Government debt is over 60 per cent of GDP, placing severe limits on government expenditure on infrastructure and the social sector since interest payments have become the single largest item in government expenditure (as percentage of revenue receipts — 52.1 in 1998-99, 31.6 in 2007-08, 31.6 in 2008-09 and budgeted at 36.7 in 2009-10).

After 1991, India reduced government deficits by reducing expenditures that benefited the poor and the deprived, investments in agriculture and infrastructure, and even the social sector. These cuts badly affected the building of capability among the excluded part of the population.

Political populism led government to keep many prices artificially low by measures such as oil subsidies, physical supplies of food grains and kerosene below cost, free or cheap electricity, and so on. The logic of letting the artificially low oil prices adjust themselves to the market was impeccable. It was terrible timing for the poor, already reeling under inflation, who suffered even more.

After 2007, imaginative schemes to support the poor have been introduced, like free access for all to primary education (Sarva Shiksha Abhiyan), National Rural Health Mission to achieve the same for health services, the National Rural Employment Guarantee Act, which significantly increased funds available for employment schemes from 0.22 per cent of state domestic product in 1998-99 to 0.34 per cent in 2005-06. Others like right to education and right to food are on the anvil.

However, serious administrative inadequacies — high cost, red tape, corruption — in state governments have in many cases led to under- spending or to spending with little effect. Thus in 2005-06 (from available survey figures) only 30 per cent of the funds was spent from those available. Even the spending did not reach the targeted population in many cases and a good part was lost to administrative expenditures and corruption. However the NREGA — despite non-spending, massive corruption and diversion — has led to rural wages going up, no doubt helping these deprived people. The anecdotal evidence of some decline in internal labour migration is also indicative of its success in enabling the poor to earn wages in their own area.

Relating fuel prices for parity is good. But fuelling inflation by raising fuel prices in the midst of rampant inflation shows that the government is paying lip service to the idea of enabling the poor to benefit from economic growth.

The Telegraph, 12 July, 2010, http://www.telegraphindia.com/1100712/jsp/opinion/story_12664369.jsp


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