| India's
beleaguered Prime Minister seems desperate to blame
everybody else for the waning of India's shining growth
story and for the loss of legitimacy of his government.
He now periodically reiterates an argument he has presented
in many forms in the past. That argument starts from
the assumption that what really matters for India is
growth, as measured by movements in the not-too-robust
official estimate of GDP. Ensuring growth, it is assumed
in turn, requires continuous ''reform'' or liberalisation
of a kind that expands the space and boosts the profits
of domestic and foreign investors. So any opposition
to the reform that does just that amounts to restraining
the GDP growth that is all-important for the country.
More recently, in the Prime Minister's Independence
Day speech for 2012, this line of reasoning has been
extended in two ways. The first is by arguing that growth
is important for national security. This extension would
imply that those opposing the ''reforms'' that are crucial
for growth are not just anti-growth but anti-national
as well. Second, the Prime Minister went on to argue
in his speech that the task of ''creating an environment
within the country for rapid economic growth'' has not
been completed ''because of a lack of political consensus
on many issues.'' This is an obvious reference to the
opposition in Parliament and on the streets, which has
not been willing to go along with his specific reform
agenda on the grounds that it is no good for the nation.
In terms of the Prime Minister's logic, then, that opposition
is least concerned about India's security, and therefore,
is unconsciously or otherwise, anti-national.
But does the evidence suggest that the growth that has
occurred over the last two decades and especially during
the 2003 to 2008 period has been good the for the nation
as a whole? Or have the benefits of reform bypassed
much of the nation? This being the PM's ninth Independence
Day speech, the UPA's reform agenda has been implemented
long enough for its actual character to be assessed.
Judged in terms of content and not just outcomes, economic
reform under the UPA has involved reshaping the role
of the state. Earlier, especially during the post-Independence
years till the 1970s, the role of the state was seen
as that of using the tax-cum-subsidy regime as a means
to raise the rate of investment in the economy and ensure
that such investment is allocated across sectors in
ways considered appropriate for maximising growth. This
not only made the state a growth-leader of sorts, but
required the state to not merely regulate but engage
in economic activity, including production.
Under the reform, the state is seen not as leader but
as facilitator. Its role is, therefore, presented as
one of ensuring that the private sector makes large
investments. The choice of the sectors in which such
investment is made is to be left to the private sector
and its perceptions of profitability. If the state has
to ensure that investments must occur in some sectors,
such as infrastructure, ways must be found to enhance
the profitability of such activity. The state must cajole
the private sector into investing larger and larger
sums in different sectors crucial to growth by influencing
the profits to be earned from such investment. And if
the domestic private sector is unable or unwilling to
exploit the opportunities offered, foreign capital must
be wooed. As the PM made clear foreign capital must
be sent the right signal. ''To attract foreign capital,
we will have to create confidence at the international
level that there are no barriers to investment in India,''
he reportedly said. Incentivising private investment,
especially foreign investment, seems to be the essence
of the reform strategy.
Unfortunately, the outcome of this strategy pursued
relentlessly by UPA I and II despite the ''lack of consensus''
has been quite divisive. While growth has boosted profits
and delivered some benefits to a small upper-middle
class, it has failed to ensure employment and livelihoods
for the majority. The results from the National Sample
Survey with reference year 2009-10 suggest that while
the deceleration of employment growth recorded during
1993-94 to 1999-2000 had been partially reversed in
the period 1999-2000 to 2004-05, the record over the
five years after 2004-05 is even worse than it was during
the 1990s. Over the five-year period 2004-05 to 2009-10
employment declined at an annual rate of 0.34 per cent
in rural areas, and rose at the rate of just 1.36 per
cent in urban areas. In the aggregate, the volume of
principal and subsidiary status employment rose by a
negligible 0.1 per cent. This period included the years
when GDP growth was at its highest. But that growth
did not generate livelihoods for the unemployed and
the underemployed in the country.
There is also evidence to suggest that income inequality
has increased significantly during the reform era. One
difficulty in assessing the inequalising effects of
post-reform growth is that the only large-scale survey
available to analyse inequality in India focuses on
consumption expenditure. Such surveys, by the National
Sample Survey Organisation, tend to exclude the very
rich and the very poor and therefore are inadequate
indicators of even trends in consumption inequality.
Further, since the rich are known to save a significant
part of their income, these consumption figures fail
to adequately reflect the underlying income inequality.
Some researchers such as Sonalde Desai, Reeve Vanneman
and Amaresh Dubey have attempted to estimate the extent
of income inequality based on evidence from independent
sample surveys. Those estimates indicate that income
inequality is very high in India, with the Gini measure
of inequality being around the same as Brazil. Such
estimates only confirm the impressionistic evidence
of increasing inequality, especially in the metropolitan
cities and larger urban centres of India.
Moreover, with growth focused largely on the services
sector, which accounts for around two-thirds of the
increase in GDP under the UPA's watch, an unusual form
of rural-urban inequality has come to characterise the
country. While segments of the non-agricultural sector
thrive, agriculture is in long-term decline and the
viability of crop production is under challenge. Even
where the state intervenes with support prices, more
often than not the increases in costs paid exceed the
increases in the prices garnered by cultivators, resulting
in an agrarian crisis in many parts of the countryside.
Thus, clearly growth under reform benefits a few and
excludes the majority. So to argue that such growth
is in the interests of national security is to redefine
the nation itself. Clearly the notion of the nation
here is one that denudes a substantial share of the
population of citizenship, since their interests do
not seem to matter. The elite is not only allowed to
secede from the nation in an economic sense, but the
enclave it inhabits is treated as the true nation.
Unfortunately for the UPA, the economic and social divide
that these trends reflect has undermined the credibility
of its claim to give the country the high growth and
economic stability that strengthen national security.
The perception that growth has served the interests
of some, while leaving substantial sections economically
insecure, has also eroded its legitimacy. Moreover,
given the nature of the economic reform noted above,
that perception has been reinforced and strengthened
by the mounting evidence of the largesse of the state
in handing over social wealth to big capital at prices
that involve huge actual or potential losses to the
exchequer.
It is indeed true that the scams associated with the
sale of 2G spectrum and coal blocks, among others, tend
to be presented as instances of corruption in the political
establishment and the bureaucracy. But there are few
who do not see the manner in which in each of these
cases the private sector has benefited from violations
of norms of fairness and even of the law. The government
has gone out of its way to enhance the profitability
of the private sector through interventions that permit
profit-making beyond what the market permits. The consequence
is an engineered redistribution of income far greater
than mere liberalization would ensure. That too is part
of the reform.
Not surprisingly, while under pressure from the anti-corruption
movement the Prime Minister had to promise that the
government ''will continue (its) efforts to bring more
transparency and accountability in the work of public
servants and to reduce corruption, he introduced an
element of caution. Since some of these measures are
part of the strategy of incentivising private investment,
the government, he noted, ''will also take care that
these measures do not result in a situation in which
the morale of public functionaries taking decisions
in public interest gets affected because of baseless
allegations and unnecessary litigation.''
In fact, the final defence of government actions such
as providing access to coal blocks without resorting
to an auction is that these were measures needed to
fast-track clearances and incentivise investment to
drive growth. If the rule of law is a hindrance to private
investement that is good for growth, then violation
of the law is warranted policy. Such violation is seen
as part of the environment that is conducive to growth.
So even those who oppose such violation are tainted
as anti-growth and even, therefore, anti-national.
The UPA's problem today is that growth is slowing and
is likely to slow further as India finally begins to
be fully impacted by the global crisis. So if its growth
strategy is to be persisted with, more incentives are
needed. The Prime Minister's lament seems to be that
the task of providing them is being made impossible
by the opposition in Parliament and activists protesting
against corruption and inequalising growth on the streets.
Given his predilections, they can only be anti-national.
However, nobody is listening.
*
This article was published in the Frontline Volume 29-
Issue18, September 8-21, 2012.
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