Tuesday, 24 January 2006

Morality of middle class politics

Monday, January 23, 2006 22:50 IST
Remember the public outrage over the 'questions-for-money' and the MPLADS (Member of Parliament Local Area Development Scheme) bribery scams? Newspaper columns were full of indignant letters from middle class readers about the quality of public life. The expulsion of the tainted members of Parliament got overwhelming public support.

Contrast that with the public reaction to politicians' involvement in the demolition of unauthorised constructions in Delhi and Ulhasnagar. Politicians in both cities have been flexing every possible muscle to stop the demolitions. In Maharashtra, they even succeeded in getting the government to issue an ordinance that would, in effect, regularise the illegal buildings. In Delhi, too, there is talk about changing the master plan to do something similar. In both places, it has been conclusively proved that the politicians are opposing demolitions not out of concern for the ordinary people affected by the action but because many of the unauthorised buildings belonged to them.

And yet, people are getting worked up, not over the politicians involved in unauthorised constructions, but by those carrying out and authorising the demolitions. The same people who couldn't stop singing Delhi chief minister Shiela Dikshit's praises were on the streets demonstrating against her. Those who were not affected by the demolitions have chosen to keep quiet.

This dichotomy in reactions isn't surprising and is easily explained. The middle classes are more indulgent of unauthorised constructions because they are as much to blame for the urban mess as politicians. That's not quite the case with bribes. Ordinary people also give and take bribes but they are never of the magnitude that politicians receive. Moreover, the bribes the common person pays are usually to get absolutely mundane and even legal things done-an electricity connection, a completion certificate for a house which conforms to all the building bye-laws, a driving licence, a death certificate. It's not about diverting public funds for personal use. Therefore, it is easier to distance oneself from the bribery scams of politicians. The unauthorised constructions-or other violations of civic laws-are, however, another matter. That is something the middle class is doing all the time. Even when they don't need to.

Dikshit isn't alone in her experience of losing public support over this issue. In the previous government, urban development minister Jagmohan, was idolised when he set about demolishing slum clusters in Delhi. The minute the bulldozers reached the middle class localities, he was demonised. He also lost the Lok Sabha election. It's quite likely Dikshit will face the same fate during the next assembly elections.

Now you know why there is a dearth of good people in politics. They will just not get elected.

We are all actually quite happy with the existing system and have managed in little ways to tweak it to suit our ends-whether it is unauthorised constructions, illegal pumping of ground water, getting false certificates or some other misdemeanour. Voting an upright person into politics will mean putting this comfortable little world that we have built for ourselves at risk.

That's why the incensed reactions to politicians figuring in scams will never go beyond breast-beating, whether it is by the babus commuting in chartered buses/local trains or the elite chatting over cocktails and dinner. Forget the days when the Rajiv Gandhi government fell in 1989 on corruption charges. When it comes to the crunch, a corrupt politician has better chances of winning than a Shiela Dikshit or a Jagmohan. Because the corrupt politician will turn a blind eye-maybe even facilitate-your transgression. These two and others of their ilk won't.

It is possible to argue that ordinary people are often forced into misdemeanour by outdated and senseless laws and regulations. And it is those laws and regulations that lead to the kind of politics the country has. Sure, but encroaching upon pavements to build one's own little private garden or adding floors to a building, with scant regard for safety norms, can't be something you can't live without.

This lack of a civic sense reflects in the way people behave politically. If we see nothing wrong in fiddling with the electricity meter to draw more power than we are entitled to, we won't find anything wrong in what politicians are doing all the time-hijacking public resources/facilities for private use.

Till such time as this attitude changes, the prospects of cleaner politics is bleak. To change the quality of public life, let's start by voting in people who will not help us dodge the existing system but instead, work at framing a new system that we won't need to bribe our way through or circumvent.

Monday, 23 January 2006

'Pull people out of farms and into factories'

Sunday, January 22, 2006 19:34 IST

As finance minister P Chidambaram hunts for money to finance the government's huge expenditure commitments for programmes to help the poor, London School of Economics professor Lord Meghnad Desai lashes out at the view that only the state can help the poor. In this interview with Seetha, Lord Desai argues that the best way of ending poverty is to pull people out of farms and into factories.

There is this feeling that the market won't deliver in areas like health and education and the state should step in. But isn't it the market that is providing these services to the poor and more efficiently than the State?

That question hasn't opened up in India as much as it should have. It is true that most people have to resort to the market for health care. That is the best thing available at the price they are paying. There is an equally severe critique of the state in primary education. Many poor people prefer to spend on sending their children to private schools than government ones because they cannot afford to have their children not be equipped to be better off.

We need to study why people need to do this and what is the household behaviour on health care and education. If it is true that the market does provide services more efficiently, can the state provide a little bit of money at the margin to improve that instead of setting up an alternative system? Can the state purchase better health care for the agencies in the market? Money transfer is easier.

Why is this view persisting?

Many people of a certain age in India had a very bad experience with the private sector and associate it with cheating and feel it is only for the rich. In the West, an ideological and theoretical battle has been fought and now state provision is seen as more elitist and more regressive than market provision. But in India, the argument of statism is still very powerful. There is a lot of sentimental opposition to the idea that markets and globalisation can help the poor.

Moreover, so many vested interests have been generated in maintaining this peculiarly overburdened structure of laws and regulations that nobody in the political sphere has the courage to say let us dismantle this.

Are you for an absolutely minimal state?

My attack on statism is not a very classical liberal or libertarian position - destroy the state. Or even the neo-classical position that consumer welfare is all that matters.

My impatience is with the fact that the most statist part of our policies up to 1989 failed to dent poverty. The real elimination of poverty has come since we liberalised. But the intellectual hegemony of the Left is so strong that that message is not being allowed to come out clearly. There was a big battle about the percentage of people under the poverty line after the 1999-2000 survey results.

But that obscured the real fact that whatever it was, it was the most dramatic drop in poverty in the history of India. That liberal economic reform got more people out of poverty in this land than anything devised by the Planning Commission or by the state. People say it is because we had this subsidy and that handout. None of that has helped. Accelerating growth from 3.5% to 7% is what helped. But political parties and the media have entered into a conspiracy of silence, of obfuscation about simple facts that the poor can only be got out of poverty by rapid economic growth.

Is growth alone enough?

Well, try growth and see whether it is enough. You don't cure poverty by giving employment guarantee, which is like Elastoplast. The only surefire way to solve rural unemployment is moving people into manufacturing and urban areas. Ensure fantastic growth in manufacturing and get people to get out of farms and get into the factories.

They will live in slums initially and work conditions won't be good but that is the only way to ensure more and better income. We have to take manufacturing expansion very seriously. Focussing on agriculture won't leave anybody better off. It will just sustain them in their existing circumstances.

But isn't it necessary to have a 4% growth in agriculture to get a 9% overall growth?

No. Another remarkable fact of the Indian economy since liberalisation is that the deep connection between agricultural growth and overall growth has been broken. Agriculture growth has been all over the place but has always averaged 2.5%. But overall GDP growth has been climbing up.

The Indian economy has actually liberated itself out of agriculture. The votes may be in agriculture but it is not central to growth and it is not important for poverty alleviation.

Actually because we had this horror of food shortages and rural poverty, we've subsidised farmers, buying grain at high procurement prices. Everyone needs cheap food. Remove procurement prices, food will be cheaper. Of course farmers will complain. Farmers lobby is so powerful. On the one hand you keep the grain prices high for the farmers. And then you keep the food prices low for the poor. In between is a huge subsidy.

We have to see if we are doing the economically rational thing rather than the politically rational thing. We have to see whose money we are spending on whom. Government money cannot be spent like there is no tomorrow. There is a tomorrow and the money will be paid by our children.

Sunday, 22 January 2006

Cut tax burden on the poor: Lord Desai

Thursday, January 19, 2006 21:11 IST]

At a time when the Left is attacking liberalisation as being anti-poor, eminent liberal economist Lord Meghnad Desai argues forcefully for reducing the taxation burden on the poor and pushing it on the rich. In an interview with Seetha, Lord Desai talks about what kind of a budget a liberal economy needs.

What should be the priorities of the Budget?

The most rapid elimination of the revenue and fiscal deficits. A good husbanding of public money and avoidance of deficits is not a reactionary idea.

How is this to be done?

Expenditure has to be cut to the bone. Have a 10-year freeze on public sector recruitment. Any pay commission settlement should only be in the form of indexation of public sector salaries. There should be no upward drift. Then cut some taxes and increase others. I would cut commodity taxes. I am a great believer that whatever taxes fall on the poorer sections should be cut. The poor consume more than what we think they consume. As far as possible on the non-luxury end, cut tax, put it on luxury, on things like capital gains from property transactions.

But isn't that a somewhat socialist solution?

No. Even for a liberal, I don't see why one should tolerate excessive income inequality when it does not contribute to further growth.

I do not buy the Keynesian argument that we need consumption. We're not in a Keynesian situation. It is quite possible to say we don't want to stop anyone from buying anything, but we're going to tax. Especially on capital gains from land and property deals. The United Kingdom has it. There are certain concessions, certain thresholds.

The Left has been talking about tax on five-star hotels, discotheques, malls, inheritance tax etc.

Well, they don't want to cut expenditure. Just put a VAT on all this. Inheritance tax is a separate issue. It will be very complicated in the Indian context because of the Hindu property laws etc. Very often this burden falls on the salaried, who cannot avoid by creating other shelters. Overall, I would like expenditure to be cut, some taxes to be raised and others to be lowered.

If you are in favour of reducing indirect tax, then that would involve raising income tax and corporation tax.

Increase in tax rate does not increase the tax intake. The right approach is to increase the base. This issue of taxing agriculture. The government brings in so many constitution amendments at the drop of a hat, they should bring something to make taxing of agriculture possible. They should be able to tax wealth and capital gains arising from land transactions. A lot of urban income is being disguised as agriculture.

Services are undertaxed. That's another big area. Consumption taxes have to be justified on grounds of equity and contribution to growth. Because the poor don't have certifiable income they pay other tax. I am really very concerned that the very poor buy something, they don't know they are paying tax. Why are we robbing them all the time by making them pay taxes.

We need to examine the incidence of tax by income classes and try and see how we can reduce the burden of tax on the poor. What we need is more compliance and easier implementation. Why not have self reporting. It is done in the United Kingdom. You should trust people. It will work.

What about expenditure?

The government machinery has to cost less. The cabinet is too large. The government should get out as far as possible from productive activities and privatise as much as possible. Instead it should spend on purchasing health and education.

'Growth doesn't trickle down, it pulls up'

Saturday, January 21, 2006 22:14 IST

India's post-1991 development strategy has been criticised by the left for being obsessed with growth and that the trickle down strategy doesn't work. Jagdish Bhagwati, professor of economics and law at Columbia University, has little patience for such criticisms. Bhagwati shines an optimistic spotlight on making India's growth sustainable in the long run. The growth strategy is not about trickle down, he says in this interview with Seetha, it's about pulling people up the economic ladder.

Is the Indian growth story on track and sustainable?

Growth is now more or less on track. That doesn't mean you won't get ups and downs. You can't say it's going to be sustainable over 15-20 years. The internal economic policies are moving in the right direction. Certain changes have been made; others still need to be done, but I'm optimistic. The present government is moving as much as it can in the right direction. This is a coalition with the communists and I'm particularly worried about the socialists inside the system. Everybody thought they were displaced, but they've all come back because of the 2004 elections being misinterpreted as a vote against reforms.

Wasn't it?

It was a vote for reforms. Once people see they can get more, they want to ask for more and they do it politically through the suffrage system. The fact that the incumbent government was pushed out was itself a sign of major changes in the system, that people are not going to sit around and relying on some exogenous, paternalistic events doing things for them. The demand for reforms from the poor, everybody, will continue. I don't see any reversals taking place. It's just a matter of adding to reforms than subtracting from them.

So, the effects of growth will trickle down with the right kind of reforms?

It is wrong to look at this particular growth strategy as a 'trickle down' strategy. That only the big fat guys grow and somehow when they're eating at the banquet, some crumbs will fall down to the poor and people who are not part of the growth process. That suggests it is a very conservative, neglectful-of-the-poor kind of strategy.

I prefer to call it an activist, pull-up strategy. When you have growth, it pulls up people. You go out on the streets and there is so much activity everywhere. That is good. And who is coming there, working in all those stalls and service sectors? It is the poor. You and I don't go there. They get possibilities. It translates into their income and that's what you're getting in the statistics.

But the fact that growth works doesn't mean that you can't argue for the other things that you believe. In my view, you need supplementary measures to draw more people into employment.

But how do you ensure that they don't become paternalistic and how will the kind you want be different from the present ones?

Some element of paternalism is inevitable. Take the employment guarantee scheme. We know from the experience of Maharashtra that muster rolls can be captured.

That's because employment is both input and output. It can be easily cheated upon, despite the panchayati raj. Focus on infrastructure. If you are building roads, you have the possibility of monitoring something. A road has to be built. We will have to keep experimenting. The experience will be different across different states.

There are a variety of things we can do. Like adjustment assistance programmes if poor people are going to be thrown out of employment because of restructuring. And they work reasonably well

....but there is also a lot of corruption.

Ultimately everything is subject to corruption. Politicians get into politics for altruistic reasons but because of the patronage which always goes with it, they will do something wrong.

We had a relatively high integrity system in the 1950s. But with this licence raj and so on, we created so many opportunities for wrong policies that now it's hard to reverse it.

But you shouldn't just put up your hands and say nothing is possible. You have to keep trying. Now you have panchayati raj, which is a little better than before. We can think of other monitoring mechanisms. We have the press, the non-government organisations, public interest litigations. You have more checks and balances now than 30 years ago.

Should government spending be focussed on the social sector?

We always wanted spending on the social sector. Look up the first and second Plans. We just didn't have money to spend on it. That we've neglected social sector spending is a fact of life.

Isn't it getting more neglected post-liberalisation?

On the contrary. The constraint on being able to spend was always money, not the fact that some people were wilfully neglectful.

You have to think of the direct impact of pulling people into gainful employment and then the indirect impact because you then earn the revenues that you can then spend on social sector. For that we need the reforms. You have to build up your economic strength and success.

End poverty? Growth alone can do it


Wednesday, January 18, 2006 21:14 IST


MUMBAI: Taking on the critics of a growth-centred development strategy, eminent liberal economist Jagdish Bhagwati reiterated that growth is the only way to end - or at least reduce - poverty.

At the same time the professor of economics and law at Columbia University, acknowledged that supplementary policies are also needed to ensure that the laggards also move forward. He was delivering the Sukhamoy Chakravarty Memorial lecture on "India's development strategy: which way out," jointly organised by the Sukhamoy Chakravarty Foundation and the Indian Council for Research in International Economic Relations.

Another liberal economist, Lord Meghnad Desai, speaking at a different forum - the sixth editor's conference on social sector issues - hit out at the idea that only the state can provide protection against the market. A lot of this is based on aggrandisement by whichever group has captured power, he said.

"The bulk of India's workers live in the free market. They have no protection and submit themselves to market forces every morning."

While admitting the need for supplementary policies, Bhagwati wasn't about to concede any ideological points to the socialist economists.

Refuting the criticism that the strategy of obsession with growth didn't care for the poor, he argued that no one was pushing for growth as a target or objective.

Economists were always treating it as a way to achieve the other objective - to remove poverty. "It is very insensitive not to have it as an objective," he said. If poverty didn't get reduced, it was because there was no growth for decades and not because growth was seen as a target.

"Growth strategy is the clear instrument of doing the job," Bhagwati said. He strongly defended liberal economics against criticism that it was elitist and did not care for the poor. The fact that additional variables and policy instruments were needed were always understood, he said.

He also took on the charge that social sector spending had been neglected. The first two plans, he pointed out, were full of proposals to increase spending on health and education. If spending got neglected, it was because there was no money.

He made light of the suggestion that governments should spend less on defence. "Everybody says they can spend less on defence, but they don't." There will always be a security issue that comes up which will make out a case for increasing - or at least not reducing - defence spending.

Desai, for his part, felt the state could only be an enabler. "We have to see the human development budget as removing constraints on families," he said. "Whatever development happens, happens because of the way households spend. Development will not fall from the sky. It is not a function of capital-output ratio."

He was also impatient with the criticism that rural distress had increased because of liberalisation and globalisation of the Indian economy. "Rural distress is not a new or a purely Indian phenomenon. It is necessary to understand whether such behaviour is specific to certain areas or crops." He was also not sure if changes in interest rates could address the problem.