'Pull people out of farms and into factories'

Sunday, January 22, 2006 19:34 IST
http://www.dnaindia.com/report.asp?NewsID=1009024&CatID=4

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.