Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
0Activity
0 of .
Results for:
No results containing your search query
P. 1
Partial View of Outcome of Reforms and Gujarat Model

Partial View of Outcome of Reforms and Gujarat Model

Ratings: (0)|Views: 3 |Likes:
Published by jrpethe1949

More info:

Published by: jrpethe1949 on Feb 08, 2014
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

02/08/2014

pdf

text

original

 
october 26, 2013 vol xlviii no 43
EPW
 
Economic & Political
 Weekly
26
book reviews
Partial View of Outcome of Reforms and Gujarat ‘Model
Indira Hirway
India’s Tryst with Destiny: Debunking Myths that Undermine Progress and Addressing New Challenges
by Jagdish Bhagwati and Arvind Panagariya
(Noida: HarperCollins India), 2012;  pp 285, Rs 599.
J
agdish Bhagwati and Arvind Pana-gariya have written extensively on the economics of India in recent decades. Yet they have written this book because, according to them, at this stage of political and economic development in India there is a need to have a com-prehensive look at the accomplishments and failures of the economy. There is also a need “to refute unwarranted and unsupported populist myths prevailing about the economy”, and to understand and address the next set of challenges so as to move ahead with faster and more inclusive growth. The authors observe that the Nehru- vian economic policies in the early days of planning in the 1950
s
 followed the goals mentioned in Jawaharlal Nehru’s famous “Tryst with Destiny” speech. However, since the mid-1960
s
, under the leadership of Indira Gandhi, Indian policymakers shifted to socialism with-out any real convictions and created an environment of controls and populist poverty alleviation programmes, which neither delivered growth nor poverty reduction. Since the mid-1980
s
 and parti-cularly after 1991 the Indian economy has taken a turn for the better. The past two decades of reforms have raised growth and contributed to poverty re-duction. There is a temporary decline and a kind of policy paralysis at present; however, there is a need to move ahead  with the reforms to achieve faster and inclusive growth. To move to the right path there is a need to refute some unfounded myths, which are basically about the economic policies in India till the mid-1960
s
. There are also miscon-ceptions regarding the achievements of economic reforms, mainly in terms of pov-erty reduction, improvements in health and education, the prevailing inequali-ties in the economy, the conditionality imposed on India by the International Monetary Fund-World Bank (
IMF
-
WB
); and linking corruption, suicides, and the like to reforms. Part 1 of the book is devoted to refuting these myths.
No ‘Gilded Age’
The authors believe that the reforms have raised the rate of growth in the economy; reduced the incidence of pov-erty significantly, also of the scheduled castes (
SC
s
), scheduled tribes (
ST
s
) and Other Backward Classes (
OBC
s
); and have opened up the economy for the better. The reforms have not led to higher in equalities, in the sense that though better-off states have done better, the other states are also now picking up; and there is no clear conclusive evidence regarding rising inequalities within the states. The authors believe that India has definitely not reached the “Gilded Age” of the 19th century United States in the sense that there is no crony capitalism in India; Indian tycoons cannot crush labour/strikes, as Indian democracy has given  votes to labour; pro-poor programmes are implemented on a large scale; there are competitive markets; and corporate social responsibility (
CSR 
)/personal social responsibility (
PSR 
) in India will not permit the extreme conditions of a Gilded  Age. In health and education, they argue that since India started from low levels, one should see only the changes, and these changes show that India is not an underachiever. The malnutrition in India is exaggerated in the data. And finally, the authors debunk two more myths: (1) about the success of Kerala model and (2) about poor achievements in health and education in Gujarat despite its high economic growth. One would agree with some of the  views expressed in Part 1 of the book – there was definitely a need to move away from the “licence Raj”. Also, the eco-nomic reforms
have
 helped raise the rate of growth in the economy; have reduced the incidence of poverty faster (though the
SC
s
,
ST
s
 and
OBC
s
 are still getting marginalised); and some (though small) improvements have been made in health and education. However, the agreement ends here. This is, first, because these achievements are far from adequate for two decades of reforms and this raises a question about the validity of the growth model in terms of achievement of deve-lopment goals; and, second, because the debunking of the myths by the authors does not seem to have adequate empirical support. In spite of the reforms, poverty levels are high,
1
 the achievements in hu-man development are poor,
2
 the increase in employment and the quality of employ-ment is far from satisfactory, and inequa-lities in incomes are rising
3
 (Shukla 2011).
Praise for Gujarat
 Also, there is no adequate empirical sup-port to say that India does not have crony capitalism and that power of labour and democratic forces protect the interests of labour and the poor. Take the example of Gujarat (its growth model is praised sky high by the authors). There is enough evidence to show that the state govern-ment has gone overboard in providing incentives and subsidies to corporate investments (Hirway, Shah and Sharma 2013). For example, sales tax subsidies to medium and large industries during 1999-2000 and 2006-07 constituted 72% of the total sales tax revenue of the state government and the total subsidies (including capital subsidy and interest subsidy) have been more than 10 times the total subsidies given by the state to agriculture and allied activities and to food and civil supply (ibid). In other  words, the state spent 10 times more to
 
BOOK REVIEW
Economic & Political
 Weekly
 
EPW
 october 26, 2013 vol xlviii no 43
27
attract investments in industry and in-frastructure than to help the poor in agriculture and allied activities and food subsidies (ibid). To say that the voices and votes of labour will enable them to protect their interests is surprising when trade unions are declining and labour is fast losing its power under the process of informali-sation. The trust that the authors show in
CSR 
 /
PSR 
 is amazing when the funds spent under them are negligible. And the faith in competitive markets does not have any empirical support when crony capitalism is thriving in the country. We believe that being away from India the authors are perhaps not aware of the ground realities.
Gujarat Model Shortcomings
Finally, about the Gujarat model. Its achievements in health and education despite its high economic growth are far from satisfactory. With a high dropout rate in schools,
deteriorating
quality of primary education in the last decade, and declining rank in literacy from four in 2001 to nine in 2011 among the 20 ma- jor states, the performance of Gujarat in education is anything but respectable.  Again, with slow decline (slower than most states) in infant and maternal mor-tality rates, as well as slow progress in immunisation of children, poor availa-bility of potable drinking water and safe sanitation
4
 (Census of Population 2011), the performance in health is definitely much less than respectable. The latest data from the Reserve Bank of India (
RBI
) support this, with per capita expendi-ture on health, education, and social sectors in the last decade one of the low-est in the state, and the state’s rank de-clining to the bottom among the major 20 states. The expenditure on incentives to corporates has clearly left much less money for the social sector. There is no doubt that Gujarat has achieved a high growth rate, above 10% per year, in the period of economic re-forms, particularly in the last decade. Even agriculture has grown at a much higher rate (6%) per year against 2-3% in India. However, this growth has serious problems. To start with, in spite of diver-sification of the sources of state domestic product (
SDP
), there has been no signifi-cant structural change in employment. Though the primary sector contributes 14% to the
SDP
, it houses 55% of the population. This indicates highly capital-intensive growth in the non- primary sectors that has failed to create employ-ment opportunities for a structural shift. Since the officially committed goal of in-dustrial development in the state is to be “the fastest growing state in the world”,
5
 the growth has created a dualism in the economy, with a small modern sector enjoying the lion’s share of growth and the remaining sectors lagging in tech-nology, productivity, and incomes.  An important exclusion from the dis-cussion on the Gujarat model as well as from the policy framework supported by the authors is of natural resources or natural capital, which is now recognised as a factor of production and an important component of total capital stock in an economy. The authors neglect the massive depletion and degradation of natural resources, which have affected adversely the livelihoods of people, particularly the marginalised sections in Gujarat. This depletion and degradation in Gujarat in the last decades (Viswanathan and Pathak 2013) is leading the state towards non-sustainable development.
Track-1 Reforms
Given the much less than satisfactory achievement in developmental goals, the relevant question is whether the eco-nomic reforms will lead to significant achievements, such as eradication of poverty among all socio-economic gro ups, educational achievements for all, health for all, productive employment for all, and equitable and sustainable development of the economy. Are the reforms capable of reaching the development goals set out in the tryst with destiny? Or are there any flaws or leakages that will obstruct the achievements?Part 2 of the book argues that if the reforms continue further (that is, Track-1 reforms), they will address these ques-tions effectively. These reforms primarily include reforms in labour laws to promote labour-intensive growth; refo rms in labour and land markets; reforms to promote infrastructure for growth; and reforms in health and education. One tends to agree with the authors that so far growth of employment has been much lower than what is required and economic growth has been highly capital-intensive and skilled labour- intensive. Labour is concentrated in the primary sector and in the small sector, which is relatively low skilled and inefficient. One cannot agree, however, about the causes for this state of affairs. According to the authors, the root cause is the labour laws in India. Though the govern-ment has made many reforms, such as removing licensing, reducing trade pro-tection, opening up to new technology, and removal of reservation of goods/services for the small sector, it has done almost nothing in labour reforms. There are too many laws, frequently conflict-ing with each other. Even when not implemented well, they are the burden of producers. Several laws such as the Trade Union Act 1926, the Factories Act 1948 and the Acts related to provident fund, gratuity, and other social protection encourage producers to remain small. The worst law is the Industrial Disputes  Act 1947, and particularly Chapter
 V
 
B
 of the Act, that does not allow flexibility in hiring and firing workers if the units have 100 or more workers. These laws have encouraged producers to remain small on the one hand and use less labour in large units on the other. The authors have suggested amending the Industrial Disputes Act to provide easy labour flexibility and easy exit for firms.
Partial View on Labour
We believe that the diagnosis of the problem as well as the solution sugge sted by the authors is partial. One major reason for large units using capital- intensive technology is that capital is made cheap through large incentives offered to them by governments. Our study on incentives and subsidies to industries in Gujarat (Hirway, Shah and Sharma 2013) shows that the officially accepted goal of indus-trial development in Gujarat is to promote state-of-the-art global technologies (highly capital- intensive) in the state. The rates of incen tives and subsidies increase  with the size of the units.
6
 In addition,
 
BOOK REVIEW
october 26, 2013 vol xlviii no 43
EPW
 
Economic & Political
 Weekly
28
the definition of capital has expanded considerably for the purpose of giving capital subsidies, and conditions regard-ing location and employment have been  watered down to promote growth of capital- intensive industries.
7
 According to our analysis of the official data, these incentives add up to 40% of the total public expenditure while incentives to small and medium units constitute a mere 2.27% of the total incentives given to industries (ibid). Though there are high subsidies on capital, land and water, there are no subsidies on labour or on employment. This is nothing but crony capitalism where allocation of resources is determined by incentives and subsidies and not by competitive market forces. A consequence is that small industries,  which are labour-intensive, do not get a level playing field in the economy. Though one agrees that labour laws need to be streamlined, this should happen only when workers are protected against their vulnerability. It appears to us that the authors have paid attention only to the interests of producers. It is equally important to recommend a minimum package of social security (at least in the thriving export industries to start with) along with a flexible labour market. There is no reference to this aspect at all.Land market reforms are badly needed to facilitate changes in the present land use pattern to help economic gro  wth. However, two points are missing in the discussion: First, land has limited supply but multiple uses. It is necessary for the government to formulate a land use policy keeping in mind the long-term needs of the economy for agriculture, for human settlement, for infrastructure, for industries, and for environmental sustainability. However, in the absence of a well-designed land use policy, land is allotted on the basis of bargaining power and political pressures exerted by different users. Second, in the absence of structural changes in the employment structure, the farming population has limited scope to enter the modern non-primary sectors. It is not only unfair but also criminal to allow private corporate units to grab farmland from farmers. In short, the land market, which is im-perfect and has been distorted further in recent years, needs reforms to incorpo-rate the above points also. The analysis of the authors shows poor knowledge of the prevailing realities.
Making Redistribution More Effective
There is no doubt that redistribution has an important role in promoting inclusive growth and reducing poverty. However, it can work only if the growth pro cess is compatible with it. If inclusion is not embedded in the first phase thro ugh labour-intensive growth process, re-distribution will have only a limited role to play later. Under Track-2 reforms, the authors make careful suggestions for raising the effectiveness of redistribution strategy and programmes. They discuss (1) cash transfer vs wage employment strategies, (2) improving adult nutrition and food security, (3) promoting health and education. They recommend cash trans-fers – mostly unconditional except for  vouchers for education and insurance for illness – instead of wage employment programmes. They argue that this will reduce leakages, give freedom to people to use their purchasing power according to their priority, and will also leave their labour with them to use it the  way they want. The authors cite strong reasons to discard the Mahatma Gandhi National Rural Employment Guarantee  Act (
MGNREGA
) as (1) there are huge leak-ages and corruption under it, (2) workers have limited choice to choose their assets/ activities, (3) high wage rates lead to a premature shift to capital-intensive tech-nologies, and (4) the labour on
MGNREGA
 is usually wasted. We agree that cash transfers are im-portant in many cases, but substituting
MGNREGA
 with cash transfer will not be desirable. The economic logic of this programme is to use surplus labour for capital formation to expand the labour-absorbing capacity of the mainstream economy. When this is planned well, it can contribute significantly to economic growth in all sectors. It can also promote labour-intensive sectors in the economy in the next round. Also,
MGNREGA
 is expected to empower the poor, the local bodies, and decentralise democracy. With the new flexibilities introduced in the programme under
MGNREGA
 
II
, people have ample room to select the work. Instead of focusing on cases of corrup-tion, the authors should also have looked at some success stories of
MGNREGA
.
 Adult Nutrition and Food Security
The authors have correctly made a clear distinction between undernutrition of the poor and of the non-poor and recom-mended the end of “ill-informed decision making”. Clearly declining calorie con-sumption is not necessarily an indicator of malnutrition. A different strategy is required for reduction of malnutrition of the non-poor. However, it is also important to address the malnutrition of the people at the bottom. Apart from the public dis-tribution system (
PDS
) and implementa-tion of the National Food Security Act (
NFSA
), the other aspects of this problem are lack of potable water, poor sanita-tion and low public hygiene. The suggestion of replacing the
PDS
  with cash transfers is not likely to work, primarily because the supply of essential goods is limited and cash transfers will push up prices considerably, resulting in their low consumption by the poor. The
NFSA
 is also needed, as cash transfers cannot substitute for it. However, its implementation is a challenge. The suggestion of reducing subsidies is well taken. But this reduction should start from subsidies to the corporate sector; subsidies on power, on diesel and on gas; and subsidies on a number of other commodities consumed by the middle class in the country. Also, subsidies for poor should be removed only if the market is able to deliver these goods to them at affordable prices.
Other Issues
It appears that the authors have over-looked certain aspects related to growth and development. First, they seem to take a very partial view of economic development. They have paid attention to the interests of producers, but negle cted the interests of labour. They have rec-ommended streamlining labour laws and a flexible labour market, but not recommended any steps to address the  vulnerability of unprotected workers.

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->