The Telegraph
Since 1st March, 1999
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- Full of reform buffs, the government is unlikely to address inequality

Who is afraid of the common minimum programme' Certainly not the Washington Consensus put together by the World Bank and the International Monetary Fund. For it, the personalities crammed in the package of prime minister-finance minister-deputy chairman of the Planning Commission constitute a dream team. For pushing ahead with economic “reforms”, the three gentlemen have impeccable credentials. They have not lost any time to disclose these credentials. The wellbeing of the financial market, they have gone on record, will receive their highest priority. Privatization and disinvestment will continue; minor irritants will be ignored. The nonsense of subsidy for the poor will be dispensed with, but not subsidy for the rich, the principle of which is mirrored so dazzlingly by the Central Electricity Act, 2003. While the new government is deeply worried over the increase of the “food subsidy burden”, the CMP’s anxiety to “unleash the creative energies of our entrepreneurs” is a one hundred per cent echo of July 1991.

So what, some will say; has not the CMP pledged that the reforms henceforth will bear a “human face”' One or two chief ministers with alleged links to the left are bowled over. It would be sheer cruelty to inform them that the expression “development with a human face” is a patent owned by the World Bank. Thirty years ago, it had come out with a publication, Redistribution With Growth, a pristine example, if there was one, of pretended self-flagellation: so sorry, the measures we recommended had caused regrettable inequalities here and there; the bank would now make amends. Since then, the World Bank and its sister institutions have continued to discover poverty in this far-flung world; their poverty-enhancing measures, otherwise known as economic reforms, have not been under any restraint either.

The new government, overfull with reforms buffs has, in World Bank-esque contrition, admitted that reforms till now have aggravated social and economic inequalities in the country. It has promised, again a la Fund-Bank, to do something about it.To begin with, it has decided to address the problem of rural poverty by doubling bank credit to the agricultural sector in the course of the next three years.

Whom are these gentlemen fooling' Doubling farm credit will not necessarily reduce poverty; it could actually increase landlessness and rural misery. Rich farmers might avail of the additional credit to buy up smallholders, who would be thrown to the wolves. Some obvious measures, essential for stemming further immiserization in the countryside, should have been, but are not, listed in the CMP. These are, for instance, (a) increasing several-fold public investment in agriculture, including in irrigation, land reforms and rural infrastructures; (b) invoking Article 18B of the World Trade Organization treaty and asserting the nation’s right to enforce quantitative and other restrictions on agricultural imports; (c) giving directives, through the instrumentalities of the Finance and Planning Commissions, for wide-ranging land reforms; and (d) ensuring supply of power, fertilizer and seeds to small farmers and sharecroppers at subsidized rates. But, then, such suggestions are likely to scandalize the “reformers”.

The budget is round the corner. There is though hardly any mention in the CMP of the sombre truth that, in order to re-situate India on the growth path and, at the same time, generate adequate employment in the system, public investment, not just in agriculture but in industry and infrastructure too, must go up several times. The Bank-Fund obsession with fiscal deficit will, however, frown at any talk of augmented public expenditure, and the new government, for dear life, has to be on the right side of the Washington institutions.

Attaining the target of an 8 per cent annual rate of growth in gross domestic product is a cliché everybody loves to iterate and reiterate. The CMP is no exception. Few however seem to be interested in analysing the morphology of such a rate of growth. At the theoretical level, an 8 per cent growth for the economy as a whole is conceivable, even with zero growth in both agriculture and industry, in case, the services sector grows, say, at the rate of 16 per cent. As the experience of the past decade-and-a-half reveals, a spurt of growth in the services sector might however lead not to an increase, but a net diminution, in employment. A pattern of growth which concentrates exclusively on overall GDP growth, but does not care where or how it takes place, could render uneven the distribution of national income and assets even further; it will, alas, have no worthwhile “human face” about it.

The 2004 electoral verdict has been against communalizing the polity and against mindless economic reforms which do not advance, but in effect reduce, overall social welfare. The verdict has yet another dimension: it has cut down to size the two major national parties. The emerging trend is glaringly clear: the regional parties are increasingly coming to the fore. In several states, the national parties have in fact obtained the relatively large number of seats they have because of the munificence of this or that regional party. Whether lotus-eaters in New Delhi realize it or not, the nation is moving towards a federal polity.

In the light of this development, it should have been one of the primary tasks of the CMP to lay out a blueprint for a thoroughgoing re-structuring of Centre-state relations, including a probe into the reasons why the recommendations of the Sarkaria Commission, made nearly two decades ago, have remained a dead letter. No concrete measures to correct the existing imbalances, including fiscal imbalances, between the Centre and the states are proposed by the CMP. Instead, it talks of yet another commission, the best possible device to bury the problem.

Etching the economic contours of a federal republic is not part of its agenda; on the contrary, the CMP plunges in the reverse direction. It has pledged the speedy introduction of a uniform value added tax for the entire country. There is seemingly little awareness that the VAT as proposed is a substitution, lock, stock and barrel, of sales taxation, the principal revenue-raising source of the state governments. Despite their current precarious financial position, the states are being asked to surrender their major revenue-raising instrument and thereby become totally dependent on the Centre’s mercy. This process of throttling the sales tax system is by no means going to be an afternoon’s picnic. The subterfuge of moving an amendment to the existing sales tax legislation in the state assemblies will not do; the VAT is not just another version of the sales tax, it is a totally different kind of animal. To effect the crossover, an amendment to the Constitution would be called for. Kesavanand Bharati too could cast its shadow; questions might be raised over the legality if a constitutional amendment disturbs the basic structure of the Constitution.

Such issues will not go away. The new government will perhaps proceed nonchalantly despite objections raised by its constituents or others on this or that matter. It could proceed nonchalantly since the left have already made the commitment, come hell or high water, they will see to it that the regime lasts for five years. In that situation, whatever the government does, the left could only watch helplessly from the sidelines.

Who knows, the new government has presumably finetuned an arrangement for division of spoils. While the economic ministries will play to the tune of the mentors in Washington DC, the ministry of human resource development will throw freebies of secularism toward the direction of the radical crowd at home.

There will be, now and then, also some perfunctory talk of raising public expenditure on education and health to 6 per cent and 3 per cent of the GDP respectively. The government, as earnest of its anxiety to project a “human face”, will agree in principle. Difficulties will however immediately rear their head: health and education are important, but defence and security compulsions cannot be wished away either. The left will be frozen by fear: the human face would be persuaded to hide itself for the present.

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