The Telegraph
Since 1st March, 1999
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- Confusing the means with the end is a serious matter

At this time of the year, all eyes focus on the budget, even though, with reforms, a budget should lose all its complexity and become completely transparent. No doubt deliberately, a few days before the Central budget, the Indian Liberal Group’s “Liberal Budget” has surfaced under ILG’s Project for Economic Education. The introduction states, “There was a change of government at the Centre, just as we were putting finishing touches to the Liberal Budget. Under the new dispensation, the new coalition government calling itself the United Progressive Alliance or UPA has unveiled its Common Minimum Programme or CMP. We no doubt appreciate the emphasis on the ‘human face’ in the proposed development strategy, but we are concerned with the contrary and ambivalent signals being sent in the approaches to disinvestments/privatization, labour reforms, subsidies, budgetary management, and foreign investment. We would like to assert that the Liberal Budget is much stronger in its emphasis on a ‘human face’ without diluting the essence of the liberal economic reforms.”

Jagdish Bhagwati has just published a book titled, In Defense of Globalization. As the name implies, this book has nothing to do with budgets. Not directly. However, here is Bhagwati on globalization. “I argue that the notion that globalization needs a human face — a staple of popular rhetoric that has become a dangerous cliché — is wrong. It raises a false alarm. Globalization has a human face, but we can make that face yet more agreeable.” What is true of globalization is equally true of liberalization or reforms.

How does one make liberalization’s human face more agreeable' The Liberal Budget has the following nine-point agenda of objectives. (1) Reduction of the poverty ratio by 5 percentage points by 2007 and by 15 percentage points by 2012 (2) All children in school by 2005; all children to complete five years of schooling by 2009 (3) Increase in the literacy rate to 75 per cent by 2007 (4) Reduction of infant mortality rate to 45 per 1,000 live births by 2007 and 28 by 2012 (5) Reduction in maternal mortality ratio to 2 per 1,000 live births by 2007 and to 1 by 2012 (6) Improve infant and child feeding and caring practices to bring down the prevalence of underweight children under three years from 47 per cent to 40 per cent (7) Reduce the prevalence of severe under-nutrition in children in the 0-6 years age group by 50 per cent (8) Provide 100 per cent coverage of rural and urban population with safe drinking water (9) Provide cost-effective means of safe and sanitary disposal of solid waste and waste water.

You immediately notice a difference in approach between something like the Liberal Budget and something like the CMP. The CMP’s targets are expressed through increases in expenditure. “The UPA government pledges to raise public spending in education to least 6 per cent of GDP with at least half this amount being spent on primary and secondary sectors.” Or, “The UPA government will raise public spending on health to at least 2-3 per cent of GDP over the next five years with focus on primary health care.” This is, of course, standard government methodology, using expenditure as a yardstick for success and the CMP follows suit, thereby confusing the means with the end. Actually, this is a pretty serious confusion, because means do not lead to the end. Channeling expenditure through the government, delivery mechanisms being what they are, does not necessarily lead to an improvement in outcomes. Targets that specify tangible improvements in outcomes, as in the Liberal Budget, are so much better. Those are the ends.

Often, people interpret liberalism as a diminished or eliminated role for the state, an abdication. That’s not what this Liberal Budget is about. “What then is this equitable society' It is not to be confused with the egalitarian ideal propounded by socialists. An equitable society is a just and fair society — a society where the state provides opportunities for growth. All human beings are not born equal if economic and social circumstances are the only criteria. It is the task of a Liberal State to provide them opportunities for growth irrespective of their caste, creed or status — economic or social. The State is the enabler, providing the required social and physical infrastructure. These include basic primary education, primary health care, easy availability of safe drinking water or water for irrigation; decent roads for easy connectivity; speedy justice and the maintenance of law and order. In an equitable society the individual matters. The Liberals seek growth with equity. The Liberal Budget is an instrument to make that happen.” Do you find any conflict between this and the goals of something like the CMP' I don’t. Recently, the prime minister delivered a speech to the nation in which he spoke about efficiency and equity being complimentary (sic). I am sure he meant complementary. Assuming he meant complementary, do you find any conflict between that goal and what the Liberal Budget says' I don’t.

Unfortunately, that confusion between means and the end gets in the way. If you think about success measured through expenditure increases, without questioning the efficiency of expenditure, you get into the box of trying to figure out where the revenue is going to come from. Therefore, in the CMP, “The UPA government will introduce a cess on all central taxes to finance the commitment to universalize access to quality basic education. A National Commission on Education will be set up to allocate resources and monitor programmes.” This is the much-debated cess for education, perhaps inevitable in the forthcoming budget, and not content with the Planning Commission, the UPA has already set up, or promised, several more commissions. Other than the planks of acceleration of growth and promotion of equity, the Liberal Budget bases itself on three other planks — effective fiscal governance, fiscal consolidation and stabilization and efficiency and productivity. If one follows through with these, resources are not an issue.

Here is the Liberal Budget on education. “Elementary education can be considered a ‘merit good’ since the social benefit from its acquisition exceeds its private benefit. Public financing of elementary education is, therefore, necessary. As of January 2003, there were 238 million children in the 6-14 age group who were not in school and there will be additions to these numbers in the future. The cost of ensuring that all these children are enrolled in and attend school by 2010 has been estimated at Rs 98,000 crore. According to official documents, the private unaided sector accounts for 15 per cent of coverage, which will amount to nearly Rs 15,000 crore. This will mean that an investment of Rs 83,300 crore will be required. The expenditure incurred by diverse ministries like social justice and empowerment, labour, tribal welfare and the department of women and child welfare on education of groups they target under various schemes account for between 10 and 15 per cent of the total investment by the Department of Elementary Education. This duplication of effort is a waste of scarce resources. Therefore, if these schemes were brought under the aegis of the Department of Elementary Education, that would provide substantial additional resources. Higher education is best left to private initiative. While taking the responsibility of funding — and not necessarily providing — elementary education, the Liberal State will not in any way block or impede private initiative in this field. Methods of making the delivery of educational subsidies more efficient will be explored.”

Thus, read the Liberal Budget to figure out what might have been. What will happen is different. There will be a cess and Rs 2,500 crore will be channelled through the human resource development ministry, with half being spent on higher education. And the state of elementary education will justify a higher cess later.

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