The Telegraph
Since 1st March, 1999
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- How its rural economy is making India fall behind development goals


What is the difference between animals and humans' Had you asked George Orwell, the answer might have been ' none at all. But there are differences between animals and humans. Some flow out of the use of language. As a consequence of language, humans can and do trade. Animals don't trade and exchange. As Adam Smith, David Ricardo and several others have taught us, trade and exchange allow us to benefit from specialization and obtain welfare gains. However, trade and exchange require the existence of institutions like markets. That is where buyers and sellers come together.

Any textbook on the Indian economy will tell us that India is a developing country. And as an illustration of what it means to be a developing country, we are told that two-thirds of the population live in the rural sector. (The Census 2001 figure is 72 per cent.) As if, living in rural areas is a negative. If 25 per cent of the population live in rural areas, as happens in some developed countries, we aren't normative about that. The reason is obvious. Unlike developed countries, 'rural' in India means a complete absence of physical infrastructure (electricity, roads) and social infrastructure (schools, healthcare, sanitation, sewage treatment, drinking water). If India is falling behind on the target of attaining the Millennium Development Goals, set for 2015, that is largely because of certain geographical areas. And within those geographical areas, largely because of the rural areas.

Rural areas are deprived not only of physical and social infrastructure, but also of access to markets. That prevents the exploitation of comparative advantage and specialization. Seventy two per cent of the population live in 638,000 villages, of which not more than 125,000 are integrated into the rest of the economy. Certainly, urbanization increases over time. In every country, there is a technical definition of a town and a village (or habitation), substantially (but not always) based on the number of inhabitants. Over a period of time, villages thus become towns because of reclassification. Some former villages are taken over by towns. Rural to urban migration, reinforced by subsidies in urban areas and lack of employment opportunities in rural areas, makes some villages disappear. But all said and done, even in 2050, the urbanization rate in India will not be more than around 40 per cent, and 60 per cent of the population will still live in rural areas.

The problem of integrating around 400,000 villages into the mainstream will still remain. One should not forget that the rural sector is high on the priority list of the present government, within the National Common Minimum Programme and outside it.

The 58th round of the National Sample Survey, for the period July-December 2002, is revealing because, based on this survey, one has a report on facilities available to India's villages. These facilities are divided into five heads ' administrative centres, proximity to the rest of the economy, physical and social infrastructure, government support programmes and private initiatives. Despite 57 years having passed after independence, the facilities available are pretty bad. Among larger states, these facilities are especially bad in Jammu and Kashmir, Uttaranchal, Assam, Bihar, Orissa and Jharkhand. Among smaller states, these facilities are bad in Meghalaya, Mizoram and Arunachal Pradesh.

Private sector initiatives are measured by the incidence of self-help groups and cooperatives. Subject to that, what is noticeable is the following. Where public delivery is bad, private initiatives are also non-existent. There is a correlation. In the absence of better public delivery, required as a catalyst and trigger, it is unreasonable to expect that private sector initiatives will step in as a substitute. The responsibility for core physical and social sector infrastructure development will have to be public.

There is a great deal of euphoria now about clusters. Clusters have obvious advantages of economies of scale and positive externalities. If rural business hubs develop and there are spokes that feed into these hubs, that will certainly result in rural prosperity. By clusters, one means all kinds of things. Some are relatively modern industry clusters, small-scale in nature, but occasionally performing ancillary functions. Others are rural and artisan clusters. There are also the agro-export processing zones. Finally, there is the new programme of the provision of urban amenities in rural areas (PURA), envisioning the development of 826 clusters in 593 districts. Development means roads, power, telecom, markets, education and water.

Road development is the most important. If there is road connectivity, everything else will follow. Perhaps one can even mention the proposed employment guarantee act, which can be used for developing public goods (like roads) in rural areas. This employment guarantee legislation has an employment component and an unemployment insurance component. For the employment part (not the insurance part), the intention seems to be to provide public employment. For a country like India, with a 400 million workforce and a public sector workforce of 20 million, the answer does not lie in public sector employment. It lies in private sector employment, and in self-employment. According to the NSS, 56 per cent of the Indian workforce reports itself as self-employed. This is higher than in many countries of the world. According to an estimate done by the London Business School a few years ago, India ranks higher than many developed countries on an entrepreneurial index. Entrepreneurship, self-employment and private sector employment are the key ' not public sector employment.

If clusters and rural business hubs work, this employment and prosperity will be ensured. Clusters identified by the United Nations Industry Development Organization, the Khadi and Village Industries Commission, the Small Industries Development Bank of India, the National Bank for Agriculture and Rural Development and the development commissioner of small-scale industries, are indeed useful. But the more important question is, how and why do these clusters develop' For instance, would Ludhiana have become a centre for woollen garments and cycles had there not been a British cantonment there'

In a more serious vein, there has been no dearth of government initiatives earlier. During the first five-year plan, we had the rural industrial estate programme and the village artisan-oriented programme. During the second five-year plan, we had the common production programme and the pilot project programme. During the third five-year plan, we had the rural industries project programme. During the fourth five-year plan, we had the rural artisan programme. During the fifth five-year plan, we had the district industries centre programme and the backward area scheme. During the sixth five-year plan, we had the growth centre programme. During the eighth five-year plan, we had the integrated infrastructural development scheme. During the ninth five-year plan, we had the national programme for rural industrialization. Finally, there is the Deendayal Protsohan Yojana and now, the PURA.

If the earlier initiatives haven't worked, why are we so optimistic about the success of the present ones' There is not much point in highlighting successes of public e-governance in some states, purely private initiatives like e-chaupals in others and finally, public-private partnerships, with the latter allowing for private management of public assets. These are localized in some parts of the country and offer no guarantee of replication everywhere.

There are two problems with earlier government programmes. First, there has been no transparency and accountability in public expenditure, with attendant problems of leakage and corruption. In the name of rural development, we spend upwards of Rs 50,000 crore a year. In the initial year of PURA, there is a provision for Rs 1 crore per cluster. With Rs 50,000 crore, we can significantly transform 50,000 villages in one year. And that entire lot of 400,000 villages over 8 years. However, there is the second problem, of the completely ad hoc and top-down character of public expenditure identification. This also characterizes the identification of the 826 clusters under PURA. If only we could make panchayats answerable to gram sabhas and hand over the Rs 50,000 crore to gram panchayats and zilla parishads.

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