The Telegraph
Since 1st March, 1999
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- The absurdity of having to make 100 crore people happy

P. Chidambaram occupies the enviable chair of the finance minister of India, but is entrusted with the world's most unenviable task, that of delivering a budget on February 28 that will promise prosperity for each and every member of the 100-crore strong Indian population. Is it feasible for the finance minister to accomplish the job' One fears that his greatest challenge lies in accepting with stoic indifference the fact that it is well nigh impossible to meet the challenge in the near future.

The task confronting the minister is colossal to say the least. A quick review of the statistics exposes the absurdity. Around 1.9 crore of the Indian population work for the government, while another 0.8 crore are employed in the organized private sector. The total of 2.7 crore constitutes what is commonly referred to as the organized labour force, the lucky few whose rights to decent living are protected by law. These are the ones who bicker about caps on government guaranteed savings schemes and interest earnings therefrom. They are also the ones who insist on raising the ceiling on tax-exempted incomes to Rs 1.5 lakh.

Like this or not, it is only a handful of persons in the country who can even dream of earning incomes so high. The number of people working in the unorganized sector is estimated to be around 32 crore. Not all of them are Chidambaram's worry, since a section should be successful professionals.

But the reigning majority of the unorganized class enjoys no benefit guaranteed for the country's work force, leave alone contribute to small savings schemes. We come across them every day in the wayside tea stalls: underage, underpaid, underfed, overworked, impoverished, with bleak futures stretching as far out into the horizon as one's senses can travel.

Miserable or no, however, they are employed, and, taking into account the organized labour class, aggregate employment in the country would be in the vicinity of 35 crore. Of the remaining population of 65 crore, around 30 crore are unemployed and 7 crore above the age of 65. Which leaves a balance of 28 crore, who are either lucky children who do not have to seek a means of livelihood or those unemployable for some reason or the other.

Clearly, the hallowed common man deprived of small savings opportunities is not the poor man Chidambaram has to provide for. The poverty that exists in this society is truly bottomless. A person is defined to be poor in India if he earns an income below Rs 350-400 per month approximately, that is, less than Rs 13 a day. Statistics says that there are at least 30 crore of them in this country. Interestingly enough, the World Bank uses a much higher benchmark to identify the poor, Rs 1,410 per month. If we were to adopt the World Bank definition, the poor in India would vastly exceed 30 crore.

Chidambaram then has to satisfy this diverse multitude of human beings, help the better-off rise higher at the same time that he protects the economically condemned from further degradation. And he needs to do this keeping one more stark reality in mind, that India adds 2.7 crore of new people to its population each year. What is the direction in which economic policy should move to impart an element of self-respect to the citizens' Should we deliberate on tax saving schemes and low interest rates' Or should we think about offering purchasing power to the poor' The answer seems all too clear.

Our planning era earned us self-sufficiency in one respect at least, food production. The flip side of the coin though is that around 60 per cent of our labour force is engaged, with or without work, in the agricultural sector.

The liberalized era of the Nineties saw magnificent growth of the services sector, a sector that can mostly absorb the highly skilled, a scarce commodity in India relative to the size of its population. The road sign for engaging the unemployed and poor gainfully points therefore towards manufacture, the only sector that has the potential to rescue large numbers of unskilled or semi-skilled workers from languishing in rural areas or amongst unorganized masses. It is exactly here that the five-year plans let us down. Manufacture failed to flourish and the legacy of sick industries hangs like an albatross around the neck of the present generation policy maker.

Economic policy, and hence the budget, have to respond to the clarion call for industrial progress, but how is this to be achieved' Notwithstanding Marxist rhetoric, efficiency is the prime casualty in publicly- operated organizations, which, by nature, are apathetic to profit opportunities. It is clear that ongoing industrial privatization moves must be pushed further, even if they call for inflows of foreign direct investment. Removal of poverty demands job creation, even at the cost of profit repatriation to investing countries. The alternative to this scenario is continued misery caused by a lack of purchasing power. No amount of slogan shouting on an empty stomach can compensate for square meals, education for children and a roof above the head.

Industry, though, cannot flourish in an infrastructure-less vacuum. Roads, power supply, airports, seaports, hospitals and a healthy legal system for settlement of industrial and other disputes are a sine qua non for inducing the private sector to come forward with investments. The public sector though will need financial resources for infrastructure to grow in tandem with private enterprise. What is the state of such finances'

The government has conceded that the current trend in collection of direct taxes suggests a shortfall vis-'-vis the budget estimates for 2005-06, which had been pegged at Rs 1,80,000 crore. The direct tax collections up to January 31 stood at Rs 1,09,831 crore. The precarious state of the government's finances is further revealed by the fact that the department of revenue has so far refunded VAT claims only for April and May of last year, as per responses from 100 per cent export-oriented units surveyed by the FICCI.

Yet the economy must grow and the government has pledged to keep the ball rolling through infrastructure development. Clearly it lacks the funds, which explains why it settles for compromises such as the rural employment scheme. The project is at best a glorification of the concept of a dole. It will be easier for the finance minister to fund short-term employment than to create large-scale infrastructure and create mass education opportunities that alone can win for the poor the freedom they need to choose their own means of livelihood.

A paradox arises from the fact that the savings rate of the economy has now risen to a respectable 29 per cent, as recently announced by the president of India in the joint session of the parliament. Households contribute the lion's share to this figure. A decision to tap these, however, is fraught with difficulties. Infrastructure projects are not likely to generate guaranteed revenues to cover interest payments on public loans, unless of course one believes that in the long run infrastructure-supported growth of the industrial sector will generate tax revenues large enough to repay loans with interest. Chidambaram has enough reasons not to tread on that slippery path.

Households, therefore, will be pushed further towards the buoyant stock market, which, contrary to propagated beliefs, is not an index of industrial progress. The simple reason is that it is a market geared mostly towards second-hand trading of existing shares. Its progress has little bearing on industrial investment. Savings, the scarcest of resources for infrastructure development, will be frittered away on speculative trading. And this is a tragedy the finance minister has to contend with in the face of the acute hunger that poor children suffer from in this country.

Good luck to you, Mr Chidambaram.

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