From the corner of its eye
- Published 21.08.18
The World Bank stole a glance at India. It did not want to attract any attention; but it also did not want to be accused of spying. So it published a paper summarizing what it saw, but said it was for comment, not citation. So I shall hide the title. I cannot see how one can comment on something without referring to it, but my purported citations should be ignored, and treated as unmentionable antecedents of my comments.
The whisper ends with an introduction: it asks, why does India matter? India is impossible to ignore: Laushram Ladu Singh thinks it will become the world's most populous country by 2025, while Yi Fuxian says that China has been exaggerating its population and has already been overtaken by India. India has a fifth of the world's youth; if it could not give them jobs, they could make 300 times as much trouble as young Kashmiris. Maybe they would get tired soon, for India has the world's largest number of poorly fed people: 39 per cent of all children, and 60 per cent of children of the poor are stunted. Stunting also limits their intelligence, and adversely affects their learning ability. India has greatly increased its expenditure on schooling; but while government schools spend far more per student, private schools teach far more at a lower cost. Teachers in government schools are paid three times what China pays theirs, and 25 times what Indian private schools pay theirs. While Indians do not eat much, they are burning coal and oil furiously, and heating up the world towards disaster. Those are enough reasons for the world to take India seriously, even if India does not take itself seriously. Maybe it will get through, for it is a pioneer of jugaad. But when it creates what it thinks is a solution to a problem and it does not work, it looks for another solution instead of working out why it failed: India is a sprawling graveyard of failed solutions.
India's natural resources are poor, especially in comparison to its huge population; so it ought to look for resource-efficient solutions. It must use land more efficiently - for instance, find ways to move people and vehicles faster across cities. It is extremely short of water; in drought years, water has to be transported in trucks to people in dry areas. Less than a third of its townsmen get piped water. Its agriculture wastes water on water-guzzling crops like sugar cane and rice. Instead of giving away water free to farmers and city dwellers, India should tax it.
India is urbanizing rapidly, but compared to other countries, it has few big cities and lots of small towns; villages are growing into towns, and people not finding work in villages move into neighbouring towns. These towns have low population density, and poor or no public transport. Their road space is taken up by private vehicles. The ubiquitous private vehicles make Indian cities the most polluted in the world. Because of inadequate public transport, the poor spend disproportionate time and income on commuting, which reduces their productivity. Urban waste collection is inefficient; it is scattered in 30,000 sites spread over 60,000 hectares of valuable urban land.
India gives so many subsidies related to agriculture - subsidies on foodgrains, irrigation, fertilizer, electricity and so on - which add up to 11 per cent of agricultural value added. Power subsidies have encouraged the drilling of tube wells, which are rapidly increasing the depth of underground water. The further down it goes, the more expensive pump irrigation will become, and the less crops it will produce. India is headed for a water crisis, which will also be an agricultural crisis.
India dismantled its licence raj in the 1990s: it abolished industrial licensing and import licensing, reduced import duties, and liberalized restrictions on inward foreign investment. As a result, it moved up from being 130th to 100th in the World Bank's ease of doing business list. But while it made a show of reducing tariffs, it imposed new ones and called them anti-dumping duties. It has underinvested in ports; as a result, goods take long to unload, and turnaround time of ships is so long that they try and avoid Indian ports.
India's roads carry two-thirds of its passengers and four-fifths of its freight. Atal Bihari Vajpayee, its prime minister two decades ago, was keen on highways; one of his ideas was the golden quadrilateral of roads connecting east, west, north and south. But state governments look at goods moving across the country with greed; the obstacles they create at the border slow down movement and raise costs. Different rates of commodity taxes add to the obstruction. The current government has tried hard to replace state indirect taxes with a single goods and services tax. But it has so many exceptions that obstruction continues for many commodities. As a result, an average truck runs 250-300 kilometres a day in India, 400 kilometres in Brazil, and 800 kilometres in the United States of America.
India continues to be a difficult place to do business in. In 2006, it passed a law to favour small businesses; instead of helping them, it has given them an incentive to stay small and enjoy the privileges. Almost two-thirds of small firms have fewer than six employees; most of them have only one, who employs himself. An average firm grows eightfold in the US and almost doubles in Mexico in 40 years; in India, it hardly grows at all. A firm employing more than 100 workers has to get the state government's permission to dismiss even one worker; as a result, firms prefer not to employ them at all. They employ workers on short-term contracts whom it is easier to dismiss. But such workers also change jobs often, so firms have no incentive to train them. The bureaucracy is so obstructive that it takes 6-8 months to get all clearances for a new factory; in China it takes 2-4 weeks.
Bad debts accounted for 12 per cent of banks' loans in 2016; 40 per cent of the borrowers did not even earn enough to cover their interest costs. Private credit is 52 per cent of GDP - low compared to other countries. Banks account for only 22 per cent of borrowings of small and medium enterprises; they borrow the rest from moneylenders at much higher interest rates. Now the government is working towards relieving banks of their bad debts; if it makes it too easy for them to get rid of their bad debts, they may be tempted to give even riskier loans and incur more bad debts.
Altogether, the Indian governments spend much and achieve little. If they want to be effective, they should stress performance rather than compliance, use information technology as a tool and not a solution, recognize and address capability gaps, and encourage local authorities to compete, compare their achievements and learn from one another. The Indian public sector needs to acquire the ability to learn from its own errors and weaknesses and use them to improve its performance. The days of the steel frame are past; the governments need to innovate better technologies of administration.