Should India go the Kerala or the Gujarat way?

A. Srinivas

The recently released book ‘An Uncertain Glory: India and its Contradictions’, by Jean Drèze and Amartya Sen, has kicked off a lively, if not acrimonious, debate on whether economic growth should be an overriding policy objective. Should India go the Kerala or the Gujarat way – in other words, should social sector goals be front-loaded over economic growth? In separate e-mail interviews, Drèze and Sen share their views on this subject, while also discussing the Food Security Bill, fiscal deficit management, NREGA and other issues. 

 

The ‘Kerala model’ has come in for some criticism, while the ‘Gujarat model’ is much talked about these days. Your comments.

Sen: It is a mistake to take any State as a “model,” since they all have defects in different ways. And that applies to Kerala too, despite the fact that India has a lot to learn from the example of success in Kerala.

Kerala may not have been unique in the world in going for early public investment in free education and basic health care (Japan, China, South Korea and many other countries did something similar), but it had a lesson to offer to the rest of India on how to enhance human well-being and at the same time build a base for sustained economic growth.

When Kerala went that way, it was one of the poorer states in India, but the basic policy of human capability formation through public efforts facilitated economic growth in Kerala, and so eventually it became one of the richer Indian States.

Those who had criticised Kerala for going for so much public expenditure so early – claiming then that the policy would be “unsustainable” — now try to square the circle by saying Kerala can afford a lot of public spending because it is richer — forgetting how exactly it became richer. The same policy of focusing on human capability formation has also allowed Tamil Nadu and Himachal Pradesh not only to serve the objectives of human well-being better, but also to have faster economic growth.

Gujarat has had a different kind of history, but also with a fast rate of economic growth, based on the enterprise of its businessmen.

Under the present Modi government it has also added to its facilities by giving priority to the expansion of its physical infrastructure, particularly roads, and by offering a comparatively efficient bureaucracy for business purposes (though not for the delivery social services, in which Gujarat’s record is not particularly good).

Based on its pro-business policies, Gujarat’s growth performance has been laudable, even though its GDP growth is only just a fraction higher than that of neighbouring Maharashtra.

Nevertheless, Gujarat does have lessons to offer on physical infrastructure development. In social administration, Gujarat has not been a leading state (indeed far from it), and its relative backwardness in social infrastructure – including education and health care and gender equity – would need to be addressed sooner or later. 

How would you respond to the contention that malnutrition in India is a genetic problem?

Drèze: I don’t think that anyone is seriously asserting that. What some people are arguing is that Indian children have a genetic predisposition to low height, for which an allowance needs to be made when we use international norms such as the World Health Organisation’s height and weight standards. This argument is a kind of default explanation coming from people who simply don’t believe the stunting figures associated with international standards.

But even if one were to accept that there is a genetic factor, and make a reasonable allowance for it, child under nutrition levels in India would still look very high. There can be no doubt that under nutrition is a very serious problem in India, not just for children but also for adults, and that there is an urgent need for action in this field. 

You have countered critics of the Food Security Bill by referring to lopsided priorities in public finance – where subsidies for fertiliser and fuel seem to draw less criticism.

Sen: Food security subsidies are aimed to benefit mostly the poor, whereas the benefits from subsidised fertiliser, electricity, diesel or cooking gas go mostly to the comparatively better off who have electricity connections already (one third of Indians do not have such connections), and who have equipment that can use diesel or cooking gas, or who can use fertilisers in their large farms.

Those who are more affluent, comparatively speaking, tend to have larger and louder voice in the world of the media. There is no great surprise in the fact that the issue of “fiscal irresponsibility” is raised more strongly and noisily against subsidies from which the powerful and the vocal gain rather little.

The poor, in contrast, typically lack the voice and the opportunity to raise questions about irresponsibility in criticising subsidies on diesel, electricity, fertilisers or cooking gas cylinders, even when those subsidies eat up a much larger amount of public funds than food subsidies.

This class-based contrast cannot be overlooked, even though there are some other issues also involved. An appropriate approach to the question of fiscal responsibility – and it is an important question – is to examine each subsidy in terms of their respective costs and benefits, taking into account the benefits that the poor and the rich receive from the different subsidies. In general, India has become too much of a “subsidy economy” and there is need for hard-headed calculation of costs and benefits in each and every case. 

Should the fiscal deficit be addressed more from the revenue than expenditure side, given our human development levels?

Drèze: I think that there scope for adjustment on both sides. I would certainly approve of an increase in the tax-GDP ratio, which has been stagnating at a low level for a long time.

Many expert committees have made useful recommendations to broaden the tax base, remove arbitrary exemptions and reduce tax evasion. Implementing them, however, requires confronting some powerful lobbies. Similarly, on the expenditure side, a lot of money could be saved by slashing regressive subsidies, but again, there is likely to be much resistance. 

Should the government take a more relaxed view of the fiscal deficit -- forget about FRBM Act?

Sen: It is in general a mistake to “forget” any limits that have been proposed, since there is typically some reasoning behind the proposal. Rather, the rational course must be to take note of the likely costs of violating a proposed limit and balance it against other objectives that can be met through crossing that limit. By trying to impose an inflexible – and to a great extent arbitrary – limit to fiscal deficit, the policy makers in Euro Zone have tied themselves in knots, and the objectives of their strategy – economic stabilisation and deficit management – have not been well fulfilled at all. Indian policy makers have been more intelligent in not trying to impose unreasonably narrow limits – at least not strictly.

How much deficit a country can afford and benefit from must depend on economic reasoning, rather than on fidelity to some arbitrarily chosen numbers or percentages. 

One of the arguments cited by you in favour of the Food Bill is the scope for PDS reform. Could you elaborate on the distinction between the ‘new’ and ‘old’ PDS?

Drèze: The old PDS is leaky, ineffective, and essentially under the control of corrupt middlemen and their political masters.

The new PDS is functional, inclusive, relatively corruption-free, and run for the benefit of the recipients.

Different states are at different stages of the transition from the former to the latter, but Bihar and Chhattisgarh are fairly good examples of the old-style and new-style PDS, respectively.

The transition is first and foremost a political decision – we now enough by now about PDS reforms to make the transition possible anywhere, provided that there is a strong commitment to it at the top. 

You have said that NREGA has run into a sense of fatigue. Should the programme be modified?

Drèze: NREGA urgently needs to be revived and that the best way to do this is to ensure that workers receive the minimum wage and are paid on time.

The government should also make it as easy as possible for them to apply for work, and even open works pro-actively without waiting for anyone to apply.

All this will create a strong demand for NREGA, which is very important for the success of the programme. Today, workers are losing interest because of low wages and long delays in payments. This apathy makes it much easier for vested interests to deactivate the programme. 

There is a tussle in government between two economic policy camps: one which favours welfare measures and the other that puts growth over all else. Has the second group now gained the upper hand?

Sen: This way of seeing the “tussle” – as you call it – seems very confused, even though you are absolutely right that this is the way the dividing lines are often drawn in political debates in India today.

When Jamshetji Tata arrived at what is now called Jamshedpur, he reasoned – as his biographer F.R. Harris records – that he, Jamshetji, will not only have to build a factory, but also “assume the role of a municipality,” offering decent schooling, free health care, good sanitation, safe water.

He proceeded to provide just those things. Was Jamshetji selling the demands of economic efficiency and ultimately economic growth down the drain for the sake of unilateral pursuit of human well-being, or was he also taking an enlightened view of what efficiency and growth demand? Welfare, as you call it, does of course have value of its own, but it would be very short sighted not to recognise the economic importance of having a healthy and educated labour force.

Neither Japan, nor China, nor South Korea ignored the constructive role of health and education for the success of an economy in the way India has, despite the visionary insights of the pioneers of Indian industrialisation. 

What is an acceptable level of food subsidy as a percentage of GDP, given our nutritional inadequacies?

Sen: The case for food subsidy arises only when many people’s incomes fall below levels at which they can afford to have enough food, at market prices, to avoid under nourishment and nutritional deprivation.

As and when people’s income rises, and similarly as and when food becomes cheaper, the need for food subsidy must decline, and may even completely disappear.

The question of acceptable levels of food subsidy must be answered in the overall economic context of the society. This will also determine how long such spending would be needed, placing the objective of good nourishment in the larger context of the priorities of the democratic society. 

You have not touched upon the ‘development debate’. China, for instance, is an ecologically ravaged place. Doesn’t that impact human development?

Drèze: It certainly does. And India is rapidly becoming an ecologically ravaged place too. One reason for this, among others, is the tendency not to tolerate anything that is perceived to slow down economic growth, like greater respect for the environment.

But this is a very myopic attitude, since environmental plunder jeopardises the country’s future economic and human development, and not in the very distant future.

This attitude is also based on flawed economics, focused on the growth of per-capita GDP without taking into account what the growth process does to the stock of wealth, including natural wealth.

The main victims of environmental destruction are poor people, who often depend more than others on natural resources. So we would certainly support more responsible environmental policies in India, even if it means some slowing down of economic growth in the short run.

Chhatisgarh, with its well-functioning PDS, is also known for Salwa Judum. How do we reconcile these two aspects? Does the first legitimise the second?

Drèze: There are many cases of authoritarian regimes that are doing good work in some specific fields. The latter does not justify the former. But the former should not prevent us from learning about the good work.

There is no doubt that the reform of the public distribution system in Chhattisgarh is a major achievement, from which there is much to learn. That does not detract in any way from the need to expose and oppose the Chhattisgarh government’s appalling record in other fields, including all the atrocities that have been committed by the state-sponsored Salwa Judum. 

You have praised Tamil Nadu’s and Kerala’s welfare systems. Is governance better only in regions with a history of anti-caste and social reform movements?

Drèze: This is a strong statement and we are sure that there are counter-examples. But there is no doubt that anti-caste and social reform movements can play a very important role in transforming living conditions and standards of governance.

That has certainly been the case in Kerala and Tamil Nadu, which started with appalling social inequalities not so long ago.

The inequalities have not disappeared by any means, especially in Tamil Nadu, but nevertheless there has been some significant empowerment of Dalits and other disadvantaged groups. This contributes to better living conditions and more effective governance in many different ways.

Misgovernance is largely a form of exploitation, whereby unscrupulous bureaucrats and functionaries exercise and misuse arbitrary power over people, especially marginalised groups.

When people are more educated, more confident, more demanding, and better organised, it is much easier for them to resist that exploitation.