?In the long run we are all dead.? Most people know this Keynes quote and most non-economists probably think it is from General Theory (1936). It is actually from A Tract on Monetary Reform (1923), written well before those troubled times. Given these troubled times, the subsequent sentence has relevance for the tribe of economists. ?In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.?
The World Bank?s World Development Report (WDR), 2009 has created an unnecessary storm and the long run has been invoked to ensure waves die down and the ocean becomes flat again. The World Bank?s Delhi office has clarified, ?National Rural Employment Guarantee Scheme (NREGS) is an important safety net program that provides livelihood security to the poorest of the poor in rural areas of India. Such programs have taken on an even greater significance at a time of global economic downturn. The Bank would like to clarify that the WDR 2009 focuses on the long-term impact of migration on development and stresses the importance of reducing barriers to the voluntary movement of people seeking better opportunities. As a program targeted to improve the lives of those who cannot easily migrate to areas in search of those opportunities, the NREGS plays an important role in reducing poverty.?
WDR?s key message is one of integration, spliced with geographic unevenness, circular causation and neighbourhood effects. On the first, ?governments generally cannot simultaneously foster economic production and spread it out smoothly?. On the second, ?rising concentrations of economic production are compatible with geographic convergence in living standards?. On the third, ?economic integration is an effective and the most realistic way to harness the immediate benefits from concentration to achieve the long-term benefits of convergence?.
Post-1991, India?s economic geography is often discussed, usually with an urban/rural prism in mind. And the outcome of 2004 elections is also linked to this. India Shining versus Bharat whining prism, a proposition that is extremely dubious, for 2004, as well as for 2009. Whether there has been convergence/divergence across India?s economic regions (regions needs not always be interpreted as States) is a function of the indicator used. For instance, in several health/education/telecom indicators, there has been convergence. However, there has been divergence if one uses indicators like per capita consumption expenditure. It is often forgotten that spatial divergences have also increased within States, in addition to whatever has happened between States.
Stated differently, States that have become integrated have done well. Whereas States, or regions, that haven?t become integrated have fallen behind. This is typical of a geographically contiguous region that begins in Central India and extends eastwards, a region also identified with violent movements. This can be linked with findings about inequality (in consumption expenditure), findings also sensitive to measure of inequality used. Subject to this, inequality has increased in urban India, but has remained unchanged in rural India.
As a plausible hypothesis, what seems to be happening is an integration of what was formerly rural into an urban periphery. The only issue is this has happened in parts of India, but not in others. Globally, urbanisation is correlated with development and progress. Urbanisation is good and needs to be encouraged (not deterred). If one needs theoretical arguments in favour of urbanisation, with Paul Krugman getting the Nobel Prize, one should read his work on positive externalities and increasing returns to scale afresh. Alternatively, one can read this year?s WDR. Without distinguishing between inhabited and uninhabited villages, one doesn?t need 6 lakh villages, some of which are sub-optimal for the efficient delivery of public services. And again without distinguishing between cities, towns and urban agglomerations, one needs many more than the present 5,000.
Twenty years from now, we will probably move towards 3 lakh villages and 20,000 urban centres, with the latter not necessarily 10 million-plus metros, but smaller ones, where urban planning becomes easier. The larger SEZs could have been interpreted as such greenfield urban projects, instead of being projected as an export strategy. (Whether one should have created the resultant distortions through such a policy, is a separate issue.) Stated thus, WDR is absolutely right in its thrust and core arguments. We need to ensure transition to an urban India, not provide incentives for people to live in a rural Bharat. PURA (provision of urban amenities in rural areas) sounds good, but that?s not what we want. We want people to become urban. Ipso facto, rural to urban migration is also desirable and to the extent NREGS deters this, it creates disincentives and distortions and is bad policy. A social safety net across the board that is geographically neutral, particularly in these troubled times, is a different matter. However, the Bank too sacrifices good economics for good politics.
?The author is a noted economist