Govt should move from control mode to a regulatory, supportive one

Updated: Feb 8 2002, 05:30am hrs
A substantial enhancement of the quality of life of the people, particularly those of the disadvantaged sections, is a basic requirement if an increasingly larger proportion of the population is to participate in a meaningful manner in economic activities. Achieving increased coverage under primary education, extending basic health and medical facilities and improved access to better civic amenities, etc are targets to be realised in a time bound manner say, in less than 10 years. In most parts of the country, the efforts in this regard have to be taken by government. Though the responsibilities for such programmes rests largely with the state governments, those states where maximum efforts are necessary are also the states whose finances are in shambles. Thus, the additional financial requirements which could be substantial have to be provided in the Centres budget, with the allocations being made to the states on the basis of requirements.

As far as bridging of infrastructure gaps in concerned areas, like telecommunication, civil aviation and ports and shipping, are best left to the private sector. These are areas of short gestation investments and private sector should be in a position to step in quickly. What is necessary is to create a favourable and conducive atmosphere to facilitate speedy private sector entry. However, in areas like power, roads and railways, where the order of investment required is very large and projects have long gestation periods, for several years to come government will have to play a major role making substantial direct investments. All projects under implementation as well as select and crucial new projects should be fully funded and given special dispensation from the numerous government procedures so as to secure speedy implementation.

In both Railways and roads, the attempt should be to provide for speedy and better transport of goods and passengers between places. The emphasis has to be on integrating as many new centres, with traffic potential, as possible with main networks. For instance, access to many places of tourist importance in a state like Rajasthan would need to be speeded up, cutting travel time by more than half. The travel time between Dehra Dun, the capital of Uttaranchal, and New Delhi is 5-1/2 hours by Shatabdi Express and 11 hours by night trains, even though the distance is only 150 miles. Likewise most centres in the Northeast are still days away from major centres like Calcutta and Delhi. Providing road and rail links and cutting down the travel time for goods and passenger time is vital for speeding up economic growth particularly in remote and backward areas and a major share of the financial burden will have to be borne by government for several years to come.

The programmes suggested will call for substantial additional outlays, may be of the order of Rs 50,000 crore or about 2% of GDP. Given the already high levels of fiscal deficit, these requirements cannot obviously be met through additional budgetary allocations. Instead, these have to be met partly by diversion of allocation already available for similar schemes and by effecting savingsit does not matter whether it is in the budget of the centre or states. For instance, a part of the funds required for the Employment Guarantee Scheme could be met by diverting the funds already providing in the rural development ministry for similar programmes and also the funds allocated for the MPs local area development scheme. The balance could be met by abolition/abridging of food, kerosene and LPG subsidies in rural areas (these subsidies should in fact be abolished altogether and all the products put on open market price with the weaker sections in urban/metropolitan areas and those in the rural areas who are not able to participate in the employment guarantee scheme being taken care of by targeted special schemes).

After all, under the employment guarantee scheme each BPL family with two adults will get about Rs 500 as wages per month, while the benefit they now get is no more than Rs 100 per month under the PDS (20 kg of foodgrain at Rs 5 per kg), a few rupees under kerosene and none under LPG, though the total expenditure on those three subsidies is about Rs 13,000 crore, Rs 7,000 crore and Rs 7,000 crore, respectively, per annum. The savings under fertiliser subsidy can also be used for the employment guarantee scheme. In fact such an explicit linkage may make cuts in fertiliser subsidy more easily acceptable. An area where substantial savings could be effected, but in which the savings would accrue to states, is in the supply of power to agriculture. This should not be a matter of concern so long as the additional outlays are matched by savings within the system.

As mentioned earlier, considering the vast gaps yet to be bridged in areas like improving the quality of life, providing social security (the employment guarantee scheme should be considered as part of social security) and basic infrastructure, total expenditure as a proportion of GDP would tend to steadily increase. At the same time, fiscal deficit has to be reined in if the economy is to be put on a sustained high growth path. In these circumstances, in the coming two years, total expenditure can be pegged at the present level of about 15.5% of GDP with the requirement of additional funds for good expenditure being met by cuts in bad expenditure and the improvements in tax to GDP ratio being used for reducing fiscal deficit. Once fiscal deficit is brought down to below 3%, then further improvements in tax to GDP ratio can be utilised for funding additional good expenditure, even as the process of restructuring the present expenditure mix as between good and bad is continued.

The last items relate to staff strength downsizing. It will be incorrect to undertake such downsizing exclusively for purpose of effecting savings in the salary bill. The salary bill for one million government officials is around Rs 9,000 crore. Thus even if, say ,500,000 officials is around Rs 9,000 crore. Thus even if, say 500,000 officials are rendered surplus and are retired/discharged, the savings even in the long run would be around Rs 2,500 crore, with a likely additional pension bill of over Rs 2,000 crore compared to the present salary bill of Rs 4,500 crore. Moreover, in the first two years the actual outgo might actually be more than the salary bill, in view of additional separation benefits offered under the Voluntary Retirement Scheme.

But then a drastic downsizing is necessary for two reasons in addition to the reduction in salary bill that will accrue in the longer term. First is the shedding of all activities that need not be performed by government so that government is enabled to focus attention on more important matters like policy formulation, regulation, etc. Today much of the time of the government is spent on administering itself. With over 20 million officials this translation into 100 million people or 10% of the total population, assuming four dependents for each official in the central and state governments and public sector, this group has become the single largest vested interest. Consequently it pre-empts for itself bulk of governments resources and time, leaving little for other, even priority areas.

Secondly, if the movement towards assigning a greater role for private initiative is to be expedited, then government should move from the control mode to a facilitating regulatory role. This in turn will call for a substantial scaling down of the number of officials at the senior level along with their support staff. Notwithstanding the availability of numerous reports and recommendations regarding the lines on which such downsizing can be done, very little progress has been achieved in this matter so far. Downsizing of staff strength is, however, an urgent requirement for the reasons set out earlier. Perhaps the solution lies in putting the cart before the horse. A liberal Voluntary Retirement Scheme may be announced and a substantial amount say Rs 2,000 crore provided for this purpose in the forthcoming budget. As officials opt for VRS, a corresponding number of posts in the hierarchies handling activities identified or considered unnecessary and in the ministries/departments where thinning is identified or considered necessary for moving from a control mode to a regulatory supportive role could be considered.