State needs to do more

Updated: Jul 27 2006, 05:30am hrs
There are some who argue that without high growth, this country can do little about poverty. And that the best way to foster growth is to reduce the role of the inefficient state in the economy; that incentives be given for investment, which means low levels of taxation. Further, labour flexibility is essential if firms are to compete in an increasingly global economy.

All this has led to policies of privatisation of the public sector, to public-private partnerships, to an increasing reliance on private initiatives in a market economy. Thus, in Bangalore, drinking water is to be supplied by private firms on contracts. Although there is no intention to provide what is called 24X7 water supply, only firms which have such experience and they are foreign ones are eligible to bid. That such policies lead to much greater inequality in an already unequal society is either ignored, forgotten or considered irrelevant.

The market must function in a constitutionally defined setting. Our Constitution not only places important responsibilities on the state, it gives a major role to the public sector and in many important areas, the public sector has delivered. The canard against the public sector forgets what is called sickness in the private sector and the huge sums of bank money locked in these.

The truth is that the public sector can deliver, if vested interests do not place hurdles. That this has happened often enough is well known. Look at the hurdles now facing the AIIMS!

Inclusive growth happens when everyone participates in the economy. In poor societies like India, those without assets will find it difficult to participate in the economy and need to be helped. This is not charity. Unless all move forward, a few cannot remain ahead. This was clearly stated by a former US President in his inaugural address: If we cannot help the many who are poor, we cannot save the few who are rich.

This requires investment by the state in long-term measures education, primary secondary and university. It requires investments in health; today, very little is spent in this crucial area, where India has the unfortunate position of being among countries with high maternal mortality. It requires an upgrading of skills of those who get displaced by technological changes. Policies like rural employment guarantee are important steps in this direction. For inclusive growth, the state needs to do more, not less.

It also needs to do it differently from the past, through greater reliance on the local self-governments brought into existence by the 73rd and 74th constitutional amendments. These are big challenges. Privatisation is easy; governing is not.

The writer is a Bangalore-based consulting economist