Time to revisit the equity-efficiency debate

The recently published World Development Report 2006 revisits some of the concerns of development. Following closely on the heels of the Human Development Report 2005, it focuses on the increasing global inequalities and the need for direct interventions to reduce these. The reports argue that reduction of inequality contributes dire-ctly to economic efficiency and growth. Greater equity can thus lead to more efficient use of a nation?s resources. By providing opportunities for education, access to health, and in short, an opportunity for achievements determined by talents and efforts rather than pre-determined circumstances, such as race, gender, etc, it is argued, convergence of the goals of equity and efficiency can be achieved.

Equity versus efficiency arguments have surfaced regularly over the last half century, but the last decade has seen much confidence that economic transformation and growth will evenly benefit all sections of society. There is a re-awakening that this is not happening, and that poverty issues cannot be addressed by market-related growth alone. The WDR revisits the debate, and concludes strongly in favour of interventionist strategies. Focus on equity is, therefore, expected to be a central concern and this needs to be integrated into analytical and operational core areas of development design, including the role and functioning of markets.

Issues of inequality have been at the core of politics in India in the last few years, with the government?s Common Minimum Programme (CMP) focusing on ?inclusive growth.? These concerns have been exacerbated by growing regional inequalities. Per capita incomes across states vary widely, the highest being Rs 20,000 and the lowest, Rs 4,500. The ratio between the highest and the lowest, has fallen from around 2 in the 70s and 80s to over 4.4 by 2003. Even within states, there are signs of wide inequalities. An emerging pattern shows Maharashtra, Gujarat, Tamil Nadu, Karna-taka, Punjab, Hary-ana, Andhra and Kerala showing a significant rise in per capita incomes over the long term.

For Indian policy makers, these reports strengthen the need to make a clear choice betwe-en equity and effici-ency. Importantly, it requires that the state?s role should expand into intervention into those areas and for such groups that have the least resources and capabilities. If the government has to make good its promises on the CMP, the role of the state, of public action and of public expenditure, must change considerably. This has been much debated in the last 16 months, with economic journals and the media largely blaming the lack of progress in reforms to the Left parties? attitudes.

Part of the problem has been that the executing bureaucracy as well as sections of the political governing class have been following market-oriented policies for the last 15 years, and find it difficult to change. The ministries and bhavans are full of mandarins that have embraced the globalised market, and who would like to put their experiences of the dusty districts behind them. They are not to blame. Government policies since 1991 have carefully ignored agriculture, irrigation, water supply and other rural infrastructure?-capital spending as a proportion of Plan outlay on these actually shrank in the 90s. Even the young media have not witnessed an era where the government was behind community development initiatives, and can only ask questions about financial markets. It requi-red a constitutional amendment to bring primary education back into focus, and a Supreme Court judgment to make provision of midday meals in schools compulsory. Neglect of the poor has led to lower farm incomes and increasing regionalisation, militancy and urban decay. This process must be reversed.

The first important step appears to be to shed ambiguity. Focus on disinvestment, industrial competitiveness, capital account liberalisation, tariff liberalisation and the like, can wait. There has to be a single-minded focus on implementing all that the government has been talking about. Issues such as rural health initiatives, urban renewal programmes, waste and water management need to be fleshed out and implemented. The road cess remains unspent in the consolidated fund.

A second step would be to involve the states more intimately. The PM as well as the Congress chairperson spoke wistfully about governance at the recent conclave of chief ministers. Is it possible to have common implementation goals for basic service delivery for the next year? And is it possible to add and support water and waste management in urban areas?

A third would be to examine the instruments. Irrigation, watershed, rural development and infrastructure programmes emerging from the Planning Commission and the ministries are tired versions of earlier efforts. Perhaps, it is important to examine new paradigms from Israel and other innovators. Modernisation of agriculture, creation of the value addition change, food processing and preservation, are issues of systems and logistics as much as they are of production methodologies, and it is a pity that even some of the top experts commissioned by the government have not addressed these.

The last, most important, issue is that of livelihoods. The employment guarantee scheme can provide relief, not livelihood. Of the 70,000 engineers and graduates who appeared at an open house for job recruitment last week, only around 2,000 were hired. The manufacturing and the services sector, including hotels and hospitals, that can absorb large pools of skills, need to be incentivised through all fiscal and monetary means?the next Budget should be about spending for a better living for all, not for those in business alone. The consequences of not doing this could be catastrophic.

The writer is a former finance secretary and economic advisor to the PM