Making Growth Happen in India: A Roadmap for Policy Success
THE INDIA story since the 1990s has been presented in different ways, with the proclivity being to eulogise the process of reforms. In fact, reforms have always been taken to be the panacea for all our economic problems and the only solution to any issue that has come up is to have more such reforms. This has been followed by disenchantment with the pace of policy changes in recent years. More importantly, we have argued against several government schemes meant for the less privileged. Also, the recommendations are invariably in the direction of what more should be done to move forward.
V Kumaraswamy has, however, chosen a different route in his quite remarkable book, Making Growth Happen in India. Instead of reiterating the obvious, he focuses more on the ‘design’ of various such programmes and their ‘delivery’. He does recognise that the concerns of the poor have to be addressed, but we have to ensure that there is an effective impact of measures taken in this regard.
At first sight, this makes more sense, as we appear to be slipping on both these scores through the myriad programmes we have been implementing over the years. Few would refute the view that while setting lofty goals is necessary, the important part is how we design our structures and deliver. In fact, we do comment on the failure of implementation, but we seldom go back to the design of the programmes to analyse whether they were faulty to begin with.
In the course of his exposition, he is critical of various programmes of the government, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), minimum support price (MSP), cash transfers, etc, and discusses issues of land acquisition, foreign direct investment (FDI) in retail, goods and services tax (GST), etc, with an open mind. The basic point made by the author is that there are several places where there are weak links between policies and strategies at the broad level, plan designs and their implementation, and action plans and their follow-ups. Further, faulty design has made programmes less effective. Quite clearly, we need to address these issues.
One may not agree with the author when he argues that monetary policy can be ineffective when battling food inflation and hence should be delinked from it, but his arguments are cogent and well-articulated. Similarly, he does point out that higher productivity and output in agriculture, while benefiting consumers, can affect the incomes of those producing the crop and hence there could be an inherent conflict for policymakers.
His arguments are at times provocative, which is interesting, especially when he discusses the issue of petroleum product prices, as the poor do not really have access to these products, which we are protecting in their name. This probably is not relevant now, with prices of diesel and petroleum being marked to market. But he takes the argument to a different level when he puts forward a critique on why low freight rates on goods, such as ores or manufactured goods, do not quite deserve protection. The logic is that if refrigerators are being ferried by railways and freight is being subsidised, then it does not make sense, as the product is not consumed by the poor, but by those who can afford the full cost of transportation.
These arguments are surely compelling, though the reason for not raising freight rates or railway fares is more in the area of inflation rather than the protection of specific users. Going by this logic, we need to revisit the entire pricing structure of all goods that are affected by public policy at a broader level. This is necessary, as all governments subsidise various public goods and services to different extents. The author could have added realism to his theory by actually bringing to the fore case studies where governments have marked all prices to market and maintained zero or minimal subsidies.
One must remember that the ethos of all public expenditure is to bring about some redistributive justice and subsidise the public. How does one then strike a balance? In fact, by extending Kumaraswamy’s logic, one can say constructing highways for transport of goods not used by the poor should not be done by the government. And if the government does so, there should be differential charges for goods carrying different goods.
Kumaraswamy’s book turns a bit controversial when he discusses alternative growth paths, which are based on skill development and employment. His take is that the Indian Railways, the largest employer in the country, should actually be widening its employment base. This will definitely find few takers, as there has been a call for removing staff rather than adding to the existing numbers. His examples of low service quality in railway services is due to reasons like having fewer ticket checkers on trains, among others, which lead to other problems such as ticketless travel, as well as less rigorous monitoring of empty seats that can otherwise be sold to earn more revenue. He also talks of saving less and making capital more productive, which in effect means improving the incremental capital output ratio (ICOR).
While the focus is on skill development and employment, the author picks up three future growth sectors, which will partly click with the present government: creating new cities, extracting value from urban wastes and tourism. He is positive on moving towards a growth rate of 12% per annum, which today does look more than challenging, given that we still need to be in the stable 8% range. Looking at the suggestions made, with focus on employment generation-led growth, this number may appear to be out of sync.
Written by a non-economist by profession, but a management graduate with a strong analytical mindset and abundant experience across the world, Kumaraswamy does provide a refreshing framework for policymakers. His views come from a practitioner and not an economist, who would normally have definite leanings to specific ideologies. Several of these issues have been discussed spatially, but by putting all these views in one place, one gets to read a different perspective, which is erudite and compelling, though arguable. That’s what will make this book find space on your bookshelf.
Madan Sabnavis is chief economist, CARE Ratings