Bank And Basu Inspire Babu
Amidst the national medias pre-occupation with the Union Budget this fortnight one should not lose sight of what is happening to state finances. It is not all bad news from the states, with some of them showing a greater sense of fiscal responsibility than even the Union government. However, as the Punjab announcement shows, for every step forward that some states take, others have taken a step back.
Consider the case of Andhra Pradesh the median state which ranks at the bottom of the group of developed states and at the top of the group of backward states. Mirroring the larger Indian reality of the co-existence of opposites, Andhra Pradesh is a combination of prosperous agrarian regions and drought-prone backward areas, of unbridled and aggressive capitalist development and persistent poverty, of private enrichment and public bankruptcy. The situation was not always hopeless, as was the case in Bihar, for instance, and the Andhra economy had its day in the sun. However, N T Rama Raos seven-year reign from 1982 to 1989 was an unmitigated disaster for the states finances and the Congress government of 1989-94 did little to stem the rot. Not surprisingly, the Andhra government has found itself, for the better part of the last two years, caught in a fiscal crisis of unprecedented dimensions.
True, the dynamic and imaginative Mr Naidu has been gutsy enough to dump his late father-in-law NTRs populism, cutting the rice subsidy he hiked power and water rates and levied a variety of taxes. fortunately, however, so far the action has been largely on paper. As the 1997-98 budget of the state shows, there was no perceptible impact of all the revenue mobilisation on receipts. Worse, Mr Naidu is still prevaricating on easing up on his draconian prohibition policy, though only some action on this front can bridge the gaping Rs 562 crore deficit that Mr Naidus elegant finance minister, Ashok Gajapathi Raju, has left in a tax-free budget.
Unable to find a politically correct argument to ease up on prohibition, Mr Naidu has picked on a recent World Bank study of the state economy to pose the issue as liquor or bust. Mr Rajus 17 unabashed references to the Bank report (Andhra Pradesh: An Agenda for Economic Reform, World Bank, September 1996) also suggests that the state government will use the report to justify doing the difficult things. Its easier to make the Bank a scapegoat and use its conditionality to leverage policy change rather than bite the bullet and concede that TDP supremo NTR was responsible for much of the mess the state finds itself in now.
The Bank report pulls no punches but has no surprises. Everyone knows that Andhra Pradesh has not yet exploited its full development potential and that if its politicians were only more imaginative and far-sighted, the state can easily rank among the top five states of the country. On no indicator of development social or economic does Andhra Pradesh have this distinction. The report draws particular attention to the more recent neglect of public investment in infrastructure. In the past decade, APs budgetary allocations for power almost halved compared to the earlier decade and stood at about 50% of what the 14 major states allocated for their power development says the report and equally laments the neglect of the social sectors. State expenditure on education and health has continuously declined since 1985 and the Bank advocates increasing these allocations as well.
If health, education, irrigation, power and roads have all been neglected in terms of funding, where has all the money gone? Into a rice subsidy scheme and ostensibly into welfare. Both are worthy endeavours but has there been any impact of such expenditures on poverty? None at all, if poverty indicators and the popularity of the Naxalite groups are any indication. It is not mere financial allocations that can make the required dent on poverty says a young civil servant who has opted for social work. There has been no agrarian change in Andhra, its the same families which controlled rural Andhra in the 1960s which dominate the power structure today. The benefits of development have spread unequally. Without egalitarian growth mere financial allocations for welfare and subsidies are not going to help.
Neither the Congress nor NTRs Telugu Desam proved upto the task. Mr Naidu means well but has yet to prove his mettle in delivering on his promises and good intentions. Mr Naidu sees himself as a long-distance runner and wants to craft a Vision 2020 for AP and remain in power for two decades, like Mr Jyoti Basu Mr Naidus other source of inspiration. Though Mr Naidu is clearly more enamoured of Mr Basus political longevity than of his economic policies. He will have to emulate Basus agrarian policies if he wants to create a loyal rural constituency and will have to combine this with increased investment, both public and private, in social and physical infrastructure, mobilising the required funds for this. Is Mr Naidu upto it?
(The author is former economics editor, The Times of India)