The spectre haunting India

A spectre is haunting India. The spectre of jobless growth. While the rate of industrial growth in the Tenth Plan (2002-03-2006-07) has averaged an annual 8 per cent, the proportion of the population which was indigent remained stuck at a stubborn 28 per cent in 2004-05, a modest decline from the 36 per cent of the population which was below the poverty line in 1993-94. This can be traced to two recent developments: growth in agriculture, which accounts for 60 per cent of India's workforce, has not averaged much more than 1.5 per cent per annum since 1996-97. Second, employment in manufacturing has stagnated with the employment elasticity of manufacturing output being an abysmal 0.08. A 12 per cent increase in manufacturing output leads to a mere 1 per cent increase in employment in manufacturing. Figures reported in the Approach paper to the Eleventh Plan are self-explanatory: if the economy were to grow by 9 per cent per annum and the agricultural sector at 4 per cent per annum, the gap between agricultural and non-agricultural incomes would still widen, unless non-agricultural employment were to increase by 5 per cent per annum.

In Development with Dignity, Amit Bhaduri, professor at Pavia University, Italy, and Visiting Professor at the Council for Social Development, New Delhi, makes the case that economic growth is doing the needful only if it delivers full employment.

Consistent with that idea, Bhaduri sketches out an alternative path of development, and makes three assertions: substantive or participatory democracy cannot exist without the right to employment. Second, pre-Keynesian fiscal orthodoxy (say, the FRBM Act) is not merely wrong, it ties our hands without providing viable policy options. Third, the institutional mechanism to translate this vision into a concrete plan of action would be the Panchayats.

Take these point by point. Indian democracy, Bhaduri contends, has survived by fostering an illusion: "by holding out the hope of socio-economic mobility for the majority and neglecting the utter hopelessness of a desperately poor minority". In Bhaduri's view, relying just on market processes to co-opt those who have been left behind is symptomatic""it represents the failure of our collective imagination. If growth is to be achieved on the premise of "inclusion", it must pull in those who have been left untouched by the market.

Bhaduri castigates fiscal orthodoxy through an array of arguments: first, with its mounting stock of food grains and large foreign exchange reserves, India typifies a demand-constrained economy. In these circumstances, providing rural employment would enlarge the domestic market by putting purchasing power in the hands of those hitherto unemployed. With supply constraints eased by structural changes in the economy, these projects could be financed through monetised deficits without stoking inflation. Even if the spending were financed by borrowing money from the public, this debt would be sustainable if the rate of growth of GDP were to exceed the rate of interest.

But if these suggestions are common sense, what explains the government's dithering over the National Rural Employment Guarantee Scheme (NREGS)? Further, if fund-siphoning is the problem, how to contain it?

The government should do what it believes must be done, believes Bhaduri, regardless of reproach, since a well-implemented NREGS can solve multiple problems. Bhaduri's real contribution lies in the answer to the second question. He invokes the 73rd Amendment to propose that Panchayats be relied upon for the identification, design and execution of rural projects. Decentralising power is the key. Panchayats could pick short-gestation projects, involving the creation of local public goods, such as local health centres, primary schools, minor irrigation schemes or the revival of the village commons. Bhaduri's originality lies in suggesting how to finance these: Panchayats can operate escrow accounts with the RBI, with fund flows dependent on the successful completion of previous projects. To ensure accountability and transparency, the expenditure patterns of the Panchayats should be open to public scrutiny""the purpose of the Right to Information Bill.

We must register a minor quibble or two""the core of Bhaduri's model, as he admits, relies on prioritising the domestic market through productive employment for all. Apart from political decentralisation, how is this different from what was pursued in erstwhile socialist economies? Besides, Bhaduri denigrates exports because these require low-wage mobilisation of labour, as in China. In this, he fails to recognise that exports simply offer an additional source of demand. Further, while exports pressure exporters to raise productivity, rural projects could expand employment. Both are needed. Still, the book engages those seeking cogent alternatives to an overly market-dependent economic regime.

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DEVELOPMENT WITH DIGNITY

Amit Bhaduri
National Book Trust
Price: Rs 450; Pages: 107