The Hindu Business Line : For development with equity

The rising GDP growth is good news but the widening rich-poor disparity it causes is not. It can be dangerous too. The answer lies in more allocation of public goods in poor localities — more schools, hospitals, roads, 24-hour power and water, as also support schemes that benefit not merely rich villagers but also the poorest, says P. V. INDIRESAN.

Rapid GDP growth has created euphoria about the Budget of the Finance Minister, Mr P. Chidambaram. Few have taken note of the concern he expressed about reconciling growth with equity. Undoubtedly, it is impractical to offer to the poor all that the rich get. Rightly, many commentators are excited about the promise of even faster progress — ten per cent growth rate of GDP over the already exhilarating 8.1 per cent achieved.

In contrast, even as the Budget was presented, there was a vicious Naxalite attack that killed scores of people. Thus, we have two contrary trends: The economy is booming, the rich are ecstatic; the rural-urban disparity is worsening, the poor are disillusioned.

Ostrich-like, most people are turning a blind eye to the increasing danger the country faces from disaffected rural poor. They are gleeful that, at the prevailing rates of growth in another 20 years, Indians will be four-five times richer. In fact, salaries in private industry are growing at 15 per cent a year, the highest in the world. As it is, IIM graduates get Rs 5,000 a day for 365 days; millions of poor labourers cannot expect even Rs 50 a day for 100 days in a year. That degree of disparity is unethical; it is also dangerous.

GROWING DIVIDE

The Government is not unaware of this growing disparity. It has three schemes to correct this dangerous trend: (a) The National Rural Employment Guarantee, (b) Bharat Nirman for rural infrastructure and (c) the National Urban Renewal. All these are excellent as far as they go. Do they go far enough? Will they reduce rural-urban disparity? Will they clear the slums in our cities? The Budget has no survival strategy against attacks by the disaffected poor. It has laid down a highway for rapid growth, but it has potholes of extreme poverty. Hence, the faster the economy grows the greater is the risk of social breakdown.

IIM graduates are in short supply; their salaries are bound to increase rapidly. Unskilled labourers are plenty; their wages are bound to stagnate. Therefore, the question is: How can this Budget, any Budget for that matter, make wages of unskilled labour rise as fast as that of IIM graduates? What can the Finance Minister do if increase in wage differentials is inevitable in a fast growing economy?

ENHANCE PUBLIC GOODS

Additional allocation of public goods in poor localities is the answer. Every individual's income has two parts: One is the direct income earned; the other is indirect income derived from public goods.

Therefore, when public goods are substantial, the harshness of wage differentials gets softened. Excellent public transport makes the ownership of cars less of a necessity. Good free schools make private tuitions redundant. Good municipal water makes purchase of mineral water unnecessary.

The metro is one such instance. It enables the non-rich to commute as fast as car-owners. In a globalising economy, the Government cannot limit wage differentials between skilled experts and unskilled labour.

On the other hand, it can limit investment differentials between poor localities and rich ones. If it can provide budgetary support for a metro in Hyderabad, it can support equally path-breaking advances in rural connectivity.

The President, Mr A. P. J. Abdul Kalam, has been crying hoarse about rural connectivity. Last year's Budget paid particular attention to his ideas. Last year, Mr. Chidambaram acknowledged: (PURA) is an idea that contains within itself possible solutions to a number of problems that afflict rural India such as unemployment, isolation from markets, lack of connectivity and migration to cities. Apparently, senior officials have scuttled the idea. So, PURA gets no mention in the latest Budget.

LIMITED ALTERNATIVE

Bharat Nirman has been promoted as the alternative, but it has one critical limitation: Its aim is poverty alleviation, not rural enrichment. It is an extension of existing rural development schemes; it is not a radical strategy for raising the rural economy to urban levels.

Undoubtedly, Bharat Nirman will improve the poorest villages but it will make no village competitive with cities. Forget about anything like a metro; Bharat Nirman will not create even motorable roads.

A metro costs Rs 150 crore a km; a Bharat Nirman road will cost Rs 20 lakh a km. The disparity between the wages of IIM graduates and unskilled rural labour is 100:1; the disparity between a metro and a rural road is nearer 1000:1.

The government is generally helpless in dealing with wage disparities. The disparity in rural-urban investment is entirely its own creation.

It is true that metros are exceptions; it is true they are extraordinary responses to extraordinary demands. Metro is for the already pampered top 20 per cent of the population. Rural connectivity is for the neglected bottom 80 per cent of the population. Rs 20 lakhs per km road is not equity. A single-teacher school is not equity. One transformer per village is not equity. One public telephone per village is not equity.

By all means, let us have more metros. In the same manner, let us also launch a few modernised rural clusters. For instance, why should not the government raise selected rural development blocks to urban levels, each one of which will get a five-minute bus service, a 10,000 KW power supply, 100 MB Internet connection, a Kendriya Vidyalaya, a 50-bed maternity/childcare hospital, along with 24-hour water supply and sanitary facilities in every home?

All these will together cost less per beneficiary than a metro; they will also provide not merely better transport but a far wider range of services. With such comprehensive services, poverty will become bearable; wage disparity will not create deep wounds.

REJIG CURRENT SCHEMES

In fact, all these urban-quality amenities can be provided at virtually no extra cost by re-jigging existing rural development schemes.

For instance, if the promised wages under the National Rural Employment Guarantee Scheme for poor rural families are capitalised (after taking into account the inevitability of these wages being indexed to inflation) each rural family will be entitled to a capital of about Rs 200,000. That (along with other existing rural development schemes) should be enough to finance all the amenities listed above, and on a scale to raise basic rural services to urban levels.

Before such a rural transformation can emerge, the blinkers that have been placed on the vision of rural development will have to go. The idea that villages can manage with substandard services should go.

The idea that cities must have flyovers and metros, but village road widths can be reduced from ten to eight feet must go. The indifference to growing rural disaffection should go. The smug feeling that existing schemes are perfect and nothing new is needed should go.

Once these blinkers are removed and a comprehensive set of public services are installed in the scale indicated above, jobs will emerge in villages both directly and indirectly.

Hence, apart from urban quality amenities, the poor will experience a quantum jump both in income and in their quality of life.

SUPPLEMENT SCHEMES

Metros are not for poor cities; they are for rich ones. They do not serve the urban poor; they serve the urban middle class. In the same manner, we need an equivalent consideration for richer villages, for the better-off educated rural youth.

We should not forget that most suicides are committed by relatively well-to-do farmers not by the poorest of the poor. That is why we need a supplement for schemes such as Bharat Nirman and the National Rural Employment Guarantee Scheme, one that targets the relatively better-off villagers. If that supplement is in the form of high quality public goods, not merely rich villagers, even poorest ones will benefit. That is how we can ensure growth with equity.

(This is the 170th in the Vision 2020 series. The last article appeared on February 20.)

(The author is a former Director of IIT Madras. Response may be sent to: indiresan@gmail.com)