Where reforms didn’t deliver

Madan Sabnavis | Updated on August 02, 2021

The scorecard on health, education and employment is poor

The three decades of economic reforms since 1991 have certainly ushered in major changes in India’s economic architecture, leading to a better standard of living and access to more goods and services through global integration. But there are some issues that have not been tackled appropriately.

The average GDP growth in the three decades was 5.8 per cent per annum compared with 5.6 per cent in the 1980s, which was the period where there was a cosy coexistence between socialistic mindset and liberalisation. Therefore, while there were qualitative changes, the GDP growth moved up only marginally. However, compared with the three decades preceding 1991, it would seem impressive as the growth then was a meagre 4.2 per cent. But such a comparison would be improper as the country was beset by wars, droughts, famines, and the first oil price shock.

At the socio-economic level, the country has failed quite badly in the area of health, which got exposed during the pandemic. Leaving healthcare to the private sector was a wrong move, as it has exacerbated inequality and has healthcare has become unaffordable for a majority of the population. Poorly maintained health centres, absence of doctors and nurses and widespread corruption in handling resources reflect a rather sorry state of affairs.

Poor infrastructure

Second, education has taken a back seat. Here again, the poor infrastructure provided by the state has made those who can afford private education to move away to those facilities. The tendency to propagate education in local medium means that students without an English education are left with the chaff when it comes to procuring jobs. The inequality starts at this stage in life and builds up along the way. Having multiple boards with different standards ensure the rich are able to do better in life.

Third, poverty. There has definitely been an improvement in the poverty ratio. Going by the World Bank’s poverty line measure of $1.90 per day, India had 109-152 million poor people in 2017. The $3.20/day standard of low middle-income class was large at 543-630 million. Though there can be different interpretation of these numbers, the protagonists of reforms would argue that this is an improvement compared with 1991.

Fourth, the World Inequality Database for 1991-92 and 2018-19 shows that the top 10 per cent had 36 per cent of the national income at the time of reforms, which rose to 57.1 per cent by the terminal period. The top 1 per cent increased their share from 10.4 per cent to 21.7 per cent during this period. Clearly, reforms have made the rich richer, and while the poor may have seen some improvement, it is clearly not what would be acceptable by the Piketty School.

Fifth, employment. With there being no standard measure of the unemployment rate unlike in the West, the fact that the unorganised sector still dominates the scene tells how this picture has evolved. The government sector has lowered the pace of job creation while the private sector has resorted to greater use of technology making existing skill sets redundant. While the youth who are trained do get employment, it is more of an urban phenomenon. Rural jobs remain simplistic and unsustainable.

The approach so far has been to provide cash transfers rather than sustainable jobs. The MGNREGS is good, but it is more of a dole as the projects involved create little value. The PM Kisan scheme is good in that it provides supplementary income, but does not give assurance of value-added jobs. Hence commercialising rural India has to be the theme going forward.

On the markets front, successive governments have blown hot and cold. While maintaining a commitment to reforms and less intervention, the markets are not quite free. Banks, for example, are allowed to set their interest rates unlike in the pre-reform period where the minimum lending rate was fixed. But today there is a lot of regulatory intervention. The formula for fixing the lending rate is decided by the regulator and interest rates for some loans are to be fixed to a benchmark. This is unique to India where the central bank decides on commercial rates. Similarly, while the interest rates on government securities are to be market determined, monetary policy actions are taken to ensure that the rates remain low.

On the agricultural front, politics dominates economics. Price fixation through MSP (minimum support price) is based on the interests of farmers and markets are not allowed to work. One sides taken are taken of either the consumer or the farmer, the the market mechanism gets distorted. The same holds for industrial goods, where government intervention through higher tariffs on imports is antithetical to liberalisation. India Inc cannot have it both ways.

The issue of regulatory capture has been observed in several cases. The capitalist-political nexus exploded with the NPA issue, which has pushed back the economy by at least 5-7 years. Natural resource allocation was more than controversial. Corporates siphoning off bank funds has impacted the financial system.

The symbiotic relations between capitalists and bureaucrats have come to the fore often. While the present NDA government has taken a lot of effort to streamline operations, it has been challenging. Transparency International’s Corruption Perception Index put India at 88 out of 180 nations in 2020. In 2010 we were 91 out of 178 countries. In 2005 we were ranked 88 in 159 countries.

A big change in mindset is required to address all these issues. Unfortunately, the electorate never votes out parties for non-performance on these parameters, which has helped to cement the status quo. People need to demand permanent jobs rather than handouts and a clean bureaucracy.

The writer is Chief Economist, CARE Ratings. Views are personal

Published on August 02, 2021

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