India Needs a 5-Ponged Strategy for Inclusive Growth

Economic growth is not enough as the country also needs to speed up physical and social infrastructure development, improve governance and pay more attention to the disadvantaged groups, says N C Saxena

01 January, 2015 Opinion, Economy
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To my mind, there cannot be any controversy or debate as to how to achieve inclusive growth. I think the experience of all developed and developing countries as well as India shows that in order to achieve inclusive growth we need to do five things. First is growth, which is very important. Second is physical infrastructure such as power, roads and water. Third is social infrastructure that includes education, health, skill building, hygiene and sanitation. Fourth is governance, which means that whatever policies you have, whatever laws you have, whatever funds you spend, they must reach the people so that the effectiveness of government could be judged by whether we are able to improve governance or not. And the last is the attention to the disadvantaged groups, which are not likely to benefit from growth and governance alone—this could be migrants to cities, primitive tribal groups, could be women, could be Dalits, could be disabled people—who would need some special attention.

The focus to these five goals and the relative importance may vary—some economists may say you give more importance to growth, some may say governance is equally important. But by and large people will agree that growth, physical and social infrastructure, governance and attention to disadvantaged groups—all these need to be done to the extent possible.

The new government has started a number of initiatives, which are very laudatory. For instance, on improving growth, the focus is on reducing delays and on simplifying regulatory framework. As you know the recent report from World Bank said that India’s rank in ease of doing business has fallen from 106th in 2006 to 142nd in 2014. So instead of improving our rank, we have gone down. Prime Minister’s goal is in five years that we should come up to 50th. Attention has been given to what needs to be done at the government of India level—some labour reforms and changes in other laws have been initiated, and environment clearances are being expedited.

Need Reforms in States

N C Saxena
Distinguished Fellow, SKOCH Development Foundation

But here I would like to point out that we also need to find out what is happening at the state level because states unfortunately are continuing with a large number of redundant and totally antiquated laws, which are not necessary and which are coming in the way of growth, which are coming in the way of enterprise and coming in the way of the new slogan Make in India. To give a couple of examples, if you recall some years back when Amitabh Bachchan wanted to buy some agricultural land in Maharashtra, he could not do so. He had to say that he has got some land in Bara Banki in Uttar Pradesh (UP) because according to the laws in Maharashtra, only agriculturists can buy agricultural land. Which means if industry wants to buy agricultural land, it is not possible. This law must be changed.

In Delhi, a marginal farmer cannot sell his land, he has to follow a number of subterfuges in order to benefit from growing prices of land. In Tamil Nadu, you cannot convert prosopis into charcoal. Prosopis grows as a weed all over India but you need a certificate from the forest department as to where you got the raw material.

Some 15-16 years back, I had gone to Orissa where I found that some women had been prosecuted because they had kept brooms in their houses. There was a law in Orissa at that time that you can collect brooms from the forest area but cannot store them, you cannot sell them in the open market and you cannot dispose them off on your own. Some women were promised by the collector that the rule will be changed but the collector got transferred so the law could not be changed and the police arrested the women. I made it a personal challenge that I will get this changed. I kept on writing to various secretaries but nothing happened. Ultimately, I had to do what all Indians do—I had to bribe and I bribed the then Chief Minister with Rs 500 million ! I was secretary at the planning commission and when the chief minister came to me for funds, I said sir get this law changed, I will give you Rs 500 million extra in your plan outlay. He said yes. He himself was a tribal and he understood the issue. Then this was changed in March 2000. What I am trying to say is this government should also pay some attention to what all is happening at the state level and what are those laws and procedures that need to be changed.

States unfortunately are continuing with a large number of redundant and totally antiquated laws, which are not necessary and which are coming in the way of growth, which are coming in the way of enterprise and coming in the way of the new slogan – Make in India.

Even today, paddy cannot move from Fatehpur to Kanpur (both in Uttar Pradesh), which is at a distance of only 80 kilometres, because they are in different zones. If you have to move grains from one zone to other, you need a certificate.

Low Tax Base Impinges on Social Spending

Coming back to growth. Growth helps in garnering revenues, which can be used for pushing your social sector programmes. Unfortunately, the Tax:GDP ratio in India is very poor—it is just about 15-16 per cent of our GDP, which is not sufficient to see that our investment in health and education reach the level of middle-income countries. As opposed to 16 per cent in India, the Tax:GDP ratio in South Africa is 31 per cent, Russia (32 per cent), Brazil (34 per cent). In Sweden and Denmark, it is more than 45 per cent. Therefore, if you are not able to improve the tax collection, you can’t raise expenditure on education and health significantly. If you recall, our ex-PM said in 2004 that expenditure on health will improve from 1 per cent to 2-3 per cent of GDP—unfortunately it remains at about 1.1 per cent now. For education, the target was we will be spending 6 per cent of GDP. We spend only 3 per cent. Even in most privatised countries like the United States, you find spending on health at something like 4 per cent of GDP. Neither the last government nor this government is actually thinking of improving direct tax collection which ultimately will impinge on our social sector and most programmes will suffer because of lack of investment. Be it physical or social infrastructure, you need more public funding.

To give an example, in US you have to pay about 1 per cent of the property value as annual property tax. Whereas in India, if someone lives in a 3-bedroom flat in Delhi costing Rs 50 million, the annual tax is just Rs 15,000-16,000, which is not even 0.1 per cent of the property value. It is in these small areas, we have to find out how to improve tax collection.

Wrong Skill Mix

Coming to the popular slogan of Minimum Government and Maximum Governance, it implies minimising regulations. But sometimes we also think that there are too many government servants and the number needs to be reduced. There, data shows, India is awfully short of government servants when compared to world average—it is 1.4 per cent of the population in India whereas in East Europe it is 6 per cent, in Asia it is 3 per cent and world average is 2-2.5 per cent. Even in countries like China or Vietnam or Sri Lanka, the number of government servants is about 4 per cent of population.

But there is a problem here—the skill-mix is wrong in India. You have too many orderlies, clerks, drivers and peons, who are not needed because of computerisation and changing nature of government functions. About 30 per cent of our staff are not needed now but we are very short of doctors, nurses, teachers and even policemen. So, people who are needed in the line positions are missing while people who are not needed in support positions are too many. So, support functionaries need to be reduced and line functionaries need to be increased.

Tax:GDP ratio in India is very poor—it is just about 15-16 per cent of our GDP, which is not sufficient to see that our investment in health and education reach the level of middle-income countries.

The other point here is, most of the line functionaries who have been appointed in government in the last 10 years are contractual. The government has appointed a large number of contractual doctors and nurses under National Rural Health Mission. Anganwadi workers have been trebled but are not government employees. Thus line functionaries who are more important are contractual whereas the less important support staff are regular and get higher emoluments. Para teachers gets Rs 5,000-6,000 per month as compared to Rs 30,000-35,000 paid to regular teachers. Here it is interesting to note—while the general impression is that as salaries increase, output increases, in India we find the para teachers’ seems to be teaching whereas regular teachers are often absent or not teaching at all.

Another feature in the government is that there are very few people in the supervisory position. Therefore, whatever is happening in the villages is not being supervised adequately. Even if they are supervised, there is collusion between the ground staff and the supporting staff. Once I went to an Anganwadi centre and asked a worker: look, all these children are malnourished but your register does not show this. He said no Sir, upar se adesh hai ki sau bacche me sirf ek hi ko dekhana hai (there is an order from higher authorities that we have to show only one child out of 100 as malnourished). All along, the supervisors keep pressurising the Anganwadi workers that don’t show the actual numbers of malnourished children in the records. As a result, the National Family Health Survey shows the number of malnourished children at 44 per cent—now it is 30 per cent, which is good—but the data which flows from Anganwadi centres shows it is only 8 per cent.

It is not just for malnutrition but in all sectors, we find the reports from the lower level (state-level) are highly inflated and not at all trustworthy. Look at sanitation, which is a top priority for this government—if one compares the Census data with the reported data, Uttar Pradesh government was showing 92 per cent of households in rural areas have got toilets whereas the Census data showed it was only 25 per cent. So, 92 per cent was the reported data and 25 per cent was the evaluated data. This is very unfortunate. Unless we improve our monitoring and reporting system, and see to it that it is credible, nothing much will happen.

I recall, when I was teaching in Mussoorie a course for collectors, I asked why do you sign in a file and send data which is totally bogus and not correct. There was absolute silence. Then one collector got up and said Sir reporting correct data is a high-risk and low-reward job—if I report correct data, the government might take action against me but my batch mates and other collectors will go scot-free. It is both an ethical question as well as a managerial question as to how to improve the data because otherwise accountability cannot be fixed. We cannot have results unless we improve data.

I went to Maharashtra a few months back and I told the Sanitation Secretary that your data is totally bogus. The Secretary said don’t call it bogus, this is ‘advanced statistics’, this is what we will achieve after 10 years. But we are so fond of this programme, we like to reportit right now. That’s how they tried to justify wrong data.

In fact, in the health sector the reason why there was some excellent progress on polio eradication, was that the WHO and Unicef had appointed a large number of people in the villages, who would report correct data. Not a single child went unreported. Had you left the programme at the hands of state governments, they would have reported the way they did for malaria and HIV, and would have said polio has been eradicated long time back!

Improving governance is not just improving monitoring and evaluation, we also need to ensure that the funds reach the last point. It is so pathetic that in some states like Bihar, Anganwadi workers gets her salary only once in six months. Now imagine, the poorest paid employee does not get salary every month. In Jharkhand, a study showed that those who are working at the gram panchayat level, only 18 per cent get their salary in time. In Mid-day Meal programme, the cooks-cum-helpers get their salary only after 3-4 months. None of them gets their salary regularly as so much of certifications are needed, because of which the salaries get delayed. Even in case of government-to-government payments, in Bihar it came out that there was no Mid-day Meal in some villages because the state government did not pay the bills of Food Corporation of India promptly.

Our financial structure and procedures were designed by the British when expenditures used to be in hundreds and thousands of rupees. Now that we are spending millions and billions of rupees, the financial structures and procedures need to be changed. We can always learn from other countries. In Singapore, the expenditure budget is passed for 5 years. So, each department has the flexibility—if it wants to draw less in the first year, it can draw less, next year it can draw more, whenever it wants to draw the money, it can do so. We need to really innovate. Unfortunately, in India it is not possible—you have to change the Constitution if you want flexibility in budgetary procedures.

So, in governance, there are many reforms needed—there are controversial issues and there are political issues. For instance, the tenure of government servants at the district levels are very short—a study showed it is 3 months in UP and 50 per cent of collectors get transferred within a year. A policeman once confided to me that aab to hafte hafte ki posting hote hain, to hum hafta banate rehainte hain (since we are posted for just about a few weeks, we only spend our time in collecting weekly bribes). Reforming this will be controversial because politicians use this as a weapon to make money, to harass officers and also to keep them under control. Government of India should change this and discipline the states through a change in the All India Services Rules making stable tenure mandatory for IAS and IPS officers.

There is also the issue of fund transfers to the states. It should be more flexible and more funds should be given to states as untied and link it with performance by developing a good governance indicator and say that those who improve on governance will get more money. In fact, this was the suggestion I had given to the 13th Finance Commission and its Chairman Vijay Kelkar was very sympathetic. In the report it was said that there will be incentives to those states who improve on infant mortality rates and afforestation. One of the terms of reference for the 14th Finance Commission is to look into how to link devolution with performance, and let us hope the Commission allocates significant amount as incentive fund.

So, improving governance will require a large number of steps, whether it is accountability, or fund flow, or improving information flow, better systems of recruitment, better tenure, which this government hasn’t so far paid attention to. But these are state subjects. Many states have passed Grievance Redressal Act but it need to be watched whether the grievances are redressed in time or not.

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