How Can India Curb Rentrepreneurs and Non-Merit Politics? - The New Indian Express

How Can India Curb Rentrepreneurs and Non-Merit Politics?

Published: 09th March 2014 06:00 AM

Last Updated: 09th March 2014 12:57 AM

The stock market is in a lather, the Sensex rising in a spiral of optimism. D-Street is betting its moolah and investing its faith on a ‘Modification of the economy’. Thanks to years of stasis, phrases like decisive, authoritative, even authoritarian, are being bandied about with a seductive ring. Yet there is no denying that the road to growth and salvation will be long and arduous. The narrative of falling growth, stalled investments and sliding savings is yielding, true, but to new nightmares. The discourse on the economy is moving from ‘known knowns’ to ‘known unknowns’ exacerbating fears of ‘unknown unknowns’. To borrow from Oscar Wilde, it is a crisis that, just yet, has no name.

The crisis in the economy is in some ways cyclical, one that has been foretold many times over. Conventional wisdom has it that governments subsidise the people. The harsh political truth is it is the taxpayer who is subsidising political enterprise. There is little focus on productivity of resources deployed. Neither is there any concern that burgeoning deficits lead to confiscation of future incomes and wealth. That doesn’t though stop regimes from preaching the prose opportunistically. Consider these pan-party nuggets:

• The government’s coffers are empty: V P Singh on taking over as PM on December 3, 1989.

• The fiscal imbalance is the root cause of the twin problems of inflation and the difficult balance of payments situation: Madhu Dandavate, Budget 1990-91

• Neither the government nor the economy can live beyond its means for long: Yashwant Sinha, on March 4, 1991, in the budget that could not be presented.

• There has been an unsustainable increase in government expenditure. Budgetary subsidies with questionable social and economic impact have been allowed to grow to an alarming extent: Manmohan Singh, Budget 1991-92

• Fiscal and revenue deficits are too high and are undermining our ability to bring down interest rates, stimulate investment and growth: Yashwant Sinha, Budget 1999-2000.

• We are now at a juncture when it is necessary to take hard decisions: Pranab Mukherjee, March 16, 2012, presenting Budget 2012-13

• Money does not grow on trees: Prime Minister Manmohan Singh, September 21, 2012

This year marks a quarter of a century after the debilitating crisis of 1990-91. Has India’s political class learnt any lessons?

In 1991-92, the Government of India borrowed Rs 22 crore per day, every day (gross borrowings). In 2014-15, the Government of India will borrow Rs 68 crore every hour of the day. That is, Rs1,635 crore every single day. Of this, Rs 1,169 crore per day is being borrowed to pay interest on past borrowings. If this was a company—borrowing to pay interest—it would be technically defined as bankrupt.

It could be argued that as an economy grows, it must find resources to fund development; therefore, some borrowing is legitimate. This pre-supposes productivity and efficiency. Fact is, while India’s GDP rose from $275 billion to $1.8 trillion, borrowings shot up from Rs 8,279 crore to nearly Rs 6 lakh crore. And how was revenue growth? Tax revenues (net of states share) rose from Rs 50,069 crore to Rs 986,417 crore. What does the math tell us? Between 1991-92 and 2013-14, GDP grew 6.5 times, revenues grew 19 times, and borrowings grew 72 times. (Sure, there is inflation and these are in nominal terms, but inefficiency of resource deployment is undeniable.)

Some would say borrowings are essential to provide social succour as subsidies to the less fortunate. Between 1991-92 and 2014-15, subsidies rose from Rs 12,253 crore to Rs 255,708 crore, about 20 times. Contrast this with the rise in borrowings as also outcomes. India spends close to Rs 6 lakh crore, between the Centre and states, on the social sector. In 1990, India was ranked 123 of 160 by the UN Human Development Index. In 2013, it is ranked 136 of 186 nations. Consider the performance of others in poverty reduction: Brazil from 17.2 per cent of the population in 1990 to 6.1 per cent in 2009. China from 60.2 per cent in 1990 to 13.1 per cent in 2008. India from 49.4 per cent in 1990 to 32.7 per cent in 2010. Even if you factor the government’s claim of bringing down poverty to 22 per cent, India underperforms both Brazil and China.

India’s failures are the consequence of the failure of the democratic process and of voters—to check hijack of crony capitalism and the ideology of profligacy. Voters have also failed to hold parties accountable for outcomes. Nine years into being, the much-discussed MGNREGS has delivered jobs to a fraction of the rural workforce.

Yes, it has lifted wages, but left the workforce without competing job opportunities at similar wages. Parliament passed a new Food Security Act that covers 67 per cent of the populace even as 56 per cent of grains on PDS don’t reach intended beneficiaries. Ditto the state of health and education.

India’s political economy is roughly sliced into five quintiles—the bottom three are occupied by those seeking entitlements and the top by those wrenching rent from the system. The equation is simple: political parties enable rent so their business model is funded, and expand entitlement to retain their share in the political market. This kind of non-merit politics leaves little room for economics of merit the middle class aspires for.

The fundamental question voters must ask and political parties must elaborate on is: can there be equity without efficiency? Without efficiency, politics will be reduced to a parade of promises when it should be about performance.

Shankkar Aiyar is the author of  Accidental India: A History of the Nation’s Passage through Crisis and Change

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