India’s economy is best symbolised by the yo-yo—strung at the crossroads of hope and cynicism, between deliverance and disappointment. The India Story plays out in fits and starts, mostly buffering fuzzily as if the economy is operating on a poor Wifi link. For over two decades, the political class has marketed many definitions of what they believe is the problem and what they think is the solution. Every definition is mostly about reallocation and redistribution, not about efficiency or outcomes.
This is best epitomised by the semantics of politics, on the discourse on growth. Much of the discussion is focused around inflation. And what is inflation? Inflation is classically defined as too much money following too few goods. Inflation is also about too many programmes and too little governance, about spending without an obligation for results.
The philosophical moorings of Indians may well be located in the lines of poet-philosopher Kabir who said “stretch your lengths only till where it fits within your blanket” ergo the reputation of Indians as thrifty cost-sensitive consumers. The political moorings of governments though are located in profligacy.
And nothing tells this story better than the data on the charts. In 1991-92, the total expenditure of Government of India was Rs 1.11 lakh crore—that is, about Rs 300 crore per day. In 2013-14, it was Rs 15.9 lakh crore—that is, about Rs Rs 4,350 crore per day. In 2013-14, every day the government spent Rs 1,437 crore more than it earned. And how is this gap funded? The 1991-92 budget documents reveal that the gross borrowings of the government was Rs 8,921 crore. In 2014-15 (interim budget), the government must borrow nearly Rs 6 lakh crore—that is, Rs 1,600+ crore per day, or roughly Rs 69 crore per hour of which nearly Rs 48 crore is for interest costs. The gap in revenues and expenditure has been exacerbated by expansion of the exemption regime. Between 2007 and 2014, over Rs 20 lakh crore has been doled out in tax exemptions without any review of the benefits in terms of job creation or on growth. Persistent deficit and perpetual borrowing has crowded out the private sector and impacted growth in GDP and per capita incomes.
True. A growing economy must borrow to invest in human resources, physical infrastructure and for growth. What is the story here? Between 1991-92 and 2013-14, in dollar terms, while borrowings went up 33 times to about $250 million a day, GDP grew just over six times from about $275 billion to about $1.8 trillion.
This is unsurprising given the quality of spend. Increasingly, government is spending more on running the government. In 1991-92, nearly a third of total expenditure was denoted as capital expenditure; in 2013-14, it was barely 14 per cent. Reason: over Rs 700 crore a day was spent on subsidies which nobody can certify actually reached intended beneficiaries. The catch-all phrase of reforms has morphed into a catch-all-votes slogan of convenience.
Successive governments have increased spending to create private income with scarce concern for creating public goods to sustain growth. By funding demand and not investing in supply, governments have institutionalised high inflation—visible in the double-digit food price inflation. Regime after regime has peddled allocation as achievement. Yes, there is a need to invest in human infrastructure. And state and Central governments spend roughly Rs 7 lakh crore on the social sector. Yet, India’s ranking on human development indicators is only sliding. It is easy to confuse the voters and sell outlays, but it is outcomes that bring material change.
There has been a lot of debate on delayed projects—projects worth about Rs 15 lakh crore are stalled. Its impact on investment, job creation, consumption and growth is reflected in the sub-5 per cent GDP growth in the past two years. There is also a need to review efficiency within government. Government investments in infrastructure are afflicted with time and cost escalations. Under the much-touted urban renewal mission, only 219 of 539 urban infrastructure and governance projects sanctioned were completed.
The harsh truth is that every political version of reforms by successive political regimes has skirted the central issue of efficiency of resources and of processes. There is an urgent need to fix administrative and political responsibility for targets. The first step should be to institutionalise the idea of outcome reports to leverage resources.
The thesis of decisive mandates has failed India frequently. So has decisive leadership. Indira Gandhi and Suharto took charge of India and Indonesia respectively around the same time in the Sixties. Both Indonesia and India had similar human indicators. By the 1990s, Indonesia had brought down its poverty levels from 59 per cent to less than 10 per cent while India was still struggling around 45 per cent. Rajiv Gandhi won over 400 seats but lost his way, enmeshed in a series of intractable issues.
The voters have divested from scepticism and invested in hope. The Modi Sarkar has been blessed by a mandate to change India. This is an opportunity for real reforms, for efficiency. If it follows the monies spent, achche din will follow.
Shankkar Aiyar is the author of Accidental India: A History of the Nation’s Passage through Crisis and Change.