Friday, February 25, 2011

India's Uneven Development Woes - Part II

In a few states like Gujarat, the government was able to push through its urbanization and industrialization agenda. In in less than 2 years of SEZ policy implementation, the state saw creation of about 2 million jobs. The state has also seen sharp fall in its poverty rates. In contrast, in West Bengal, one of the poorest states in India, where the first such SEZ was tried in Singur, it led to violent protests and clashes. Tata Motors plant was shut down and this stalling helped the opposition party make huge electoral gains. The poverty and unemployment remains as high as before in the state.

Due to such opposition to spread of industries to the rural areas and under pressure from activists, the Indian government then tried to implement National Rural Employment Scheme (NREGA). This meant paying minimum rate wages to all rural households for a minimum of 100 days under the guise of employment. The central government outlay for the scheme is estimated to be a whopping 5% of the GDP. Now coming to the implementation, which is the main problem in all such schemes. Corruption and discrimination has already seeped into the project. Making a job card requires bribes ranging from Rs5–50 and caste, gender and religion based discrimination has been noticed. The benefits have been cornered by local powerful elements and better off sections in the villages leaving the lowest castes, women (particularly widows) as well as the below poverty line populace relatively untouched. Social audits reveal that the number of job cards issued have been in excess of numbers employed, indicating that the funds have been embezzled by local officials. Studies show that there is little evidence that NREGA is being implemented any better than the panoply of poverty-focused schemes introduced by the government of India over the past 20 years, where a large share of intended benefits have been captured by the elite classes, including petty functionaries. "Jawahar Rozgar Yojna" was a similar scheme tried in the 1990s. This costly initiative is also at a time when India is facing large budget deficits as well as a ballooning debt problem. Ultimately, this kind of reckless spending without any long term payoffs leads to an inflationary economy as has already happened.

Let us examine in simple plain terms how a decentralized economy alleviates poverty. Let us say a few factories are opened in a rural area. Apart from direct employment as industrial labor, a lot of secondary and tertiary employment is generated. People come to live there and houses etc. have to be built, someone opens tea stalls, small eateries, someone caters to the factory canteens, housekeeping jobs are created, and small shops will open. Employment is created, in a sustainable manner; no supervision is required, people get paid for the work and initiative and it remains largely corruption free. Further, it would not put a burden on the already stretched exchequer; instead the government earns taxes from these business operations. Employment generation thus becomes the prime means of alleviating poverty.

Unlike in nations like Venezuela, the Indian government understands that development needs require spread of industries and urbanization, but it is the populace and their opinion leaders who stand opposed to it. As Narayan Murthy also notes in his book on India, all pro development and pro urban politicians lost elections in 2004. Looking at it from people's point of view, living amidst hopelessness and destitution, the poor populace relates to a leader who comes and distributes something free. He sees that as pro-poor and thinks this is the party that cares for him and must be voted for. It is hard, if not impossible, for him to fathom the intricacies of a market economy and how its "invisible hand" is going to benefit him. The model is rejected before even trying it.

This kind of a societal conflict over industrialization happened in the Western nations too, in the early part of the 19th century, but as they did not have democracy right through their development process, they did not have to convince the entire rural poor populace of the long term benefits of it. The poor, now as then, view development with suspicion, believing it will never benefit them. This insecurity is further fuelled by opposition parties, activists and even portions of media. Even in China the development and the resultant poverty alleviation program met with tremendous resistance and people did not support it initially, but the program was not derailed as Chinese leaders do not have to campaign for votes.

In an underdeveloped democratic nation, however, development is actively opposed but the need for instant gratification dominates the voters demands. There is a tendency to demand everything “free” from the government. And increasingly the governments that oblige with freebies like bags of rice, saris, cash, loan waivers, etc., are termed “pro- people”. In reality these are just short term programs that instill scope for corruption as political middle men hack away at the sums being doled out. Further to fund such pro poor programs, the governments start printing money which leads to inflation as has already been seen in India and far worse in a nation like Venezuela which has also tried some very ambitious "distribute something free to the poor" programs. Alternately, in a democracy, if a government follows a more long term and prudent approach of working through the economy or investing in infrastructure, it gets labeled as “pro-rich”. Such parties and leaders lose elections to make way for "pro poor messiahs" who distribute cash, TVs etc. free to the people but ultimately, it is unproductive use of already stretched and meagre resources. Further, benefits from such pseudo pro poor programs are cornered by the corrupt middle men but the inflation that results from such reckless spending hits everybody, whether or not they received any benefits.

Industrialization does pose challenges that ought to be addressed but the solution is not to avoid development altogether, leaving people destitute and agrarian. All the developed nations have followed a decentralized market economy as their basic poverty alleviation model and overall that is what has been the defining point between developed and under developed countries, not democracy. However in nations like India, a turn to democracy without developing first, has led to a stalling of the process itself. That is why poverty remains high and development uneven

What about education - why does such a large proportion of population remain illiterate? - Let us examine next..

Complete Essay in the Book Democracy on Trial, All Rise! - "Democracy Derails Development - How and Why"