Martin Wolf wrote on 28 May about the growth report of the World Bank, a product of eminent policymakers and economists headed by Nobel laureate Michael Spence, which has, after 100 seminars, two years and $4 million, concluded that very little is known about how to turn low-income countries into high-income developed countries.
I have generally been of the view that economic theories and arguments do not get us anywhere in terms of delivery of development, and am more than happy with these conclusions. I am also happy with the corollary that the more economic reports and interpretations we have, the less will be seen on the ground and am, therefore, very glad to get back to my 40 years of administrative and real world field experience, to perhaps give me a sense and feel of what is happening.
Let us look at a few examples. We were told that the National Rural Employment Guarantee Scheme would solve the problem of unemployment and provide minimum entitlements. In many districts that I visited, the scheme is functioning efficiently — individuals have only to register at the appropriate government office and then turn up every month to sign the acquittance and collect half their entitlement in cash, the balance going to the pocket of the government functionary, who then takes care of the necessary record-keeping that public works have been done. In two places, I found factory workers (!) absent on a working day because they had gone to the tehsildar (revenue official) to collect their unemployment (!) benefits. There is definitely more money with the rural poor after this scheme, but it could have been achieved at much less cost. Administrators have been pleading for direct cash payments and subsidies to targeted beneficiaries for more than two years and it’s only now that some economists are turning to this point of view.
We were told that for infrastructure projects, a balanced concession agreement that would match benefits to government with private initiative would do. Several of us had commented that a revenue-sharing concession is good for the revenue sharers, but what’s there for the consumer? Who would guarantee quality of services to him? Three years into airport privatization, we experience the results whenever we take a flight (and not just from Delhi). In the search for the best agreements, the National Highways Authority of India has recorded the lowest performance in the last year in terms of completed mileage of national highways.
Finally, we were told last year that capital inflows were a very good thing and that a strong rupee reflected the inherent strengths of the economy and that we could manage the inflows. We are now told that a weak rupee is good for exports, for revitalizing manufacturing and adds value to inward remittances. We are also told that there is need to match the earlier government’s figures of inflation and since they had 8% some eight years ago, this government should also have the same, even improve upon it. These arguments are a bit confusing.
The difficulty with the ability to explain events after they have occurred is that it moves the problem from the real world to the conceptual one. The consumer and citizen, however, live in the real world and look for solutions that can be implemented. And it is in the real world that there are solutions which can very easily be implemented. Let us look at just three possibilities, in different sectors.
The first is efficiency of energy use. The consumption of diesel is climbing, substantially because the distorted pricing has made diesel prices lower than that of a poorer fuel, furnace oil, and industry with generators has switched massively to diesel. Then there is substantial diversion of LPG to automotive use. These are two areas of wasteful use that can easily be controlled to effect consumption savings in these fuels of, perhaps, almost 10%. Also, it is important that there should be some regimen of discipline in energy use — Japan improved energy efficiencies more than 30% after the 1973 oil shock. Can we think of cash or tax incentives to industries and commerce which reduce consumption and improve efficiency of use?
The second is food distribution. Wheat procured at Rs1,000 per quintal is being sold back to the same people at Rs2 per kg. Surely this is not good economics. At least one could move to smart cards and remove leakage. I have written this last time, but it remains the single most important delivery that is possible in a short time.
The third is some pause and clarity in the policies in financial markets. There is a bewildering array of interventions for and against external commercial borrowing, participatory notes, hedge funds, interest rates, etc. One gets the impression that policymakers have decided to give up on inflation and hope for growth. If so, why not give some pause to policy interventions and allow the markets and expectations to stabilize?
S. Narayan is a former finance secretary and economic adviser to the prime minister. Comments are welcome at email@example.com