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Reform alphabet soup

Reform alphabet soup
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First Published: Mon, Aug 01 2011. 12 15 AM IST
Updated: Mon, Aug 01 2011. 12 06 PM IST
Think of India as three countries—India A, B and C.
India A is like a middle-European country. Access to education and opportunity is widespread. “A” citizens (A’s) are driven in nice cars, live in relative comfort and own smartphones. They vacation abroad, eat out often and rarely take trains. They have PAN (permanent account number) cards, demat accounts and Internet connections. A’s can afford to buy non-seasonal fruit, expensive breakfast cereal and pizza. “A” children often go to private schools and pay between Rs20,000 and Rs8 lakh per year for high school. Per capita income is north of $25,000 per year. I estimate that some 25-30 million households in India belong to this group.
India B is an aspirational country. “B” citizens (B’s) look up to A’s and aspire to their visible lifestyle. B’s are hungry and scrappy. They work hard, make ends meet, and attend tuition classes. They live in inherited homes or in small flats. B parents sacrifice freedom, space, money and time for their kids’ progress. They often live in urban locations, though increasingly some rural citizens are also becoming members of this class. “B” children go to government schools, Kendriya Vidyalayas or affordable private schools. They pay Rs10,000-1 lakh per year for high school. Per capita income ranges from about $5000 to about $20,000 per year. I reckon about 60-70 million households make up India “B”.
India C is a large country. “C” citizens are largely devoid of opportunity and hope. C’s live from season to season, year to year. They are often one black lottery ticket away from despair. This may come in the form of sickness or accident or drought or floods. Surprisingly, they are a generally content lot except when hunger or disease or natural calamity invades. C children drop out of school and often join the family’s subsistence trade. Over 100 million households may be classified as India “C”.
While India C is large, India A and B have grown at a faster rate and are large by any absolute or external measure. Make no mistake, the size and speed of A and B has come after 20 years of reform and liberalization of the Indian economy. For 40 years prior, India had a minuscule size of rich, a very modest middle class and a very large class of the poor. The economic emancipation of some 50-60 million households into the ranks of India A and B has taken place in the last 20 years.
India A, B and C do intersect. They intersect on the roads and in urban public spaces. They intersect sometimes in legislatures and courthouses and government offices. These intersections are not pretty. A’s can manage the sweat and grime of India’s humid and fetid streets only in small doses before they retreat to their oases. B’s have no choice but to navigate the mess as they toil through their lives to move it ahead. And C’s just watch from the sidelines hoping to be recognized for their basic identity as human beings.
The challenge for policymakers is to balance the hopes, aspirations and plans for these three very different countries at the same time. For the last several years, governments have come up short, both at the Centre and in the states. All political parties have simply chosen to continue the subsidies to India B and pander to India C with populist measures. Free power, bicycles, TV sets and low-cost rice have dominated election manifestoes. Imagination in political circles is at its lowest ebb.
It need not be so. The first thing to recognize is that freeing the economy from government control has greatly benefited millions of households. The fact that the bottom of the pyramid has not yet been touched is not an argument to stop what has worked for much of the rest of the pyramid. And there is a lot still left to free from control—the labour market, power and education to name a few. At the same time it is only fair to accept that the speed of the benefits trickling down the pyramid has been too slow. The aspiration of India B to catch up with A and of India C to begin to look more like what India B is today is likely to take a generation or more at current speed. This gap needs to be supported with some measures that increase the access to opportunity. Effective implementation of free primary education, affordable skills training and accessible matching for employment are keys to success.
Freebies and quotas are not the answer. They hurt the exchequer in the short term, but emaciate our human capital in the long term.
PS: “As human beings, our greatness lies not so much in being able to remake the world—that is the myth of the atomic age—as in being able to remake ourselves.” Mahatma Gandhi.
Narayan Ramachandran is an investor and entrepreneur based in Bangalore. He writes on the interaction between society, government and markets. Comments are welcome at narayan@livemint.com
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First Published: Mon, Aug 01 2011. 12 15 AM IST