BCG estimates suggest that while India has 240 million smartphone users today, this number is likely to go up to merely 540 million users by 2020. Should the fact that half the Indian population will not have smartphones even by 2020, be a cause for concern? The underlying question I ask is, how may we shift the Indian government’s subsidy regime from one being conceived out of obligation, to one that creates opportunity?
At a macroeconomic level, India has been a global outperformer since 1989. Over the past 25 years, our GDP growth has been 6.3% per annum, with a moderate 6.1% inflation. The inflation figure would have been even lower but for the post-financial crisis period of 2009-13, when government subsidies were raised sharply as a percentage of GDP. The fiscal deficit has been brought under control and the current account deficit is below 2%. Considering the Planning Commission’s measures on absolute poverty, the poverty ratio has fallen to 21.9% in 2012 from 45.3% in 1994. These figures are not insignificant.
Yet, the average Indian citizen has not seen the kind of improvement this economic growth should suggest. On most social indicators, we lag behind the rest of the world. Water Aid cites that 60.4% of our population lacks access to sanitation, as against 33.6% of South Africans. We also trail much of the world on life expectancy, literacy, enrolment in secondary education, infant mortality and agricultural productivity measures. For instance, the World Bank figures for life expectancy are 72 years for Libya and 68 years for India; secondary education gross enrolment in India stands at 69%, while it is 96% in China, and 100% in Sri Lanka; the infant mortality rate averages 38 per 1,000 live births in India, while it stands at 11 in Thailand and Libya, and 13 in Kazakhstan. Similarly, China’s agricultural productivity is nine times more than that of India.
Within India, the variations are equally stark, making indicators of our poorest states abysmal. 2014 data from Indicus Analytics shows that the urban income of Bihar and Uttar Pradesh is Rs67,500 and Rs72,000, respectively, compared to the overall national average of Rs125,200. The per capita rural income for Bihar and Uttar Pradesh is even worse at Rs28,300 and Rs37,700, respectively, as against the national average of Rs47,300.
After 70 years of independence and despite very high levels of social payments, the needle has not moved much.
The government spends Rs2.7 trillion directly on subsidies. It subsidizes cooking gas, kerosene and fertilizers, and provides 100 days of assured employment under Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) to anyone who needs it. In addition, most government hospitals are subsidized, public education is free and electricity is not paid for by farmers in a majority of states. Agricultural income is not taxed, irrespective of the income level of the farmer. Despite all this, the lot of the average Indian leaves a lot to be desired. How may we change this equation? How may we transform subsidies from being handouts for survival to becoming enablers for better life opportunities?
Opportunities for social and economic betterment are critical for a young nation, where 650 million Indians are under 25 and 850 million are under 35, or this population faces the risk of being demoralized and unstable. There is no better proof of this than the massive mandate given to Narendra Modi in 2014. It captured and reflected this growing Indian aspiration. As a result, many of the things put on the national agenda were a first: cleanliness and toilets, better governance, power in every house, digitizing India, start-up India and self-employment. Some subsidies were reduced and a platform for direct benefit transfer through the JAM trinity (bank accounts, Aadhaar and mobiles) was created. But the old subsidy regime continues. It must go.
The government has to change the way it addresses market failure—a situation in which the allocation of goods and services is not efficient—in important areas with high positive externalities such as education and healthcare. The most important market failure in the future is likely to be with respect to access and usage of technology and data.
This has to be understood and incorporated into new government initiatives. The rapid speed of change, driven by digitization (computing power, ubiquitous connectivity, improving bandwidth, limitless data storage, the rollout of Aadhaar, artificial intelligence, robotics and 3D printing) is reshaping the world. Together with these, improvements in our per capita income, widespread television and cell phone penetration, and frequent competitive election promises have spurred our aspirations and the desire for a better life throughout India.
The government has to introduce a new paradigm which will have massive positive externalities if it provides easy and unfettered access to data. This will need all Indians to have smartphones, perhaps subsidized, with fast, stable and ubiquitous connectivity. The current government has started its journey down this path, but the process has to accelerate.
Let me offer five areas for immediate exploration that can effectively help craft this new paradigm.
Better health: While the government has made a great start with the provision of subsidized insurance coverage along with the Jan Dhan Yojana, it needs to do more. India’s advantageous demographics in an ageing world are of no use if our young people are malnourished, uneducated and unskilled. How may the government encourage simple steps that can promote basic hygiene and provide information on foods that nourish? Can it broadcast tips on hygiene, nutritional properties of different foods and contraception over Doordarshan? Or announce the same through megaphones (as during elections) at places where married and young women congregate—near water pumps and vegetables vendors, or where clothes are washed? Can it also incentivize people to maintain better health, for example, by offering cheaper insurance if families practise better hygiene, as identified by proxies like the number of Lifebuoy soaps bought by the family every month?
Better education: The quality of learning outcomes in India is abysmal. How can we change this by using a combination of technology, independent measurement and transparency of outcomes? Can we differentiate the approach we use for urban centres from rural areas? In urban centres can we introduce competition, auction municipal schools to private parties and provide parents with vouchers that can be used across schools? In rural areas, can we ensure that all teachers are provided iPads or smartphones through which they can access lessons being taught in the best schools, and get a week of training every year? Can some oversight and measurement of outcomes be introduced? Can drones be used to track attendance and participation in schools? Can private independent outcome measurement be paid for by the government? Can audited learning results be made public and debated in Parliament in order to incentivize improvement through competitive federalism?
Better skills: Could we use the appropriate agency to identify skill gaps in India and address them by creating a private-public partnership that is subsidized by the government? This would require gap identification and curriculum development and training provision. We would also need a wide range of skills, right from housekeeping, carpentry and security services, to Unix programmers and data scientists.
Thereafter, the government could provide basic training vouchers to applicants listed on an employment registry (names with Aadhaar numbers). Furthermore, universities could be encouraged to provide courses and modify their curriculum to address the more pronounced skill gaps.
Better information: What kinds of measures can the government undertake to facilitate the provision of important information? How may it cut asymmetry in information and mitigate disadvantage? Where may people be able to access government accredited health and education sites for free? Could information around the proper sowing patterns for different crops, mandi prices of agricultural products across India, job openings and associated salary offerings in different regions be made easily accessible? Could the government maintain a national skill database with the Aaadhar numbers, contact numbers, references and grades secured by people who have undertaken skill courses, to mitigate frictional impediments?
Better connectivity: Ubiquitous connectivity at fast speeds is the need of the hour. Railway stations and post offices across the country should be hotspots with high-speed Internet connections. The government should consider whether the best way to do this would be to roll out a broadband network or to provide sufficient spectrum at affordable prices to ensure proper connectivity. Subsidizing the rollout of PoS (point of sale) machines throughout India is another possibility. The pushing ahead of the JAM trinity should also be facilitated to effectively transform the existing subsidy paradigm. These measures will reduce the use of cash across the country, thus bringing in a lot of collateral benefits such as financial inclusion and reduction in tax evasion. The larger population will have quicker access to information and services that can foster peer-to-peer learning.
I suggest some of these ideas and questions as a way to start a conversation. We need to revitalize our subsidy schemes and channel them to create opportunities for the growth and development of our youth. As we have proved time and again, when given the right environment and basic opportunities, Indians are quick to prosper. This is the route to an empowered and enabled India; where its citizens have a chance to actualize their dreams and build a society that is healthier, fairer and more inclusive.
Dr Janmejaya Sinha is chairman, Asia-Pacific region, The Boston Consulting Group.