"Can Narendra Modi do it?", 'Business Line', May 27, 2014

Can Narendra Modi do it?

Among the first recorded statements of Mr. Narendra Modi, made in the Central Hall of Parliament, was that his government would “work for the poor”. While such a pronouncement by a newly- elected prime minister is a matter of  great import, we would be advised to be circumspect as we have heard it before. Over forty years ago Indira Gandhi had made the slogan Garibi Hatao the centrepiece of her campaign. Recall that she was voted back to power, but did not succeed much in the well over a decade for which she continued to govern India. To Mr. Modi’s credit his pivot to the poor came only after he had won, thus avoiding the taint of populism. Be all this as it may, his conversion has comes not a moment too late. Poverty remains a factor to be reckoned with in any serious assessment of India’s economic progress. Poverty measured as lack of access to a nutritional norm is estimated at around 30 percent of the population. Measured as the lack of access to a wider range of essential services ranging from housing and health it is likely to be well over 50 percent, which amounts to over half a billion persons.          

So even as we may cautiously thrill to the promise of his government we are reminded that he is yet to tell us in what way his government is going to work for the poor of India. Of course we must give him the time to strike out. But one thing  is clear at the outset. His election slogan ‘Minimum Government, Maximum Governance’ will not always sufficient, and will require alteration as he goes about his avowed task. Governance may be seen as doing everything that is necessary to attain the objectives of a government’s programme. So governance when not maximised is not governance at all, and we must agree with this part of Mr. Modi’s maxim. But its other half, minimum government, is not necessarily the right solution for India at present. There is just far too little government in some vital sectors. Think of infrastructure. The government’s presence in this sector is far less than in the industrialized economies of the world. Infrastructure is in the nature of a public good which, as the very term implies, is unlikely to be provided optimally by the private sector. After all, it is recognition of this rather than sentimentality that prompts western governments to intervene in polities otherwise committed to free markets. Infrastructure ranges over road networks, transportation, sewerage, bridges, sanitation and waste disposal. The poor view this as empowering them much more than the laptops assiduously distributed to their children by politicians. Mr. Modi may be expected to have learned of this from the bitter experience of Mr. Akhilesh Yadav.

          Nevertheless, it is right to lay stress upon the importance of governance when working to improve the conditions of the poor. Outcomes in several sectors of the economy where the government intervenes are unacceptable as they are. These encompass agriculture, education and child health. Over the past decade and a half public expenditure on irrigation has increased substantially in real terms without any discernible impact on the area irrigated. The absence of assured water supply has ensured that Indian agriculture does not attain the continuous yield growth which alone can assure easy access to food. In the sphere of schooling, following the introduction of the programme Sarva Shiksha Abhiyaan by the NDA public expenditure on primary schooling has increased substantially. However, independent audits of learning outcomes reveal a disturbing scenario of declining standards. It may be mentioned here that private schools are only marginally better despite charging what are high fees to the poor. This suggests that privatization cannot be the answer. Finally, in the health sector, both the CAG’s performance audits and an academic evaluation of the Integrated Child Development Service –flagship programme of the Union Women and Child Development Ministry in place for over forty years – show that the programme is poorly implemented. Interestingly, the funds are either diverted or just left unused. The consequence is devastating when we take into account that the percentage of underweight children in India is twice sub-Saharan Africa’s. What unites the 3 cases is that in all of them funding is not the problem. They are stark examples of how improved governance can on its own make a difference to the condition of the poor. Nothing matters more for our sense of well-being than food, education and nutrition.  

          While improved governance can make a difference in areas in which the government is already present and spending, there are others where Mr. Modi’s penchant for ‘minimum government’ will not do the trick if as stated he wants an economy that works for the poor.  I have already spoken of the empowering role of infrastructure. UPA II had aggressively touted Public Private Partnership as a mode of provision, but it has not been transformative. There is no doubt that much more public capital is needed, and moneys would have to be found. Coming to the social sector, it is in health that the need for a larger government presence is most urgent. Here too governance can make a difference alright but there is far too little spending to start with. Some idea of what is needed comes from the evidence that we spend less than the international standard. The poor health status of India’s working population impacts its growth prospects. It is not very difficult, from a regulatory point of views to start a new hospital here. That yet the private sector has not been induced to raise the health indicators in this country suggests that a substantial extension of the public system is needed. Mr. Modi’s ‘minimum government’ cannot be an answer here.

          There are two ways in which a programme of creating public goods and publicly providing health and education can be funded. Gas, oil and fertiliser subsidies, which amount to 2 percent of the GDP, must be discontinued and the money thus freed up be diverted to the social sector. There could also be some divestment. Maintaining Air India is no longer in the public interest. Secondly, the government must raise the tax-GDP ratio. Mostly, countries with a significant presence of publicly-funded infrastructure, both physical and social, are also economies with high tax-GDP ratios. When announcing a government that works for the poor Mr. Modi would have to shed some of his predilection for small government.  He may want to look at the economies of the west which, while despite strong commitment to free markets, have far greater levels of public expenditure than India does. They manage to do it via far a higher tax-GDP ratio. Even Brazil, which is much admired by some here for its social programmes has a tax-GDP ratio exactly twice ours. In India governments of all hues try to expand welfare without seeking to increase revenues. This bears a similarity to the problem of squaring the circle.      

          The transformation of the lives of over half a billion people by democratic means would be a consummation devoutly to be wished for. However, it cannot be achieved via the trope of minimum government. India waits and watches to see whether Narendra Modi can do it.