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Guaranteeing employment
The Hindu
Dec 27, 2004
By Amit Bhaduri
If this Government still has eyes to see and ears to hear the
poor, it must be bolder with a much larger employment
programme.
It is puzzling why even democratically elected governments find
it so hard to attach utmost priority to the problem of
unemployment. They seem more bothered about the level of
fiscal deficit, the health of the stock market, direct foreign
investment or privatisation. The issue of how best to ensure a
stable livelihood for millions of the poorest and most vulnerable
citizens appears lower in the order of priorities.
In this respect, the lesson of the last election already seems to
have been forgotten. A `Shining India' with a 7 to 8 per cent
growth, or even a 10 per cent growth as in China might not
deliver in terms of election results. We have no way of knowing
what would have been the results of a free election in China but
we do know what the recent electoral verdict in India was. The
name of the game, all Governments ought to realise, is changing.
Neither high growth nor `sound' public finance coupled with a
booming stock market but a stable livelihood for the vast
majority of Indian citizens must be given the highest priority.
This might be acceptable in principle to all the partners of the
United Progressive Alliance Government headed by the Congress.
However, just like the previous Government headed by the
Bharatiya Janata Party, the UPA Government appears to be
following economic policies that indicate that its priorities lie
elsewhere. This is presumably partly due to the faulty economic
understanding of the current Indian economic situation, and
partly on account of the underlying political interests shaping the
policies of this Government. While the economic and political
aspects are intertwined, for a better understanding we need to
separate them.
Let me begin by emphasising the obvious. It is putting the cart
before the horse to talk about a range of human rights or
enhancing individual capabilities, until some very basic needs
such as food, clothing, shelter, and health are ensured for all
citizens. To presume that the market would do it in a country like
India is untenable, both theoretically and politically.
Theoretically, under the highly artificial assumptions of perfectly
functioning markets, it can be shown that the free market would
provide some solution. However even in theory, under the best of
circumstances described by perfect competition, there is no
guarantee that the distribution of income would be tolerable. In
the extreme, some people might have too little income to survive
and meet their basic needs; indeed, their starvation would be a
part of the market solution! Even more strikingly, there is
nothing in this branch of economic theory studying the properties
of the price system, which specifies how long it might take for
the market to reach its solution, if it reaches that at all (that is
the system is stable). So, like a dictator, the market can always
promise without actually delivering. And it becomes a convenient
excuse for a politician to claim indefinitely that until the next
round of reforms takes place, the good results will not follow!
Mercifully however, there is one hitch in this, at least in a political
democracy. Politicians are accountable for their performance by
the time of the next election. In this sense, unlike the market
system, our democratic political system has to work within given
time horizons. This is also an important reason why seeking pure
market solutions often makes no political sense, because even
under the best of circumstances one does not know even
theoretically how long it would take to yield result.
When the market fails to provide the solution, the Government
must be willing to act. There is no better way of doing this than
providing assured employment, which goes towards meeting the
basic needs of the poorest sections of the populations. This has
not only to be sustained but gradually extended in scope over
time, which is possible if the employment generation scheme
largely supports itself over time.
Economists these days tend to be wary of ambitious employment
generation programmes for two reasons. First, they believe there
is not enough `money' because a ceiling on fiscal deficit must be
respected. Secondly, often extrapolating from past experiences,
they suspect this would become no more than a way of income
transfer from the taxpayers, which would soon become
unsustainable. On both counts, they are wrong in the present
Indian situation.
It is a false doctrine that looks upon the Government budget as
analogous to the budget of a household. In terms of existing
institutional
arrangements,
unlike
the
household,
the
Government can run large deficits by borrowing from the Reserve
Bank of India, and from the public. It can even continue to
service its debt by borrowing more. This process can continue so
long as the economic credibility of the Government does not
suffer.
We would do well to ask ourselves whether a Government with
the achievement of rapidly expanding employment opportunities
and high growth would be any less credible in the eyes of the
Indian public than a Government that maintains a strict fiscal
discipline with a dismal growth and employment performance. My
best guess is that the IMF and the foreign investors would prefer
the latter option, but not the Indian public at large to whom the
Government is accountable.
There has never been any systematic statistical evidence in India
either that a larger budget deficit results in higher inflation. So
the link between budget deficit and inflation tends to be more
imaginary than real, and for good reasons. A larger budget deficit
by pumping more money into the economy would raise prices if
goods and services do not expand proportionately.
But consider the present situation. There is excess capacity in
sectors such as cement, steel and transport so that the real
investment for public works can be undertaken. `Money' in this
context is only a lubricant to place the orders for these
investment goods. As wages are paid in these projects, they will
be spent mostly on food and clothing of which also we have
stocks and excess capacity. In addition, we have a large foreign
exchange reserve as a safety valve. So the objection that the
Government has no money makes little sense in this context. If
the Government does not have the administrative capacity to
undertake this job, it must come clean without giving the lame
excuse of lack of funds.
Anyway, the road ahead is not to be found through the Central or
State Government administrations. Projects such as building rural
roads, warehouses for grains, and minor irrigation have to be
undertaken on a decentralised basis through the local bodies, the
elected panchayats. This raises two problems, which are little
discussed. But without facing them, the employment guarantee
schemes can never become sustainable.
First, if the panchayats are given the financial authority to
execute the programmes, what would be the role of the MLAs
and MPs, who are also elected representatives of the people? The
Indian Constitution makes the demarcation clear between the
Centre and the States but the legal framework seems far less
clear in defining the power of the panchayats. Secondly, the
benefit of decentralisation starts only if the local population has
the right to know about the accounts.
Is it too much to expect that all panchayats should, like the Fair
Price Shops, be legally obliged to display on board the funds
received and spent? As a matter of fact, without the Right to
Information, an Employment Guarantee Scheme, even with
enough funds would be like getting into the boxing ring with one
hand tied at the back.
The Bills, both on Employment and on the Right to Information,
which the Government is proposing to bring to the winter session
of Parliament, are highly diluted versions of what is needed.
Instead of reinforcing each other, they are likely to become two
more useless pieces of legislation.
If this Government still has eyes to see and ears to hear the
poor, it must be bolder with a much larger employment
programme and the right to information at all levels of
administration.
(Amit Bhaduri, who has written widely in economics and taught
at several universities in India and abroad, is Distinguished
Professor at Pavia University, Italy, and Visiting Professor,
Council for Social Development, New Delhi.)