governance, political economy, institutional development and economic regulation

Posts tagged ‘rural development’

Plough deep for reform results

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Deep ploughing is necessary for reform results. Photo credit: hardrainproject.com

The government is stacking up its “reform credentials”. The long elusive Goods and Services Tax is now part of the constitutional scheme for taxes. This has been followed up with a double-punch by putting to rest the colonial tradition of a separate railway budget.

Bye bye separate rail budget

Rail budget reform was well received by the opposition, including the Congress and the Biju Janata Dal. In contrast Mr. Nitesh Kumar’s criticism that this will make the railways less autonomous appears to be reflexive dissent with an eye to the potential media coverage. Didi’s Trinamool Congress was similarly truculent. But Mr. Dinesh Trivedi, a previous minister of railways from the TMC, dulled the edge of the attack by not opposing the move.

The net budget support for the railways is just Rs 5,000 crore or one quarter of one percent of the annual budget. But having to get its budget passed, independently by parliament – a colonial tradition when the railways were a major public asset – exposes the railway minister to the inevitable “populist” demands to steer the budget through. This additional burden will now be borne by the finance minister – the redoubtable Mr. Arun Jaitley – whose reform credentials are growing by the day.

There is some concern that the granular information in the railways budget may no longer be available. But the concern is misplaced. The railways are reportedly implementing commercial accounting standards. Mr. Suresh Prabhu – the energetic minister for railways – could consider tabling an advance supplement based on the results for the first three quarters of the fiscal year- April to December, with the Budget documents for next fiscal followed up by yearly outcomes in the annual report tabled in parliament.

But let’s not kid ourselves. Well begun is only half done. Process reform, like the new rail budget mechanism, whilst necessary, is low hanging fruit. To show results process reform has to induce management and operational changes. In the age of “Big Data” access is not the constraint. It is using data to change behavior that matters.

1991 reforms had a narrow, central government focus

Some change in track is also necessary. Since 1991, the economic reforms have primarily focused on the sunrise sectors –  industry, commerce and finance. Tech grew under the governments radar because it remains export oriented. Inevitably urban boats have risen significantly. Two third of jobs are generated in cities, which explains the continuing in-migration from rural areas.

But connectivity and business as key drivers of growth blur the urban rural divide. Business is more concerned about seamless supply chain networks as the critical cartographic feature, not administrative borders. Similarly, markets do not end at the city limits, particularly if mass e-tailing is to grow.

SMART cities and dumb villages; broken supply chains.

We cannot hope that cities will be the sole engine of growth. There were nearly 19,000 villages, with a population of more than 5000 persons each and nearly 4000 villages, each with more than 10,000 persons, in 2001. Merely reclassifying these villages as urban spaces could increase the statistical level of urbanization from 31 to 50 percent of the total population. Estimates of the share of urban population in 2030 would then increase to 70 percent. But even the remaining 30% would constitute 450 million people left behind in villages. A significant market and a sizable vote bank.

The government has been diligent in rolling out new schemes to pull rural dwellers out of poverty. Financial inclusion via the Jan Dhan Yojna; economic and social security via subsidized insurance policies and the focus on public health and publicly financed housing are all positive moves. But most of these initiatives are still at the process reform stage. Tangible results – more disposable money in the hands of the poor – is still some time off. It is unclear, for example how many of the 200 million bank accounts opened under JAM are operational on a substantive manner. Enlarging the direct benefits transfer will make financial inclusion real. But last mile implementation is a slow process.

Unleash a reforms Tsunami to lift “rural boats” as well

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Rural India : Seemingly placid but very uncertain.

Glimmers of hope persist. The Arvind Subramanian Report on price support for Pulses is a signal that government is shifting attention from urban centric reform areas, where progress is ongoing, to the neglected but high potential value addition sectors – agriculture, rural development and water. Agriculture needs to be brought out of the shadows where it has been consigned since the Green Revolution in the 1970s.

Visibility in rural and local governance is the first step

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Baiga women at a meeting – listening passively to top down wisdom.

If the government is to lead, it first has to increase its presence in rural areas by decentralizing personnel, functions and finance to the sub-district level. Currently, on average, only one third of state government jobs are in local governments. The majority are centralized in the state capital and its deconcentrated offices, like the District Offices of various departments. This inter-se allocation of personnel needs to be reversed and officers reallocated closer to the people. This implies starting a conversation with state governments.

Mr. Piyush Goyal, the effervescent minister for power, coal and renewable energy recently successfully concluded just such a conversation around restructuring DISCOM debt. This model of cooperative federalism can be replicated for personnel reallocation – targeted central funds for measurable actions.

A second conversation also needs to be started for levying Income Tax on agriculture. The tortuous but eventually successful negotiations around GST provide the replicable model for this thorny issue. States may be happy to let the central government impose the tax and share the proceeds- for them a windfall gain with no political downside..

rural-rich

End untargeted agriculture subsidies or tax agricultural income.

Use NITI Aayog strategically

As in everything else, leadership counts. The Prime Minister should consider shifting the attention of his “A” policy team – NITI Ayog – to agriculture, irrigation, rural development and social protection. Currently it seems flooded with all manner of residual work. It could usefully focus on delivering tangible, measurable outcomes from its two key task forces on agriculture and poverty alleviation set up way back in March 2015.

Recommending which PSUs to sell; planning new tourist islands and ensuring 50 gold medals in the next Olympics, can be done elsewhere just as well. Surely creating jobs in rural areas and putting more income in the hands of the poor rank higher in the priority list. There is not enough bandwidth to run all races simultaneously.

team-india

Adapted from the authors article in Asian Age, September 28, 2016 http://www.asianage.com/columnists/rural-jobs-growth-key-lasting-reforms-308

Myopic Urbanization

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Divisive economics is worse than divisive politics. Proponents of Urbanization are the loudest proponents of economic divisiveness. The vision they subscribe to is of shinning cities connected by corridors of gold, glittering like diamonds in a waste land of the rest of Bharat. Their justification is that the rest of the World has adopted this approach. But India constitutes 17% of the World’s population and around 33% of the World’s poor people. It is for us to define “good practice” in development, not to blindly follow international examples, which do not relate to the context of India.

A second “best” defense of “urbanization wallahs” is that it is “inevitable” so best to plan for it. The “inevitability” is related, yet again, to the manner in which growth has happened in the past and not to the specific prospects for India in the future. The fact that even by 2039 only 50% of the population is expected to be in “urban areas” is glossed over, whilst making the inevitability argument. In any case we must not succumb, further than we already have, to the “everything is written” syndrome. It is for Indians to write their own destiny.

Here are three reasons why a divisive focus on urbanization is retrogressive.

First, people tend to fall into the category the State creates for them. Caste, gender, religion are traditional fault lines created by “Authority” such as it was defined since ancient times. None of these provide any progressive social value today. The modern World identity of Urban versus Rural is as corrosive.

The needs of a shopkeeper in a village or a city are much the same; a serviceable road linked to the habitations of their bulk suppliers and customers; electricity for extended business hours, storage of perishable goods and medicines; security of life and property; a collection service to collect the trash generated by customers and sanitation facilities; customers with money in their pockets and a bank in which to safely put her money and access credit; telecommunication links to remain in contact with current events and clean water. Why would we want to discriminate in the standards of supply of these public goods between urban and rural areas? By creating “urban” and “rural” labels we are perversely creating a modern fault lines around which antagonistic interest groups start to coalesce. Please stop this. We have enough fault lines as it is. It doesn’t help when power elites benefit from the touting of urbanization.

Second, sustainable development is indivisible. You cannot steal from the future to make the present pleasant. You cannot fatten the urbanite at the expense of the rural poor. In our democratic society, you cannot cordon-off urban development from rural prosperity as China can and does. Urban centric development is self-corroding due to unlimited in-migration from rural areas in much the same way as international immigrants storm the national borders of developed countries, spawning land and migration mafias and vote banks. Cities and rural areas are organically linked as a sugar factory is linked to the cane fields; a steel factory to the iron ore mines and an electric power generating station to the coal mines, the water or solar, wind or marine energy harvesting area.

 Area based “indivisible” development optimizing on the comparative advantage of each development area has been a standard development tool. Why have we abandoned it? Let us instead abandon the decrepit slogans of the past and opt for integrated development which maximizes value generation using resources which are available locally whilst benefiting from India’s vast, common, domestic market and the liberalization of international trade. Innovation in India need not be limited to cities it has to be a fundamental credo of growth.

Third, the literature tells us cities benefit from the economics of agglomeration. That is why incomes are higher in cities and businesses happy to locate there. Population density is higher so it is cheaper to provide public services. Product markets are larger so scale economies kick in for suppliers and effective competition can pass on the benefits to consumers. Finally, the human element; traditional identities (religion, caste and gender) are replaced by modern identities in the anonymity of cities; professional human networks leverage human capacity and aspirations change. In a recent survey, two thirds of Lady Shri Ram College alumni (admittedly an elite Delhi college for women pulling in the best) viewed their professional identity as the primary one, even over gender.

All these are indeed the virtues of cities, but should they also not make the cities self-financed? Do they justify the subsidies provided by the State to keep cities alive and humming at quality-of-life standards far above rural areas? Collection of user charges even in metros is rarely more than 40% of the cost of providing services. Revenue collected by cities from their own sources (by taxing residents and from their real estate and other assets) only meets slightly more than 50% of their expenditure. The rest is grants from the Government of the related State or the Government of India. Development schemes which are off-budget for Cities but are directly funded by the Central Government, like the Jawaharlal Nehru Urban Renewal Mission further add to their kitty of goodies. A full accounting of the actual distribution of the government’s resources between urban and rural areas, including expenditure on education, health, science and technology, industry would further skew the allocation in favour of cities, where the elite reside. This resource allocation bias for cities is indefensible.

Relying on urbanization for economic growth is an end-of-the-pipe option, like a housewife resorting to RO filtration to drink clean water as against the State cleaning the rivers and other ground water sources. It is expensive and exclusionary.

Ignoring the human cost of migration from the villages to cities, in search for work, including the life cycle social costs of predominantly male migration, in large numbers, is scary.

Lastly, in the context of the recent democratic trend of targeted social disruption as an instrument of political power, cities are powder kegs waiting to be blown up. A “soft” State, like India, cannot cope with the unleashing of such violent and disruptive, social pressures.   

 

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