The next agenda for reforms

Prime Minister Narendra Modi said recently that ‘development’ is the only solution to the problems facing the country. But we are simply not getting there. The report card of economic reforms initiated by Manmohan Singh and being implemented faithfully by the NDA government is more like of the student who passed the exams in the second division.

There have been some great achievements. Our economy has become globally competitive thanks to the flexible exchange rate and competition faced by our industries from cheap imports. Big corporations have contributed more revenues to the tax kitty. This has enabled the government to implement welfare programmes like farmer’s loan waiver and MNREGA and provided much relief to the common man. Poverty has been much reduced. Our services sector has done wonders. But the quality of life of the common man has scarcely improved.

The biggest problem is of jobs. The growth rate of GDP has been about seven per cent since the reforms were initiated. It has led to a growth in employment in the organised sectors of hardly two per cent. Large numbers of youth are entering the work force and making a living by plying rickshaws and the like. Reforms have helped create a vibrant middle class in the services sector, however. Young engineers are buying properties that took a lifetime of savings of their parents to buy.

This middle class is employing maids. Some benefits of reforms are thus percolating. But not much. The real income of the maids has actually declined. She was getting Rs 600 per month in 1995. Today she is earning Rs 1300. Her income has increased two times while the cost of living has increased about four times. The reason is that large numbers of workers are migrating from the villages to the cities in the search of jobs. The demand for maids has increased less than the supply.

Thus wages have been declining. Larger numbers of maids have got jobs but at lower wages. The ‘trickle’ in the ‘trickle down’ of economic growth is becoming thinner by the day even though the numbers of trickles has increased. This situation is not sustainable. We are seeing a huge upsurge in police killing in the United States and terror in Europe. Britain has decided to exit the European Union. I believe these aggressions are taking place because the common man is feeling cheated. The situation is more desperate in India.

My car mechanic says that his business is down by 50 per cent. A sweet shop owner said that this Diwali was very weak compared to last year. This dissatisfaction may not be immediately visible because of the belief that the Modi government must be given more time to deliver. ‘Make in India’ will not help in reversing these fortunes. Manufacturing is increasingly being undertaken in capital intensive sectors.

The share of capital intensive products in our exports was 41 % in 1991-92. It has increased to 65 % in 2010. The generation of employment in the organised manufacturing sector was insignificant in this period. ‘Skill India’ will help, but only if it percolates down. It will help if our youth are able to access the global e-markets and make customised computer games and like e-products sitting in their homes. Then our youth may be able sell their home made e-products across the world. The present approach of Skill India, on the other hand, is focused on manufacturing.

This skilling will not help. Large number of our skilled people are already begging for jobs. The end result of Skill India will be that the less-skilled will be replaced by more-skilled. The more-skilled will produce more and that will lead to less number of jobs to produce the same quantity of goods.
The solution to this problem is twofold. In the long run we must develop the services sectors. We must improve the skills of our people to supply e-products to the global markets. We must establish ‘Indian Institute of Services Exports’ along the lines of IITs and IIMs.

We must appoint special officers in all our embassies to promote exports of services to that country. We must establish a special police force to nab people who make frauds on foreign nationals through internet. We will also have to tone down the Hindu rhetoric. Export of services requires much greater interaction between the provider and the consumer. Tourism is a major source of revenue in a large number of countries. The tourist who comes to India should feel secure.

The daily events of conflicts between cow protectors and Muslims, Dalits and upper castes create a sense of fear among the visitors. This fear percolates to services provided through the internet. There is a need to set our social equations on even keel for the services exports to move ahead.

These measures, however, will take considerable time to yield results. There is a need to implement some short term measures. We must reserve certain sectors for labour intensive production only. For example, all textile weaving mills can be directed only to manufacture for export. That will lead to the creation of large number of jobs in handlooms and decentralised power looms. But such a measure will step on the toes of the big companies and is anathema to our politicians and bureaucrats alike.

The quality of life of the common man takes a hit from the poor quality of governance. The hafta is being collected from the street corner vegetable seller as previously. Obtaining a driver’s license continues to involve wriggling through the maze of many windows. In an interview after assuming charge as the Prime Minister in 2004, Manmohan Singh had said that his top priority was to secure an improvement in governance. That is where he did the least. The current NDA government has improved governance at the top.

Honest officials are being promoted. But this is like recruiting a good driver to drive the broken car. It will go only so far. Need is to repair the car so that even a not-so-good driver will be able to reach the destination. Systemic changes are required. A system of proactive spies to locate and trap the corrupt officials must be set up as was advised by Kautilya in Arthasastra. Public hearings must be held before promoting senior officials.

External evaluation of performance of the officials must be done and the worst performing ten per cent should be shown the door every year. The reforms have brought opportunities for our businessmen and prosperity for the middle classes. The common man has been left behind and the government is absolutely clueless about a way forward. We have passed the high school in second division. We are likely to graduate in third division. Author was formerly Professor of Economics at IIM Bengaluru

By Dr Bharat Jhunjhunwala