Inclusive Growth through Inclusive Governance

For Inclusive Growth, we need to hitch the horse of accelerated growth to the wagon of participative development.

Sustained accelerated growth over the last five years or so, combined with major tax reforms, has resulted in a miraculous augmentation of government revenues. Buoyant revenues have resulted in buoyant spending on the social sector. In his address to the National Convention, the Prime Minister estimated the increased spending on poverty alleviation and rural development, including the flagship Bharat Nirman programmes, at “four times” the spending in the last year of the previous government: an exponential increase in nominal terms from around Rs.34,000 crore in fiscal 2003-04 to about Rs.1,20,000 crore in the current financial year, over and above the four-fold increase over the decade 1993-94 and 2003-04 from about Rs.7,600 crore to about Rs.34,000 crore.

Why, then, is there such a mismatch between outlays and outcomes, between growth in the booming wealth and income of the entrepreneurial classes in contrast to the halting, uncertain, sporadic and un-sustained amelioration in the condition of the vast majority of Indians? Why is India prospering when most Indians are not?

We remain stuck somewhere in the 120s on the U.N. Human Development Index. After inching our way up from the 134th position in 1994 to just the 126th position ten years later, we actually sank from the 126th to the 128th position in 2005. In August 2007, the Arjun Sengupta Committee reported the deeply disturbing, if widely accepted, figure of 836 million Indians — that is over 75 per cent of our people, “the poor and the vulnerable” — surviving on a daily average expenditure of under Rs.20 a day. Rs.20 a day is the equivalent of what a family of four earns per capita as the daily wage in Tamil Nadu under the National Rural Employment Guarantee Programme.

A key cause of income stagnation among the poor and vulnerable is that agriculture, on which close to two-thirds of our people depend for their livelihood, has collapsed over the past decade to an annual average of under 2 per cent per annum after having averaged 5.7 per cent per annum over the decade of the 1980s. The Eleventh Plan candidly admits that “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75 per cent higher in real terms than in 1950 compared to a four-fold increase in overall real per capita GDP.”

True, the poor have not got poorer. But the rich have got infinitely richer. What Nobel laureate Amartya Sen in a recent article described as the “extremely asymmetric development of the global economy” is also reflected in the extremely asymmetric development of the Indian economy. In contrast to the derisory growth in per capita income of the poor and the vulnerable, corporate profits after tax have recorded an annual average growth of around 47 per cent per annum over the four-year period ended 2006-07 and retained profits as a share of profits after tax have soared from 30.9 per cent in 2001-02 to 73.6 per cent in 2005-06. At the projected rates of sectoral growth, the gap between agricultural GDP and manufacturing/services sector GDP is likely to widen from Rs.6,000 billion to Rs.16,000 billion by the end of the Eleventh Plan. Can a house so divided against itself stand?

I ask this question in these Lincolnesque terms because we have to make our way forward in a democracy where income and wealth may be unequal but each vote is equal and cast at six different levels of government at least once every five years. A democracy in which the terrible poverty of most is pitted against the soaring prosperity of others. A democracy, moreover, in which the deprived vote with much more vigour than the well-off and, numerically, overwhelm the prospering classes politically quite as effectively as the prospering classes overwhelm the poor between elections economically. Therefore, a viable, sustainable economic policy for our country has necessarily to be an economic policy for a democratic polity.

Of course, the incomes of the poor and vulnerable will move ahead only at a fraction of the augmentation in income of the successful Indian. But an increase in general public welfare can be achieved overnight, or almost overnight, by a sensible increase in the access of the general public, especially “the poor and the vulnerable,” to their entitlements of public goods and services. The huge increase in outlays over the last 15 years, and more particularly the humongous increase in outlays in the last four years, have not translated into commensurate outcomes at the grassroots primarily because we continue to rely heavily on a creaking bureaucratic delivery system, fashioned into administrative silos insulated one from the other, that has proved over six decades to be quite unequal to the task of delivering development. This notwithstanding the 73rd and 74th amendments to the Constitution passed 15 years ago, the very rationale of which was to progressively shift the weight of the delivery system from a distant bureaucracy to an elected neighbourhood body which being representative of the people is therefore responsible to the neighbourhood and thus responsive to the people’s needs.

The key areas in which the general public, and more particularly the 836 million who are poor and vulnerable, desperately need efficient and rightful access to public goods and services are precisely the 29 areas set out illustratively in the Eleventh Schedule to the Constitution for the devolution of powers — Functions, Finances and Functionaries — to the elected local bodies. These cover primary and secondary education; dispensaries and primary health care centres; drinking water; sanitation; rural housing; women and child development; public distribution outlets; rural infrastructure, including roads, bridges and culverts and other elements of rural connectivity; veterinary centres; the maintenance of community assets; rural industrialisation; and, of course, everything to do with minor irrigation and agriculture, above all, agricultural extension.

Not bureaucratic development but participative development — that is, grassroots development through grassroots democracy — is our imperative need. The path to such development was charted through the 73rd and 74th amendments to the Constitution, which resulted in the present Part IX (‘The Panchayats’) and Part IXA (‘The Municipalities’). In these two Parts of the Constitution, we have the key to Inclusive Growth through Inclusive Governance. For Inclusive Growth, we need to hitch the horse of accelerated growth to the wagon of participative development.

Over the last 15 years since the Constitution was amended, local level elected self-government has been made ineluctable, irreversible and irremovable. But while the institutions of local self-government are in place, the empowerment of these institutions, in terms of functions, finances and functionaries, has been uneven, fitful and subject to reversal. This is inevitable given that the very Constitution which confers a constitutional status on Panchayati Raj, also leaves it exclusively within the diction of the state to determine the nature, direction and pace of devolution. However, the Centre could greatly accelerate and rationalise this process by adapting the guidelines of Central Sector and Centrally Sponsored Schemes, the principal source of funding for panchayati raj institutions, to ensure the centrality of PRIs in the planning and implementation of these schemes in conformity with the letter and spirit of Parts IX and IXA of the Constitution.

A second crying need is to incentivise the States to further empower their PRIs, as also to incentivise PRIs to be transparent and accountable in their transactions, besides steadily contributing an increased share of their expenditure from resources that they themselves mobilise. Hence the key significance of the recognition accorded in the Eleventh Plan to the “need to build in incentives that will encourage the States to devolve functions, funds and functionaries to the PRIs.” The World Bank would appear to be interested in extending International Development Association support to the Panchayat Empowerment and Accountability Incentivisation Scheme (PEAIS).

Third, is the imperative need to make available untied block grants to the PRIs so that they have an adequate reservoir of financial resources which they themselves, without let or hindrance from outside, can plan and implement for neighbourhood economic development and social justice. The 13th Finance Commission has a golden opportunity to build on the tentative beginnings of its predecessor Commissions by increasing block untied non-Plan grants to at least Rs.20,000 crore a year, particularly for the maintenance of community assets and improved service delivery.

I speak for the inconsequential Indian, the unsuccessful Indian, but also for the Indian who crucially determines the outcome of the democratic process. It is only if governance reforms at the grassroots become the handmaiden of economic reforms, as hinted at in sections of the Eleventh Plan, that we might hope to preserve the stability and sustainability of the democratic process. That is a political imperative. It is also, I trust, an ethical imperative that we will respect.