Poor Arent Lifeless Bricks

India is a poor country. As per world bank reports there are about 450 million people living below world poverty line. (less than $1.25 or Rs 62.5 per day). Over all the World Human Development Index HDI report keeps India in the company of Sub saharan countries. We are with countries like Solomon Islands, Lao People’s Democratic Republic, Sierra Leone and Equatorial Guinea. But shut your eyes wide to this. Say that we have half million people working in IT industry and soon we will be a superpower.

What does it REALLY mean to be poor? I personally have not faced extreme poverty. India’s poverty can be best expressed through following facts, unless one questions World Bank and other organization’s integrity.

1.Over 200 million, or about one-fifth of India’s population, is chronically hungry.

2. 2.5 million children in India die every year before reaching the age of five. (Gujarat Riot Victims: 2000, Tsunami Victims: 7000)

3. Literacy Rates in India today are 66% for Adult and 88% for youth while the same figures for China are 91 and 96%.The difference between male and female literacy rates is 21%

Unemployment, Healthcare, Public Transportation, Urban Waste management, Education are few more areas where I can cite that few million people are not getting even the basic structure that every human must deserve.

If we compare china with India. Take 1978 as the base year where India and China were at par. Even a century ago when United States was Emerging as a superpower, Argentina was just at par with it. Today we know the difference between US and Argentina. India’s comparison with China has been exactly the same. When in 1978 India and China were at par, today China has overtaken India by a margin too large. In fact China has beaten India squarely.

But India is democracy. Things happen at a slow rate here. I think this is the worst excuse one can give. There is no logical relation between democracy and being slow. Even Japan, England , US are fairly democratic. Democracy being slow is acceptable logically only if we use “democracy in India is corrupt” as a intermediate premise. But whatever it may be, any system that allows 2.5 children to die every year when they could have been saved is essentially useless.

We must note that all the governments right from 1947 were self professed pro-poor governments. They implements what they called pro-poor policies. Their every speech promised elimination of poverty. Despite that nothing has happened. The reduction in poverty over years has happened largely due to luck and global development. Its not a change brought by systematic planning and policies.

The roots of India’s failure in eliminating poverty (or any other failure) lie in its faulty policies. Refer to any article on India’s poverty today. In the cause one cause is never missed. That is the license Quota Raj. Despite this the Indian government was just not ready to do it. They finally had to do it in 1991. It was done because the only choice left was to go bankrupt. People responsible for this dark period not just went unpunished but were even glorified. The same license quota raj is also one primary reason of increasing corruption in India.

One decision to give up the license regime and open the markets made significant difference to India’s economy. But this was neither predicted nor wished by Indian policymakers. China did. They opened their economy in early 80s and India lost 10 important years.

As this article argues these faulty policies look at poor as a lifeless bricks. Bricks that are used to line up and build the ladder that helps to attain power. The pro-poor policies are not actually targeted at “eliminating” poverty but they actually “sustain” poverty. The best example is of NREGS explained beautifully by Atanu Dey. I think its the ignorance of masses (which is again a result of intellectual poverty attributed to our poor education system) and even the media hero that consider such schemes as pro-poor.

Let me quote from the livemint article

One of the authors of this study, Narayan, even told The Times of India in an interview: “People want a free-market economy. But they need the skills to connect with it. The government machinery needs to treat the poor with dignity and respect. This is something that they value a lot. The people also desired free and fair elections and honest leaders as it helps in empowering them.”

The true way to eliminate poverty is by viewing these people not as helpless ones but as able people. Provide them with opportunity and not outcome. Dont provide the employment but just provide them with opportunity to employment. If you dont allow to setup industries, if you dont allow private companies to setup schools you end up having an employment guaranty scheme which produces ZERO output. It help the poor to sustain for another day but doesn’t help him a day after.

If the government has stressed enough on education, urban planning, industrialization and wealth generation instead of slogan against poverty. Today India would have been a far better country. Even today we fail to recognize our mistakes.

The only reason why we hope India is developing is because of handful of industries like IT. (But India’s computer infrastructure is very weak and underdeveloped compared to that of china. ) These industries have comes into existence only due to free market policies. The planning comission had never visualised IT as an industry and outsourcing as a component adding to GDP. Still today IT has grown. In fact every aspect that the government has ignored has grown. Just compare Cricket (not controlled by government) and Hockey (Controlled by Government).

I think it is time for government to think of poor people not as lifeless bricks that deserve compassion and support but as able individuals who need freedom from cliches. Given them freedom to write their own destiny. Give them freedom to choose their own future. They are very much capable of doing well, but only if government doesnt interfere.

My Related Posts

1. India’s Growth Story

2. My thoughts on Recession

3. Atlas Shrugged

4. India’s Middle class failure

The union budget: A primer from a non expert.

Because this was en election year only an interim budget was presented by Pranab Mhukharjee this April. Now that a stable government is in place, he is expected to present the final budget.

Like most of the people even I thought that budget and it’s impact on my life is insignificant. Even the tax exemption levels affected me very little. However my opinion has changed over last few months. Thanks to me reading lot many things about economics.

Causes of most of the problems lie essentially in the economic policies of current and past governments. Why am I so poor? Why our roads suck and cities stink ? Why is that a few million children below my age have to sleep without proper food? Many of these question directly depends on economic policies and budget is where those polices manifest themselves.

Economics has two major components. Macro and Micro. While Macro talks about the high level stuff that only experts understand. Such as fiscal policies, currency depreciation (whatever it means) and so on. Where as micro economics is what we do everyday. Why I stopped buying Times of India, stopped watching doordarshan, switched from Airtel to Idea and so on. Budget touches both the aspects of Indian economy someway or other.

“Sir, with these words, I commend the budget to the House.” These words, traditionally said at the end of the finance minister’s (FM’s) budget speech, mark the culmination of perhaps the most complex annual economic exercise in the country. Budget speeches have helped chart the country’s future direction at the macro level (such as when Manmohan Singh allowed 51% foreign direct investment in certain sectors in 1991) to the micro (such as when Morarji Desai specified the number of matchsticks (50) that a matchbox could contain in order to get excise exemptions in 1962).

[Source : Livemint]

Most of my knowledge about Budget is derived from Yeshwant Sinha’s biography. “Confessions of a Swadeshi Reformer”. When India was in economic crisis, when India had to keep its gold with world bank to secure loans, when it was about to go bankrupt this man was the Finance Minister. It was just before Narsimha Rao Government.

India right from Nehru’s days had adopted socialist approach to the economy. The 5 years plans. Planning Commission. Mahalobnis model etc. In these models the most natural principle of economics that “demand-supply” relationship was violated. The Government controlled all the resources by means of license quota raj. Most of the companies from BSNL to Indian Oil to Air India to you name it were owned by government. Even private companies were not given freedom to produce what they want.

For example. Say I was rich enough to start my own company that would manufacture polythene bags. In such a case I had to first put an application to the government that I want to start one. Then government issues me an license. That license would also put and upper and lower limit on production. I will have to take separate licenses to import machinery, to buy land to get electricity etc. I will not have any freedom to decide how much I will produce with which machines and at what price I will sell it. All this is decided by the government officials who sit in the government offices.

The idea (and I don’t find it noble) was that the government officials were in a better position to decide what the society needs and how much. Smart people would indeed quickly notice that this gives immense power to the officials. Hence a license may be issued to produce polythene bags but license to import German Machinery may not be given which would get me on my knees. The officials then give me the license only after I pay a bribe of few crores.

Thus someone like Dhirubhai understood the rules of the game a prospered. Many perished. Among those who perished , the common man was the most important one. The state could not protect the interests of common man and secondly it gave a great boost to corruption.

The concept of “state control” was right from British Days. British wanted to control every aspect of economy so that they could hold everyone at ransom whenever they needed. British went the people like Jawaharlal Nehru decided to continue the system because they too wanted the control in their hand. Its absolute power. They glossed it as some “pro-poor” policies.

That is why when the whole world told us that we should give up this license quota raj, our politicians did not listen. They continued till their ass became sore. It was under Narsimha Rao’s government that they had left with no choice but to bring in reforms. He ordered Manmohan Singh to present a budget full of reforms for which he is being hailed even today. No one asks the simple question “Why was it not done before?”.

It happened in 1991. China had started it’s reforms in 1978. Those 10-12 years made a huge difference to us. China’s per capita income was well below India’s in 1978. Today its thrice ours. Which means china has far less poor, hungry ,dieing people than India. Does that mean that India’s poverty, illiteracy must be blamed on the anti-reforms mentality of our leaders? yes certainly it is.

Budget is prepared by a team of few IAS officers who get unreasonable demands from each department of the government. They are locked up in a room in Delhi where they prepare the budget. Only two men can move out of that building. One is the FM another one is the Finance Secretary. The budget and it’s key points need to be approved by the PM before it is presented to the house.

The budget is not just about one year. Firstly it needs to present year before years closed books. Actual figures of revenue and expenses of last year and projected revenue and expenditure of coming year. We mostly focus on last part.

The trade off between political objectives and economic objectives of a budget are significant. A politically oriented budget would find stuff like Loan Waivers a great idea. Where as for an economist it is essentially a nightmare. Economist would always want less and lesser government control on everything while politicians want absolute control over anything. The time has proven that lesser government intervention helps an industry to grow leaps and bounds. Best example is telecom. As soon as FDI in telecom was allowed we have seen a boom. But on other sectors which see strict government control such as Aviation Infrastructure or the general infrastructure are sick.

If you ask me India’s economy is a tale or sins and redemption. A budget is most of the times either a confession/attempted redemption or it is another sin that tries to hide the previous sins.

7 things I wish to see in budget

With all people speculating about what the FM is going to propose which is probably the last budget before the government faces an election, even I would like to present my take on it. Often government’s performance depends a lot on the budget it places just before the elections.

The FM has two choices either vouch for reforms or propose politically motivated schemes. One biggest flop show the government has already done is by proposing some thing like the employment guaranty scheme. A scheme that churns out 11300 crores from the tax payer’s pocket.

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This is what I would like to see in the budget.

1. Income tax exemption limit should be raised to 2lakh per annum. The only thing that will directly affect my pocket.

2. A special agricultural policy that will put guidelines for private players to enter agriculture and that will encourage use of technology. Private players must be allowed to aggressively get into agriculture.

3. Focus on higher education. Reforming Education department is certainly not with finanance misnitry but both in co-ordination can start some initiatives for higher education. Improving exisitng IITs, Setting up more IIMs and IITs. Ideally all the premier institutions should be made autonomous.

4. Slim the army. Cur down on defence budget wherever possible. Like French and British army, Indian military forces should no forget about being a tank to shoes lase army but should outsource the trivial operations. Reducing the number of hierarchy will certainly save a lot of bugs

5. Disinvestments should get priority. Disinvest wherever possible. All non banking PSU’s may be put under disinvestment tag. That is one way we can ensure that quality of government owned units improve.

6. If at all finance ministry can play a role (as I believe it can play its role everywhere), they should insist on giving new frequncy band to those operators who promise to provide more services at lesser cost. Currently its decided that operator with more subscribers will get a higher frequency spectrum allocation.

7. Special tax benifit for greener industries. Industries that use renewable sources of energy and are low on carbon emissions.

thats it a very little from a common man.