By Raghunath Nageswaran
The Economic Survey 2016-17 has fourteen chapters organised under the following rubrics: The Perspective, The Proximate and The Persistent. In this article, I set out to express my views on two chapters that hogged my attention the most – The Economic Vision for Precocious, Cleavaged India and Universal Basic Income: A Conversation With and Within the Mahatma.
Sustained growth ‘despite’ democracy?
The opening paragraph of Chapter 2 draws our attention to the robust growth performance of the economy from the early 1980s, especially for a democracy.The claim is validated by the fact that India has grown at about 4.5 per cent per capita for thirty seven years. The Survey establishes India’s impressive achievement in showing economic dynamism without compromising its democratic credentials and aptly calls India precocious and cleavaged. In the advanced industrialised economies of today, democratic evolution was staggered and was preceded by a prolonged period of economic progress, whereas in India, the two have happened in tandem.
The Survey seeks to show how India has transformed from being a largely closed and listless economy to the open and thriving economy that we see today, by measuring India’s openness to trade and foreign capital, the share of public sector enterprises and the share of government expenditure in overall spending. That India’s trade to GDP ratio is higher than China’s might appear seductive but the implications of an ever-greater integration of the Indian economy into the global economy are quite serious due to the heightened degree of vulnerability to external shocks. Taken together, India’s trade to GDP ratio and foreign capital to GDP ratio have been hovering around 50 per cent in the recent years Given the regime of largely unregulated inflows and outflows of capital as finance, the threefold crisis of the fisc, the balance of payments and price rise hangs like a sword of Damocles, despite ‘sound’ fundamentals.
Since the objective of this chapter is to outline a vision for India, the segment The Road To Be Traversed deals with three major predicaments the economy is grappling with: ambivalence towards the private sector, deficiencies in state capacity and inefficient distribution. The Survey’s analysis of these problems clearly highlights the institutional challenges faced by developing economies and argue the case for a rule-based economy with a strong legal framework for the protection of property rights, building state capacity to deliver a wide range of public goods and overhauling the entire redistribution mechanism.
While one can acknowledge that a lot needs to be done on these fronts, there is a view that attributing the failures to the legacy of “socialism” is misplaced. Sure, the pre 1991 period was shot through with lot of inefficiencies, but there was not any semblance of socialism on the ground during those “bad old days”. In an economy where most of the profit making activities were (and are) in the private sector, socialism existed only in rhetoric and therefore, any allusion to socialism flies in the face of the fundamental tenets of a socialist system.
As regards the issue of redistribution, the Survey seems to suggest that the pressure on the state in post-Independence India to redistribute arose because of attempting economic development while also granting universal franchise from the very beginning. While the underlying reason for widespread socio-economic disparities, which is, the concentration of productive assets in the hands of the few, remains unaddressed in a systematic way even today, claims of redistribution do not stand much scrutiny.
Universal Basic Income – The New Talisman?
The chapter “Universal Basic Income: A Conversation With and Within the Mahatma” begins with Gandhi’s famous talisman to set the tone for the exhaustive discussion on the new magic bullet, Universal Basic Income. The chapter deals with the subject at length, analysing various dimensions of the idea to pin down its efficacy and feasibility. By calling it a radical and compelling paradigm shift in thinking about both social justice and a productive economy, the Survey drives home the point that UBI is an idea whose time has come perhaps not for immediate implementation but at least for serious public deliberation.
Since the Survey has evocatively invoked the Mahatma’s dream of wiping every tear from every eye, a quick detour into the original vision of the man might serve as a useful guide in understanding whether this “radical” idea is in tune with that noble vision. As the Survey rightly mentions, wiping every tear from every eye is about a lot more than being able to imbibe a few calories. Gandhi’s vision of a just and non-violent decentralized economic order centred on village republics was developed within a moral-material framework. He sought to guarantee dignity of the individual by securing dignity of labour. As Venu Madhav Govindu and Deepak Malghan point out in their book, The Web of Freedom: J.C. Kumarappa and Gandhi’s Struggle for Economic Justice, for Gandhi, building a wholesome life depended on binding people into a moral compact based on mutuality and co-operation.
While the agency argument made by the survey in support of the basic income idea is in alignment with the Mahatma’s desideratum of individual autonomy, the argument that it would help promotion of equality appears untenable when the underlying economic order remains unchanged. It is possible that a basic income could address income poverty, thereby reducing absolute poverty but one should equally be worried about relative poverty which is the indicator of the degree of inequality in the society.
The chapter categorically states that the universal basic income will not diminish the need to build state capacity; the state will still have to enhance its capacities to provide a whole range of public goods. Interestingly, while employing imaginative analytical techniques to establish the fact that there is egregious misallocation of resources, the welfare programmes used for such analysis are precisely those schemes that broadly entail creation of public goods and public infrastructure. The Survey concedes that if subsidies reach most beneficiaries, then bringing in UBI as a replacement scheme is a complicated task because there will be a number of general equilibrium effects which will need to be considered. Subsequently, the Survey goes on to stipulate the guiding principles for setting up a UBI, even as it marshals empirical evidence from existing pilot projects to weigh the upside potential and downside risks of scaling up the idea at the national level.
Having practised economic policies that run counter to the vision of a just and egalitarian society enshrined in the Directive Principles of State Policy for many decades now, bringing the Mahatma’s ideas and ideals into the public policy discourse seems to be the safest way to recycle the state’s legitimacy to eradicate poverty.