Oligarchical bias in the economy

“Don’t tell me what you value, show me your budget and I’ll tell you what you value” – Joe Biden.

There are many skeletons in the corporate cupboard of all governments’ budgets since 2004. Since 2004 onwards, many policy-makers have been talking about reforms and higher economic development. Nobody has been talking about what Prof AK Sen calls improvement in basic needs, people’s entitlements, capabilities and freedom.

Prof Joseph Stigiltz extensively quotes East Asian economies and the emphatic role of governments in providing universal education which was a necessary part of their transformation from agrarian to rapidly industrliasing economies. Universal education also created a more egalitarian society in East Asia, facilitating political stability that is a precondition for successful long-term economic development.

In pursuing such egalitarian policies, the economies of East Asia laid to rest the trickle-down theories of development. The East Asian economies showed that high levels of saving could be attained in an egalitarian setting and that human capital accumulation was every bit as important as, if not more than, increases in physical capital. The view that the budget can be used as an instrument for expanding the capital base of the economy ought to be examined from the point of view of the method of financing.

The much-boasted PPP model for expanding infrastructure, in vogue since a decade, has almost broken down. Delay in execution of projects by the public sector due to labour trouble resulted in cost escalation and the private sector is not too willing to join such projects. Public sector commercial banks are now under capitalised having been pressured to lend to long-gestation projects which they are not suited to do. Growth beyond the anticipated six-seven per cent is needed to fill the underutilised capacities, and this takes time. The further levels of seven-eight per cent growth need deep structural reforms which can be realised only in the medium term.

In the very first budget of the present Narendra Modi/BJP government, there was scanty space for human capital development which requires strengthening educational infrastructure up to secondary level, institutions imparting basic technical skills meant for manufacturing and vast agrarian-rural sector and lastly public health institutions. There was mention in the budget about the establishment of secondary schools for every one kilometer and a college for every 10 kilometer.

Time and again, let us remember that Sam Pitroda, a self-styled technocrat who headed the Knowledge Commission during late Rajiv Gandhi’s time, recommended the establishment of 800 new universities and a good number of degree colleges in the country. Alas, Sam Pitroda misunderstood knowledge for information technology and made such an arid recommendation. As a result, we have been seeing for the last 20 years the mushrooming growth of universities and engineering colleges.

During the process of development, in a planned economy, transformation takes place from agriculture to industry (manufacturing) and then to services. This takes 25 to 30 years. During this time, there is a need to create an institutional frame-work. Accordingly, the economy needs ITIs and PHCs for every 10 kilometers and polytechnics, agro-polytechnics, perhaps institutions bestowing training to para-medicals, and general health-care centers for every 50 kilometer.

The general education, though essential, has failed to turn out human power for the requirements of the newly industrialising economy. Therefore, stress should be on training institutions which provide skills in rural and semi-urban areas; again the basis should not be population but household. For every 4000 households, there should be primary, secondary and higher secondary schools.

For every such cluster of inhabitation, there should be public healthcare facilities. For every 6,000 households, besides the above institutions, ITIs and Plus-two colleges. For every 15,000 households, besides the above, the system needs polytechnics, agro-polytechnics, if necessary, nursing colleges, and for every 20,000 households, to the above model, one may add a well-established degree college and also general hospital with all facilities.

Prof Joseph Stiglitz talks about creating and maintaining a social safety net, including access to basic health services. They increase the productivity of the labour force and further political stability by reducing the opposition to change.

The aforementioned model fosters enhanced skills among the youth in rural and semi-urban areas. Indian policy failed to link villages to small towns, small towns to medium towns, medium towns to big towns, big towns to cities and, perhaps, cities to metros. This linkage will prevent out migration. It will also help create SMEs and agro-processing units in rural areas and help decentralised development.

Provision should be made in the budgets by making necessary changes to allow corporate sectors to fund research institutions and higher education institutions like the Indian Institute of Science, Indian Statistical Institute, IIMs, IITs and certain leading universities.

Each private corporate entity can do so by funding laboratories, libraries and research activities subjects to a minimum of Rs 250 crore in a fiscal year and the same can be allowed to be shown in their balance-sheets to claim tax concession. This change would help private sector participation in higher education indirectly by way of funding. Besides, this funding to the education sector will enable the economy reach the objective of four per cent of the GDP by 2020.

India has been ranked low at 103rd position globally out of the 130 countries, on a World-wide Human Capital Index 2017 prepared by World Economic Forum from Geneva. Human Capital Index measures countries’ ability to nurture, develop and deploy talent for economic growth. The rank list has been topped by Finland. India ranks much below Sri Lanka’s 70th and China’s 34th position. While Nepal, Indonesia, South Korea and Malaysia are also placed higher on the index.

Sixty years of serious development effort could not make any headway in terms of human development related indicators. Out of 133 countries rated on indicators of well-being such as health, water and sanitation, personal safety, access to opportunity, tolerance, inclusion, personal freedom and choice, India has secured the 101st place. This is lower than India’s rank of 93 for GDP per capita income. Even Nepal and Bangladesh rank higher than India in the Social Progress Index (SPI) ratings.

From a critical analysis of the budgets from 2004-2005, it appears as if oligopolistic forces are reinforcing oligarchical tendencies in the economy moving towards riskless and reckless capitalism. The result is a huge outlay document without a Human Face.

By: Prof AVVSK Rao & Dr M Ramulu
( Prof Rao is Hon. Professor in Economics, Jawahar Lal Nehru Institute of Advanced Studies (JNIAS), Hyderabad. Dr Ramulu is Assistant Professor (Economics), University College of Arts & Social Sciences, Osmania University, Hyderabad)