Economist Amit Bhaduri has an insightful article in EPW (pdf), where he argues for an alternative development model bypassing the corporate- led globalization. It is only the resistance of people at the ground level that seems to be working to thwart the current economic orthodoxy- that too, only when this resistance results in deaths as in Nandigram. If economics is nothing but concentrated politics, there is little to differentiate between the Hindutva BJP and the secular Left, to say nothing about the Congress party.
He contends that while there are time bound programs to follow the neo- liberal, IMF imposed strictures; there are vague promises and presumptions about the miraculous trickle down effect that is supposed to uplift the masses. The Fiscal Responsibility and Budget Management Act of 2003 is a case in point. Siba Shankar Mohanty, in this article written in 2004 provides a criticism of the Act.
The government, in no way, can actually reduce this expenditure till 2008 except deferring a part of it, which will further aggravate the fiscal situation. The government of the day will never compromise with defence expenditure particularly in a situation where the people in the government visualise threats to national security from all possible corners of the world. So if the government of the day tries to reduce expenditure it may do so in crucial sectors like social services and some of the economic services only. This will affect the all-round development of the country and further aggravate the fiscal situation. (link)
Indeed, a comparison between the fiscal deficit in 2003 and 2007 reveals that the deficit has come down from 5.7% of GDP to 3.3% in 2007.
At the same time, the spend in the social sector declined between 2001-2002 and 2004-2005, picking up slightly in 2005-2006 and 2006–2007 (Table 10.3 in the section on Social Sector in the Budget for 2007-08), though only projections are available for these last two years.
|2001-02||2002-03||2003-04||2004-05||2005-06 (RE)||2006-07 (RE)|
|Spend on Social Sector (% of GDP)||6.04||5.93||5.68||5.66||6.23||6.04|
(A related analysis on the social sector spend here.)
Presuming himself on the fact that a deficit is in a demand constrained economy is not necessarily a bad thing (as long as it is a social investment), Bhaduri calls for a scrapping of this act which serves the purpose of further reducing funds for social investment. Surojit Das, incidentally has an article in the same issue of EPW where he dwells on this theme.
Bhaduri also looks away from the centralized, bureaucratic model of socialist orthodoxy to suggest that funds for employment generation need to be pushed to rural India where 70% of the population still lives instead of relying on a an urban centric model of industrialization that relies on the demands generated by extremely rich urban social classes resulting in a misleading perception of growth.
India’s recent high growth accompanying the process of industrialisation answers unambiguously the question as to who is in charge of this process. It is led by corporations,which are mostly private. The role that the governments have assigned to themselves both at the central and at the state level is that of a promoter, an agent of private corporations, not one of a regulator between big business and poor people. In this context we are repeatedly reminded that industrialisation has its costs, but it is conveniently left unsaid that the cost must be borne by those who are least capable of bearing it, the poor and the most marginalised sections of the population. The rich corporations on the other hand are subsidised handsomely by the governments in various ways, e g, in CPM-ruled West Bengal, for the Singur car project, the estimated subsidy to the Tatas is over Rs 850 crore for an investment of Rs 1,000 crore.
Although land is the most visible symbol of transfer of resources to the corporations, the transfer mechanism is more pervasive, working systematically against the poor both directly and indirectly. For instance, the direct bias is seen in plan allocation. Despite over 60 per cent of our working population living in agriculture, recent five year plans under different governments could allocate less than 5 per cent of planned investment to agriculture. The indirect bias operates pervasively through the pattern of consumption and production promoted consciously by the state….
Direct estimates indicate that labour productivity in manufacturing nearly doubled since 1991, and in services it increased even more while in agriculture it increased not even by 10 per cent. This is the result of two sets of factors. On the one hand, selected non-agricultural products consumed typically by the rich command a higher and higher price (think of real estates, fancy apartments, cars, restaurants, etc), as the rich become richer with even more purchasing power to buy these goods. This is a vicious circle of cumulative causation, of mutually reinforcing positive feedbacks created by economic liberalisation with little concern for the poor. Higher growth is then achieved by transferring more and more resources to the so-called high productivity sector producing for the rich in the name of comparative sectoral advantage, while the higher demand from the rich keeps the apparent sectoral productivity and corporate profits high. It benefits enormously large corporations which organise this pattern of production for profit, and the privileged sections in India rejoice at the economic progress the country is making. The other side of the same process is to deny resources to the poor in the rural economy because they have no purchasing power. So money is not found for basic health or education, for local investment to create employment by the panchayats or for two square meals for children. The annual tax concessions to big business envisaged originally in the SEZ proposals is estimated to have been about five times the annual national rural employment guarantee budget; alternatively it could feed some 55 million people a year! (link) (emphasis added)
He suggests that demand needs to be stimulated in the rural economy. Though he does not mention it, this is something that was achieved in China after Mao’s break from the Soviet Union and its model of centralized planning. Chun Lin has argued in his recent work ‘The Transformation of Chinese Socialism’ (2006) how rapid industrialization in the 1980s needs to be seen in the context of the decentralized approach that Mao Tse Tung had initiated.
To stimulate internal demand, he advocates stronger measures to generate employment in the villages via a novel scheme using the nationalized banks to disseminate funds to the village Panchayats, thus reducing bureaucratic structures.
Of course, this is a far cry from the current policies of the government, whose own Minister for Rural Development has remarked few days back:
There is nobody so marginal in a government as the minister of Panchayati Raj. I count for nothing. Nothing! (link)
Bhaduri suggests that banks should be used to push social funds to the Panchayat level, and also monitor the projects. In fact, one aspect that he has not indicated, but can be useful in this scenario is to leverage information technology to gather data and monitor progress of the plans.
First, we must learn to rely far more on the internal rather than the external market. The biggest driving force of the internal market is the purchasing power of the ordinary people derived from employment growth. Growth of the internal market through rapid employment growth, requiring a far more selective approach to globalisation, is essential rather than repeating the mantra that there is no alternative to this corporate-led globalisation. Second, economic growth must be the outcome of employment growth. Our benchmark should be a time bound programme for full employment. How much the growth in employment would contribute to growth in output depends on how productively labour can be employed. …
A start can be made here and now by extending the present national employment guarantee scheme to an ambitious time bound full employment programme, and delegating much of the decision-making power to the maximum to the panchayats and local bodies. They must have maximum freedom and responsibility to identify, formulate and execute local employment generating productive projects. A precondition for this is fiscal autonomy for the panchayats. No government, central or state, is willing to do this yet although the provision was made in 1993 for a finance commission to make panchayats financially self sufficient. The record of Kerala has been the best while that of West Bengal has been among the worst…
(After generating funds from deficit planning) the money for employment generation can be kept in a separate account in nationalised banks with credit line extended to panchayats. This would avoid duplication of institutions, while a system of mutual checks and balances between the panchayats and the local branch of nationalised banks can be devised based on their performance as borrowers and lenders. Banks would lend the next round only if the previous project succeeds, and panchayats can borrow the next round only if the money is well spent. It might turn out to be a situation akin to “repeated games” in which both sides gradually learn to recognise the mutuality of their interests, paving the way for genuine cooperation over time. It is this mutuality of interest which has to be strengthened over time in creating new institutional forms of sustained decentralised financing for development. A programme of decentralised, employment-intensive, rural industrialisation through participatory democracy at the local level is no utopia. It is the compulsion of our time.
Admittedly, Bhaduri’s take is that of an economist, not that from a political economy perspective and needs to be worked out in detail, but it provides a very good start for a practical alternative model for development.
Not that this will be without its problems, ultimately the social composition and the balance of class forces at every level will determine the full realization of such a scheme, but then at least this can be measured in more tangible terms than the promised light at the end of the currently seemingly unending tunnel.
(Cross posted at How The Other Half Lives)