The Intrusive State

When things were going well for the Indian economy, there was a spate of India books, which essentially told us that things will continue to go well in the days to come. But then we soon found out that laws of economics apply to us as well, and since 2011, economic growth which creates jobs in large numbers has proved to be an uphill task.

In India’s Long Road: The Search for Prosperity, Oxford University economist Vijay Joshi explains why. The basic point that Joshi makes is that the ambition of the Indian state vastly exceeds its capabilities. In the process, it ends up doing many things it shouldn’t be doing and ignoring the things that it should be doing.

As Joshi writes:

And that explains best why the Indian state continues to run Air India, despite the mounting losses. Between 2010-2011 and 2015-2016, the airline has lost close to Rs 35,000 crore, and continues to be run, bankrolled by the government. The losses are not surprising given that the airline business is a very competitive business and the government (not just this government but any government) clearly doesn’t have the wherewithal to run it.

And if Air India still being run is not surprising, the government owns a company, which once upon a time used to make photo films (Hindustan Photo Films). This is the fourth largest loss making public sector enterprise. It made losses of more than Rs 2,000 crore in 2014-2015.

Of course, the government doesn’t have an endless supply of money. And the money that goes towards ensuring that Air India keeps running is taken away from other more important things like education, health and agriculture. The question is, why would a government in this day and age continue to own an airline and a photo film company?

Other than losses, running these enterprises also takes away attention from more important issues like education, health and agriculture as well. Take the case of the Indian education system. The learning outcomes have been falling dramatically over the years and nothing concrete seems to have been done about it.

The fall in learning standards is another impact of the excessive ambition of the state. In April 2010, the Right to Education (RTE) became the order of the day. The idea behind RTE is to offer free and compulsory education to children between the ages of six to 14. Noble thought indeed. But this comes with other requirements like schools having adequate physical infrastructure like a playground. Over and above this, the Right to Education Act makes it compulsory for the teachers to complete the syllabus, without really addressing the learning outcomes.

The result is that learning outcomes of students have been falling dramatically over the years. An estimate by the non-governmental organisation Pratham suggests that over a period of 10 years up to 2015, 10 crore children completed primary school without the ability to do some basic reading as well as mathematics. As Joshi writes: “The core problems are to do with curriculum-driven teaching practices and pervasive lack of teacher accountability.”

While the regulation route can be taken to set the curriculum-driven teaching practices right, getting teachers to actually teach in a meaningful way will mean taking on teachers’ unions all over the country. This will require the support of the state governments as well. Given this, it is easier said than done. As Joshi writes: “The latter, which is about having motivated teachers who actually teach, is a much harder nut to crack.”

Further, if people can’t read, write and do some basic mathematics, how will a programme like Make in India ever take off?

So what is the way out of this? How can the government ensure better delivery of things that it takes on? Another area where the Indian state has intervened quite a lot and made a mess of things is in trying to distribute rice, wheat, kerosene and sugar, at a cheaper price, through the public distribution system of more than five lakh fair price shops spread all over the country. The idea is to help the poor.

The trouble is that the system is terribly leaky. An estimate made by economists Ashok Gulati and Shweta Saini suggests that nearly 46.7 per cent of the rice and wheat distributed through the public distribution system does not reach those it is intended for.

This, of course, does not mean that we shut down the public distribution system. But there is a great need to approach things differently and move away from the conventional way of doing things.

As Joshi writes:

The fact that the government tries to deliver rice, wheat, sugar, kerosene, cooking gas, etc., to people has led to the evolution of a very corrupt system. So what is the way out? As Joshi writes: “The state could enable the poor to buy food in the market, at market prices, by transferring purchasing power to them directly in the form of cash or food vouchers. A system along these lines may be more effective in reaching poor people, and also less corrupt. This example is not chosen at random: it is highly relevant to the problems facing India’s public distribution system (PDS) for food delivery.”

Along similar lines, parents should be given education vouchers which will allow them to pay for the education of their children in schools of their choice, instead of neighbourhood government schools. There is limited evidence to show that the learning outcomes (the ability to read, write and do some basic mathematics) of primary education at private schools is better than government schools. The fact that parents can get their children to change schools is likely to lead to some competition among schools and in the process, better teaching.

In fact, Joshi even goes on to suggest a universal basic income for every citizen of India. This, he says, would solve a very basic problem. It would take out the need for the government to identify the poor. This is where most of the scams in the current subsidy programmes happen, as those who are not entitled to the subsidies end up collecting them.

The question is, where will money for a universal basic income come from? Joshi suggests winding up of non-merit subsidies, abolishing unnecessary exemptions for companies and tax breaks for small savings which are regressive, privatisation of public sector enterprises, widening of the tax base by taxing agricultural income among other things and finally, shaving off some badly targeted social expenditure programmes.

This he feels is likely to help the government raise resources equivalent to around 10 per cent of the gross domestic product. The question is, does any government have the balls (for the lack of a better word) to do anything like this, wherein it will be taking on almost everyone from the capitalists who benefit from tax exemptions to employees to the middle class which benefits from small savings schemes to rich farmers to political parties.

Indeed, that is the tragedy of India. The problems are known and so are the solutions. It’s just that they may not be politically feasible and even if they are, no politician is willing to take the risk.