STANDING APART - Economic idealists must continue knocking on closed doors

Cutting Corners / Ashok Mitra
The Telegraph, 3 March, 2006

Globalization has smashed all values to smithereens. Evangelists and idealists, however, still walk the earth, determined to overwhelm humanity with love, goodwill and economic well-being. The multitude rushing to the stock exchanges or busy counting its profits from business process outsourcing may not have the time to listen to their preachings. The evangelists and idealists are not disheartened though; they are prepared for the long night.

Amit Bhaduri, one of the country?s leading economic theoreticians, belongs to this rare breed of idealists. He stands a little distant from the madding crowd, and always keeps in mind the original purpose economics was supposed to serve: contributing to the wealth and welfare of humankind at large. An individual who describes himself as an economist, Bhaduri would say, must have no reservations about where the commitment of the science lies. His recent monograph, Development with Dignity: A Case for Full Employment (National Book Trust, Rs 45) bears testimony to this single-mindedness of his pursuit.

Bhaduri is humiliated by the phenomenon of massive unemployment and poverty in the country despite the near-sixty years since independence. It is, in his view, an intolerably absurd situation because means to eradicate these evils are not at all remote; a combination of ?participatory democracy? and meaningful pro-poor measures can transform the state of things; all that is necessary on the part of policy-makers and their advisers is to lose some of their inhibitions.

Bhaduri is aware of the danger of what he calls the stifling of individual initiative and proliferation of frivolous outlays if state-driven development activities are carried to excess. The consequences of unwholesome intrusion of foreign investment and dominance by private finance capital, however, worry him even more. He has no taste for the fetish of export-based economic development because it promotes little employment; he would, to accelerate growth, rather concentrate on expanding the domestic market. This task he links to what he considers the defining issue, a state-sponsored programme of full employment.

Bhaduri would like the roughly 34 million estimated unemployed in the country to be provided with work for 300 days in the year, at a minimum wage-rate of Rs 60 per day, on development projects carried out under the aegis of the three-tier panchayats. The outlay needed for this purpose, according to his estimate, would be in the neighbourhood of Rs 60,000 crore. Perhaps, to take care of those unemployed in urban areas, both the pattern of projects and the financial commitment involved would call for some adjustments. Even so, the broad contours of Bhaduri?s plan are such that it would not really call for an overall outlay exceeding 4 per cent of gross domestic product.

Can we or cannot we spare this magnitude ? amounting to approximately Rs 80,000 crore, roughly six times the allocation for the employment guarantee scheme in the budget presented this week ? to create full employment in the system? The most tautly argued ? never mind if it is at the same time the most polemical ? chapter in Bhaduri?s book bears the title, ?The ?Government-Can?t-Do-It? Syndrome of Public Finance?. He does not believe in wearing kid gloves. His introductory observations read as follows, ?Economists tend to discuss public finance and government budget, restricting themselves by assumptions only to issues, which are amenable to their technical analysis. The fact that the assumptions are blatantly unjustified in most cases, and the issues selected are often not relevant, hardly matters to them.?

He pours scorn on the Fiscal Responsibility and Budget Management Act and would like the modality for financing his full employment plan to be such that it does not face any encumbrances from outside the country. Were the Union and state governments together unable to make enough economies in their budgets to come up with the required amount, he would go for large-scale domestic borrowing by the government of India from the nation?s central bank. Since the government owns the major part of the equity of the Reserve Bank of India, raising money through issue of securities should be, according to Bhaduri, child?s play; the interest burden too could be met by issuing further securities.

Bhaduri would have his repartee for those who shudder at the fiscal irresponsibility they think is implicit in his proposal: the United States of America sustains itself by gargantuan borrowings from abroad: the International Monetary Fund and the World Bank keep mum. It should be no different in our case, more so since the borrowing would be only from internal sources. In any event, should the full employment programme get going, there would be, Bhaduri is confident, enough additional output generated to take care of the additional purchasing power that would circulate in the system. He, in fact, goes further: the additional market the full-employment programme would create, would ensure self-sustaining economic development for the country. Besides, financing the programme exclusively through domestic borrowing ?would weaken the tie between the Indian stock exchange and the institutional investors and would leave the government with greater space to follow a thorough-going employment programme?.

Bhaduri dots some i?s and crosses some t?s so that full employment might coexist with the dignity in living. Each tier in the panchayat system must have full fiscal autonomy; decision-making should be fully decentralized; the right to information must be made available to each and every citizen; the progress of the various on-going schemes should be monitored via periodic reporting of physical progress and open-air rendering of accounts of money received and money spent.

Once the orthodoxy preached by the Fund and the Bank is shed, there can perhaps be few quarrels over the rationality of the Bhaduri plan. The problem lies elsewhere. Neither the Indian economy nor the Indian polity is a tabula rasa. There are entrenched interests who nurture the belief that annoying the proponents of the Washington Consensus is against the country?s long-range interest. That apart, given their obsession with the single-point goal of growth in gross domestic product, they have, they would claim, better use for a sum of Rs 80,000 crore annually than wasting it on creating jobs for some useless loafers.

Bhaduri is an idealist, but even an idealist cannot afford to fail to recognize the reality of class interests: no sense of indignity troubles the narrow circle of people who indulge in luxurious living while very large sections of their countrymen are without a minimal supply of food, clothing, shelter and educational opportunities.

Bhaduri should know all of this. A quarter of a century ago he wrote a seminal paper, which demonstrated that increased defence outlays by a poor country are of no avail for increasing defence capability vis-?-vis a real or imaginary enemy: each increase in defence outlay by one country leads to a corresponding increase in the same outlay in the enemy country, and the process continues ad infinitum. Nobody has bothered to draw any lessons from that most revealing Bhaduri exercise. Last year, India?s defence outlay was, at one go, raised by Rs 27,000 crore, while the outlay for agriculture actually shrunk by Rs 3,000 crore; nobody made a squeak. Members of parliament would be scared to death at any suggestion to lower the outlay on defence, along with that for deterring national and international terrorism, so as to help finance a full employment programme along the line suggested by Bhaduri.

It would, nonetheless, be not only unseemly, but also unjust, to end on such a discouraging note. Saints and idealists know now to stick to their resolve, which in the long run does indeed change the world. Amit Bhaduri must continue knocking on closed doors. That is what his conscience will dictate him to do; that conscience, to say the least, should command the respect that is its due.