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Business Commentary/Dilip Thakore

Economists and their advice on reforms

There has always been a suspect quality about post-Independence India's tribe of intellectuals and economists in particular. Or else, how does one explain the virtual consensus in favour of the now thoroughly discredited Nehruvian or licence-permit quota model of economic development for well high 45 years?

Apart from the late Prof B R Shenoy, who was an uncompromising critic of this failed development model -- and who provided the intellectual grist for the mill of the unjustly maligned Swatantra Party and its founder Chakravarty Rajagopalachari -- there were few critics of the Nehru-Mahalanobis development model which is now being universally denounced as having been egregiously wrong.

And though I hate to say this, even Dr Manmohan Singh the highly respected messiah of the Indian economy who must be given a major share of the credit for cutting the umbilical with Nehru-Mahalanobis development model when, took an inordinately long time to see the light. Indeed, in his long career as a civil servant, Dr Singh was one of the architects of the Nehru-Mahalanobis model which now has hardly any takers except within the ranks of incorrigible Marxists and fellow travellers.

But even though Dr Singh and his mentor, former prime minister P V Narasimha Rao made -- or were forced to make a -- a sharp break from the Nehru-Mahalanobis development model, they thought it politically expedient to describe the path-breaking reforms programme initiated in 1991 as a course correction of the Nehruvian model. Consequently, even to this day, there is a great deal of confusion about what exactly were the infirmities of the Nehru-Mahalanobis development model This is why there is a two steps forward one step back aura surrounding the economic reforms programme.

Fortunately, this nation has the benefit of the advice of a large number of non-resident Indian economists who have sharpened their skills in more stimulating academic environments and to whom distance has perhaps lent perspective. Just before the turn of the year (December 29) perhaps the most distinguished NRI economist of them all, Dr Amartya Sen, master of Trinity College, Cambridge, United Kingdom, threw considerable light on the crippling infirmities of the Nehru-Mahalanobis development model. And in his opinion, the new economic reforms programme has as yet failed to address these fundamental infirmities.

According to Sen, the popular latter-day assumption that the under-development of the Indian economy was due to an overactive interventionist government is only a half truth. He argues that while under the influence of the Nehru-Mahalanobis development model government was overactive in the economic sector, it has been "shockingly underactive" in the social sector, that is, in providing education and (preventive) health care to the general population. And he warned a distinguished audience comprising the captains of industry and economists, including Dr Singh, that the lopsided post-1991 economic reforms programmes is perpetuating this crippling mistake.

Regular readers of this column are likely to recall that I have often taxed their patience by making repeated entreaties to the establishment and the powers that be to increase the nation's annual outlay for education which, for the last five decades, seldom exceeded three per cent of GDP against the global average of 5 per cent. In particular, I have argued for the creation of a consolidated fund for the building of primary schools from the proceeds of privatisation of public sector enterprises which are bleeding the economy.

I couldn't possibly rationalise the importance of giving top priority to educating the masses better than Prof Sen, who warned: "People with no schooling -- with no literacy -- cannot easily cross the barriers to participating in global economic arrangements. On the other hand, they can lose their jobs and occupations from global competition from countries without India's self-perpetuated handicaps."

Consequently in the current climate of liberalisation and deregulation spurred by a revulsion against the Nehru-Mahalanobis interventionist development model, it is important to guard against the state withdrawing from social sector activities as well. Implicit in Sen's critique of the post-1991 reform programme is a call for greater government participation and involvement in education, health care and social sector activities. Economic liberalisation should be accompanied by greater state participation in the social sector, he argues.

But here again a timely warning against the quality of state intervention in the social, particularly education, sector has been given by another NRI economist. Writing in the Business Standard (January 3), Prof Parth Shah of Michigan University cautions against the expansion of government to provide the social services advocated by Prof Sen. If for five decades the central and state governments have so grossly mismanaged the public sector, they are likely to prove as -- or more -- inefficient in providing education and health care services. "Education is too important a field to be left solely in the hands of government. It should be opened up to encourage experimentation and competition -- to engage the marvel of private initiative and imagination. Good education requires as many entrepreneurs as good clothing," says Shah.

Poorly managed government managed schools and the indifferent quality of education they provide to millions of children are live testimony to the validity of Prof Shah's argument. Today, almost nobody who can afford better would send his child to a government-run school.

Therefore, even as a national consensus has emerged on the need to sharply increase the annual expenditure on education, there is a good case for arguing in favour of government encouraging private sector participation in education and building schools to hand over to experienced non-governmental organisations for management. This is perhaps the best formula for providing qualitative education to this nation's cruelly deprived children.

Dilip Thakore