TIME FOR STATES TO STEP UP
The pandemic exposed the legacy of neglect. Time for state governments to stand up and be counted as stakeholders in the Indian economy. EPISODE #56
Dear Reader,
A very Happy Monday to you.
Last week the Election Commission of India announced another cycle of state elections, including for the most watched state, Uttar Pradesh. This round of elections too happen in the backdrop of the covid-19 pandemic—at a moment when the country is picking up the broken pieces of the Indian economy. Worse, the pandemic has brutally exposed the pathetic state of India’s basic health infrastructure and the urgent need to fix it.
Yes, while the election cycle—with all its melodrama—is going to be absorbing, equally important is the fact that any incoming government will have to address this legacy of neglect. It is the worst kept secret, but rarely discussed. No longer. The last 18 months has painfully exposed this legacy of neglect, particularly in the context of the needless loss of our near and dear because of lack of a basic health infrastructure like oxygen. This week I explore this vexing issue.
The cover picture is a key slice of street life in Delhi I snapped on a winter afternoon.
A big shoutout to Mary, Balesh, Kapil, Gautam, Premasundaran and Vandana for your informed responses, appreciation and amplification for last week’s column. Gratitude also to all those who responded on Twitter and Linkedin. Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊.
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LEGACY OF NEGLECT
There comes a time in your life when you have to stand up and be counted. I believe this is the moment for the state governments. If indeed India is to transform into a modern economy and society then it can’t be left only to the union government—no matter how empowered. It is a three-legged race where there is only so much a strong partner can do to carry the team.
This thought was reinforced after I came across two separate commentaries. One by Neelkanth Mishra, co-head of APAC Strategy and India Strategist for Credit Suisse, published in the Business Standard. Mishra is making a simple point: the state governments are awash with funds but unable to spend.
“A measure of unspent funds is the government cash balance with the Reserve Bank of India: Now at a substantial Rs 4.7 trillion, or 2 per cent of GDP (Gross Domestic Product). Not only have tax receipts been much better than budgeted, bond markets are also primed for a higher level of fiscal deficit for both the Centre and the states. In fact, state governments have been borrowing less than they were expected to for the last two years.
It is thus a problem of execution, a difficulty in spending, also visible in actual deficits turning out to be much lower than planned.”
The other comment piece was by Prasanna Mishra, a former secretary to the government of India, published on the Odisha TV website. In an opinion piece on the 22-year rule of the Biju Janata Dal in Odisha. Mishra makes the point that while the regime headed by Naveen Patnaik has never been found short on its spending on social welfare, this skewed expenditure priority has meant that the state has failed to guarantee sustained development.
“Why has the run up to the present Panchayat Election been marked by a tsunami of financial concessions and favours costing the government thousands of crores of rupees, raises the issue of political morality – enticing voters through government largesse and diverting huge chunks of government resource for winning elections.
A developed State after 22 years of rule by Naveen Patnaik would have been an appropriate legacy; but unfortunately even now, the state government has identified as many as 96.5 lakh families (out of a total of 97.5 lakh families in the state) under the Biju Swasthya Kalyan Yojana as economically vulnerable families and about 55 lakh families are getting one rupee rice for being poor.
Reckless spending of taxpayers’ money on freebies could win elections, but does not bring in holistic development of the state. At this juncture of the Naveen era, this conventional political strategy is not what statesmanship is about.”
And this about Patnaik, who, unlike counterparts in other states, is credited with a good record of governance. The critique by Mishra therefore may sound harsh, but it is not off the mark.
Especially since this is true for several other states where the electorate has returned a regime to power over several terms. And yet large segments of the populace are struggling at or below subsistence levels—they key reasons for migration of labour from these states.
The stickiness of the staggering levels of poverty are disconcerting. In Bihar, for example, the latest data released by the Niti Aayog pegs the percentage of poor in the state at 51.91%—in other words, one in two people in the state are poor! Yes Bihar is a perfect case study for the business of poverty alleviation.
India’s second most populous state, like several others (check the table below sourced from Niti Aayog) overwhelmed by poverty, risks being left behind as other states gear up for the new economic era.
The problem as Prasanna Mishra is implying is that persistent poverty is convenient for everyone, except the poor. This has serious consequences which we conveniently overlook. The ongoing round of elections are an example of reckless populism where some challengers are promising free power and a monthly dole among other freebies to the Punjab electorate—these commitments are being made on behalf of a state exchequer on the brink of bankruptcy.
Connect the arguments made independently by Neelkanth Mishra and Prasanna Mishra and you have a very clear hypothesis: The legacy of neglect and growing reckless competitive populism is distracting regimes, even the good ones, from pursuing sustained economic development; something that would ensure that people are empowered by learning how to fish rather than be dependent on government largesse.
In the pre-covid era this legacy of neglect with respect to addressing basic needs like electricity, drinking water, housing, health and education would rarely figure in public conversations, except ahead of an election cycle. Even then the conversation was perfunctory. How else can one explain this unenviable legacy of neglect. And this is 75 years after Independence.
This conspiracy of silence was shattered by the covid-19 pandemic. The countless lives lost is the price India paid to wake up to this unfortunate reality. I have previously written this up in detail and hence won’t repeat myself. If you wish to re-read the piece please click the link below:
The fall out of this legacy of neglect is a two-fold.
For one fixing the legacy is a Sisyphean task; no matter what you do the deficit can’t be bridged.
Second, over time the capability of states has got focused on delivering anti-poverty and relief measures rather than in catalysing investment projects. I recall a senior bureaucrat in Bihar complaining that their administration even lacked the capability to formulate bid documents to implement projects funded by multilateral agencies. So more than aid they would prefer the loan of officials to develop these capacities in the state.
So are we surprised then that states today are flush with funds and yet they are unable to use them for ramping up urgently required social and economic infrastructure. In turn this only reinforces underdevelopment and delays rebuilding an economy devastated by the pandemic. This vicious cycle has to be broken. Exactly why states have to rise to the occasion. Alternatively, it is a serious risk to national growth.
Pooled Sovereignty
The point is that there does exist a model that can be copied to create the desired capacities, even in struggling states. This is the roll out of the Goods and Services Tax (GST)—the most important piece of indirect tax reform, which among other things, for the first time economically unified India under the umbrella ideology of ‘One Nation, One Tax’.
The idea had been tossed around since the turn of this Millennium. But successful regimes failed to generate consensus. This was because state governments were unwilling to sign onto a new piece of legislation which essentially reduced their taxation powers. Indirect taxes are implemented on a range of goods and services and hence a vital source of revenue to the state exchequer.
However, four years ago the states guided by the wise hand of the then finance minister Arun Jaitely agreed to make the supreme sacrifice and pool their sovereignty. Indeed it was a historic moment, especially with respect to the new narrative it generated on federal polity. It promised a template which could be extended to forging a similar consensus on troubling development challenges like health and education—subjects that fall in the realm of the states.
Unfortunately, instead of preserving and nurturing this wonderful legacy, the dialogue within the GST Council, the supreme body overseeing this indirect tax, is degenerating into a slugfest of partisan confrontations—inspired mostly by political differences between the Bharatiya Janata Party and their rivals. Something similar played out when the union government introduced the new farm laws; systemic disinformation and the logic of enemy’s enemy is my friend forced a roll back of a law which most experts believed was a good reform.
Leave alone emulating this GST model of federal polity, the effort now is to ensure that the Council is not rendered dysfunctional by these political fault lines. Not only will this jeopardise a very important piece of reform, it will also reverse the gains in federal polity.
Politics is the art of making the impossible possible. It makes eminent sense therefore for political parties to forge an alliance on a common minimum programme that is ring fenced from petty politics. The National Development Council, the apex body chaired by the Prime Minister and lying dormant for the last several years, could be the institution to shepherd this much needed consensus.
India is facing its biggest challenge since Independence as it goes about rebuilding a battered economy—which to begin with had already developed structural defects in its very foundations. This can only be achieved if the states and their political leadership turn up as genuine stakeholders of the Indian economy. It won’t be easy, but it is not impossible.
Recommended Viewing
This week I am sharing a must see short monologue from Harvard University Professor and political philosopher Michael Sandel.
Dwelling on the extraordinary circumstances overwhelming us today the erudite professor is proposing that this is also an opportunity to revisit our view of the world, society and each other. To rebuild the world around the desirable value of equity.
It may sound like a moonshot. But then this is an option that will help address the two most pressing issues facing the world today—inequality and climate change. The covid-19 pandemic which originated in Wuhan, China has brought these challenges to a head. Like in the case of India, this is a moment for the entire world to seize.
Till we meet again next week. Stay safe.
Time and again we witness the waste of taxpayers money by the State governments. Instead of dictating how states deal with the pandemic, centre must be a facilitator and make the States accountable. The Centre should focus on equitable distribution across states of vaccines,oxygen tankers, testing kits, medicines and other medical equipments.
With a fragile and inadequate health care system, prevention must be the name of the game.The states have to become responsible and stop religious gatherings, social functions and most important of all the election rallies. What is required is a strong political will to control the spread.
You have hit the nail on the head with your analysis!! Very well written article!
A timely caution at a critical juncture for the Indian economy. I wish more people would call out the brazen tendency of politicians trying to win elections with public money, by announcing freebies before elections. Why this has not been banned by the Election Commission or the Supreme Court, till now, is something I fail to understand. On the other hand the State governments have not shown much ingenuity in channelising the available resources into investments, that generate employment and give a permanent solution for alleviating poverty and economic progress. Barring a few exceptions, the main focus of politicians and political parties at the State level, has been to plan and win the next election. While investing in infrastructure Iike roads, highways ,airports and railway stations is building a base but spending huge amounts on statues and places of worship to boost tourism, could have been done later. Rather, more hospitals and colleges could have been built. Ideas of investment for generating mass employment could have been taken from experts, especially for goods that are being imported. On the one hand we have poverty and on the other, we let funds go unutilized. Well written and a timely caution.