Swarajya - Rip Van Sinha wakes up to the realities of Liberalization

Bastion of Free Speech

Thursday, October 25, 2001

How good is our Liberalization? (III)
Mohan Guruswamy

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Realizing that all has not gone well with the process of liberalization, some belated attempts have been made to suggest that the new policies have had an impact on poverty. In other words, that growth is indeed trickling down. In 1994 the government made a claim that the incidence of poverty has come down to 19%. Every reasonable person as, both then, as it is even now, considers the methodology used by the government, unreliable and unscientific. As a matter of fact the government had in 1989 appointed the Lakdawala Committee to improve the methodology. The recommendations have not been implemented till now as, if used, it would show that the incidence of poverty is far higher. In 1991, I published a paper along with Shantanu Nagpal, then a PPE student at Oxford that used basic human needs and quality of life parameters to estimate the incidence of poverty. Among these were proper nutrition, shelter, access to services like education, health, clean drinking water, public transportation etc. Using these expanded set of criteria we estimated that over 70% of Indians could be considered to be below the poverty line. Our recommendation was that if these yardsticks were adopted, the government would have a new set of priorities that will make it able for it to target its goals and prioritize them more systematically. Our system is still not ready for such a major change.

Thus we still retain a poverty line defined on a caloric norm of 2400 calories per day for rural areas and 2100 calories per day for urban areas. At 1992-93 levels this translates to a monthly per capita income of a mere Rs.264! We all experience the cost of living on a daily basis and so know the absurdity of this definition. According to an analysis by Oxfam, based on a published study by Tendulkar and Jain, in the first years of liberalization itself poverty levels rose from 35.55% to 48.6%. Even the World Bank is now not inclined to accept the GOI’s claims on the war on poverty and want. Two papers by Dr.S.P.Gupta, Member, Planning Commission, and Dr.Gaurav Datt after analyzing the data thrown up by the latest National Sample Surveys the incidence of poverty has actually gone up since 1991. Gupta’s paper reveals some very disturbing facts. It seems that between 1983-91 poverty levels fell by 3.1% as the economy grew annually by 5.6%. From 1991-97, the growth rate remained almost the same while the incidence of poverty grew by one percent each year. According to Gupta the incidence of poverty, which dropped from 44.5% in 1983 to 34.3.9% in 1990, grew to 43% in 1998. Datt is more charitable and comes to the conclusion that while urban poverty has shown a decline, rural poverty levels have been static. As a graduate student at Harvard, I attended a debate between Galbraith and Laffer. Laffer was the high priest of trickle down economics and naturally defended the economic logic of his beliefs. After listening to him for a while, Galbraith with great wit and pungency commented that it seems that trickle down economics is like feeding horses oats so that the sparrows can eat the dung!

Even the experience of the USA has shown that growth does not trickle down voluntarily. Only an enabled and empowered population that can meaningfully join in the growth process can suck it down. Our record in this is still pathetic. Education receives next to nothing in the budget. Even after Amartya Sen received the Nobel Prize, and after our leaders went berserk seeking photo opportunities with him no attempt had been made to understand what his work is about and what he suggests for India. Last year I had suggested a special fund of Rs.2000 crores each year established to accomplish universal literacy and to raise the standards of all tiers of education. I had suggested that this be called the Amartya Sen Yojana. It was turned down on the plea that funds were not available. Soon after this the government announced a pay hike to employees of PSU’s amounting to just about this much each year. This was despite the fact that according to a MOF study the PSU’s had posted a cumulative loss of Rs.202000 crores!

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