Nov 29, 2008

Columnists - Nandan Nilekani;Running out of time

When I attempted to chart the ideas and policies India needs to ensure stable, long-term growth, I was keenly aware that we have always responded best in crisis. Indian economists and policy analysts remarked to me time and again, of our lethargy unless we are faced with economic disaster. Our 1991 reforms were pushed through as the country teetered at bankruptcy, and after we had mortgaged our family jewels – our gold reserves – for emergency loans.

Since the global financial meltdown that began in September this year, there has certainly been a keen sense of urgency to frame better, smarter policy and regulation – an urgency that is visible both globally and in India. I am not happy about the meltdown – the world is almost certainly headed for a rocky, tumultuous period. But this now widespread sense of urgency might be the one silver lining during these turbulent times .

For India, this does not come a moment too soon. Our reluctance to push a reform agenda of expanding access has resulted in large and growing disparities when it comes to the opportunities available in India’s economy. Good education for example, is only accessible to the children whose families can afford private schools, and coaching classes to get into the top institutes. Public-funded education that the rest of India’s children rely on, on the other hand, is a miserable failure, with dropout rates over 90% despite initiatives such as the mid - day meal and the Sarva Shiksha Abhiyan. The result of this are children and teenagers who make their living as street hawkers, construction workers and factory labour. The unfairness of this is overwhelming.

Such disparities in access are all too visible across the country, and have greatly limited class and income mobility across India. While infrastructure in urban India has begun to show tentative progress, farmers lacking roads connecting them from their villages to markets have to rely on corrupt networks of middlemen to sell their crops. Transporting their produce across vast distances without cold chains means that they lose over a third of what they grow due to spoilage. Across rural India, caste relationships still hold sway, limiting the opportunities for backward castes and Dalits to own land and start businesses – to date, India has not seen a single major Dalit entrepreneur. Migrants who leave these harsh livelihoods and come into cities find that finding a home is a distant dream outside the slums that form urban India’s fringes, its messy and chaotic boundaries. Most of the poor in both the slums and in rural India lack reliable electricity and water supply, and the people who can afford it resort to private solutions in the face of such shortages – they buy their own generators, live in gated communities with private security, and use private sources for water.

When our markets seem ineffective in terms of providing widespread access, people turn to other solutions. As a result, India’s markets exist alongside a complicated structure of subsidies, loan waivers, hand-outs, tax exemptions and government sponsored jobs and reservations. And people who have watched the economic boom from the sidelines, see these concessions as their best options, and are hostile towards markets.

In fact, the global financial crisis that has erupted underlines why our issues of access may be our most critical challenge. Across countries, we have seen a populist backlash against markets when they have failed to address crises around access – such as in Europe during the 1920s and 1930s, and more recently in large parts of Latin America. Even the US, a country that supposedly holds the values of the free market close to its heart, is seeing a new rhetoric and anger against big business as income inequalities and unemployment rise across the country. It shows how easily a country’s economic mood can change – since the financial crisis has required over one trillion dollars of US taxpayer money to bail out American banks even as millions of houses across the US are foreclosed, even the staunchest free-market believers are expressing hostility against Wall Street. Governments clearly ignore such challenges of inequality at their peril. Without more reforms to create access, India’s entire progress will totter. For those Indian leaders ambivalent about reforms and who believe that they have only led to creating rich businessmen, now is the time to catch the bull by the horns and promote the reforms that drastically expand access to opportunity in education, jobs, incomes and markets for all.

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