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Hope for the disadvantaged? - Outside View by S.S. TARAPORE
Hope for the disadvantaged?

Since the formation of the new government, there has been widespread euphoria of the good times to come. Understandably, over-enthusiastic economic agents and commentators get carried away by their own wild dreams. Market buffs are thrilled that the Sensex could rise in the next few years, from the present 25,000 level to 60,000 and that by 2025, India will be a super power. While it is legitimate to have aspirations, these have to be concretised into effective action and with the euphoria being so high, at least some of these objectives would need to be attained in the current financial year. President Pranab Mukherjee's address to the Joint Houses of Parliament on June 9, 2014, represents one important step which will be followed by the Union Budget in July 2014. What is important in all this is whether there is hope for the silent disadvantaged, who cannot articulate their aspirations.

Control of inflation

It is heartwarming that central to the President's address is the need for a significant and enduring reduction in the inflation rate. If there is one thing that the disadvantaged deserve to be spared, it is the ravages of inflation against which they have no defences. The President's address stresses that containing food inflation will be the topmost priority of the government.

Releasing excessive foodgrain stocks will be relatively easy and should be implemented immediately, but the much harder part would be to break the inflationary spiral in food items other than foodgrain, which will involve improvements in storage and transportation and preventing hoarding and black-marketing. While there is meant to be a Public Distribution System (PDS) in place, it is common knowledge that the urban poor are just not able to access PDS supplies, as the goods are inedible or not available. For adopting best practices among the states, the 13th Finance Commission has already institutionalised this and set up a Centre for Innovative Practices in States (CIPS) within the Administrative Staff College of India ( ASCI), Hyderabad.

While supply side measures are important in controlling food inflation, generalised inflation needs effective monetary policy action. As such, the government should not be overarching on the Reserve Bank of India (RBI) to prematurely ease monetary policy.

Drinking water

During periods of drought, there are large tracts of unbelievable suffering due to the total absence of drinking water. The problems of a poor monsoon and the El Nino effect on foodgrain supplies can be easily tackled, as there are ample public sector stocks. The real crunch will be in the summer of 2015, when there will be large tracts of the population which would be bereft of drinking water. This is a major problem and the government would need to gear up in advance to handle this problem.

Creation of jobs

With a large number of youth coming on to the job market each year, a major challenge is creation of adequate job opportunities. The emphasis has to be on effective job creation and not feather-bedding, under which three persons are employed to do the job of one. A key issue which no government over the years, has acknowledged, is the distortion of natural factor endowments. In India, labour is plentiful but capital is scarce. By artificially keeping down the price of capital, the capital-labour ratios are distorted. Unless we bite the bullet, the job creation problem will remain and the fundamental distortions in the system will persist.

Affordable housing and new cities

It has been indicated that the endeavour would be to set up 100 cities with 'world class' amenities. Taking into account economies of scale, it would be more efficient to build, say 20 new cities over the next 20 years. It is also the objective to ensure, by the 75th year of Independence (2022), that every family has a pucca house with water connection, toilet facilities and electricity. While this is a commendable objective, to make this a reality, it would be necessary to assess the resources required.

Poverty elimination

The President's address gives a clarion call:

"Poverty has no religion, hunger has no creed and despair has no geography. The greatest challenge is to end the curse of poverty in India. My government will not be satisfied with mere 'poverty alleviation' and commits itself to the elimination of poverty."

Herein lies the dilemma. To step up the growth rate, we need allocation of massive resources for developing the economic infrastructure and one segment of the population wants high-speed trains, freight corridors, national highways, airports and port-led development. As government attempts to allocate large resources for the economic infrastructure and at the same time contain the fiscal deficit, it is the social infrastructure which gets short-changed, with drastic cuts in health, education and other social infrastructure. It is unfortunate that attempts to allocate resources to the social infrastructure is berated as unproductive doles. The objective of elimination of poverty is a noble cause, which must be fostered by the government, but the prerequisite is that India has to change from being a plutocracy to a society committed to distributive justice.

Please Note: This article was first published in The Freepress Journal on June 16, 2014. Syndicated.

This column, Common Voice is authored by Savak Sohrab Tarapore. Mr. Tarapore, is an economist and he runs his own Multi-Language Syndicated Column. Mr. Tarapore's other column, which appears in The Hindu Business Line, is titled Maverick View.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.


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