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Arvind Panagariya on Amartya Sen

The Times of India dated July 27, 2013 has published an article by Professor Arvind Panagariya, Professor of Indian Political Economy  at Columbia University , titled “What Amartya Sen Doesn’t See”. Both are renowned people. One advocates growth and the other is a champion of social spending. Both are concerned with poverty, illiteracy, ill health and other deprivations. Both consider developmental planning as the preferred instrument to achieve their goals. Policy comes to occupy the place of pride in such a discourse.

An examination of the growth story of India throws up exciting results. There was shortage of capital to invest in industry, infrastructure or agriculture for more than a decade after independence. Food scarcity was the most troubling problem before the government. Food grains, lentils, sugar and other agricultural commodities were in short supply. Industrial development needed to be launched in a big way. The geo-political climate was not very friendly to countries like India. Technology was costly to import. Machinery prices were so discouraging that for a long time Indian industry was forced to buy second hand machinery from abroad. Because of the scarcity of capital coupled with developmental planning, regulating investment became an undesirable necessity. Government policies of those days were framed after taking into account all these inhibiting factors. For a nation growing under the delusion of a tryst with destiny, every policy appeared people friendly. However any policy needs to be implemented by bureaucracy. The bureaucracy in those days was paid more poorly than now. That played the incentive for corruption, which assumed the dangerous proportions of the condemned licence-quota-permit raj (the reign of licence-quota-permit).The difference in the level of central leadership and the leadership in the states not only promoted corruption but nurtured it too. This converted well meaning policy initiatives as restrictive, anti-growth and development inhibiting practices by the executive in cohorts with the bureaucracy. India was seen by the advanced countries as a huge market only. Hence the clamour for “reforms” started from various forums such as the joint business councils, UNCTAD, UNIDO, World Bank, IMF etc. Political economists think the reforms started in 1991. That is historically incorrect: reforms were started by Rajiv Gandhi in 1985 as mentioned by me in my book on this site. I would suggest that political economists like Prof. Panagariya spend some time to browse through this book in the interest of the correct discourse on political economy of India. What Rajiv did was to liberalize the industrial licensing regime by almost 40%. That gave the desired push to growth. Freeing entrepreneurs from the reins of the licence-permit-quota raj was one of the boldest steps taken by Rajiv Gandhi. His initiative was welcomed by the industry and new generation entrepreneurs, who displayed exemplary enthusiasm in coming forward with huge investment proposals. There was so much excitement about liberalization during that period that demands were made for more reforms by several industry organizations. The end of licence raj was in sight. Unfortunately the untimely death of Rajiv Gandhi slowed that process. The government in 1991 could not risk reviving the licence raj. It had to exploit the goodwill generated by the reforms initiated by Rajiv Gandhi. From the point of view of a political economist, this is a significant development, which has been regrettably ignored in all the cacophony of the reforms being credited to the later government of 1991.

We are witness to all round decline in growth, development, living standards of the people in general, justified erroneously in the name of reforms. Excepting for converting India into an open market for foreign capital investors, there is nothing comparable with the Rajiv years or even earlier times. Just compare the foreign technical collaborations of the period up to 1980 with those of the last 10 years and the picture would be clear. How much high technology or the state of the art technology has been imported into India in the past 10 years? How many new entrepreneurs of the caliber of those of the Rajiv years have been created in the last 10 years? What big public sector undertakings comparable with the units set up under the pre Rajiv policies have been set up in the last 10 years? On the contrary, public  sector undertakings have been deliberately destroyed financially to force enter private exploiters to make windfall profits at the cost of the national economy. Whether it was the Reliance airport metro in Delhi, Air India/ Indian Airlines compared to private operators allotted lucrative routes at the cost of the public sector airlines or banks and several other institutions in health, education or research sectors, the performance of the last 10 years has been dismal. Facilitating loot of the country is hardly reforms.  The government and its leaders have been ridiculing the poor and their poverty by addressing them as aam aadmi, cattle class, above poverty line @ less than 0.40 a US Dollar per day income. Most unabashedly the members of parliament, ministers, economists, planners have been touting the daily earning of US Dollar 0.40 as sufficient to feed a family of 5 persons. Their economic theories appear to pale the  Nobel Prize winning ones when they make loud announcements in the TV cameras that a person can have a wholesome meal for just rupees 5 in Delhi and 12 in Mumbai. If true, these economists will eliminate hunger and poverty from the globe in a few weeks only! One went even beyond when he said that one can get such a meal for rupee 1 (one) also. So that is the essence of this reform & liberalization? The government is promising wheat/rice @ rupees 2/3 a kg to almost 87% of the population under the food security bill. If the economists think that it is under the food security that they can get full meals for rupees 2/3 a person, then the logic of their argument can’t be questioned. But is it politically healthy to cripple 87% of the population forever and convert them into modern day slaves, depriving them of work or jobs? That neither Pangariya, nor Bhagwati nor Amartya Sen have mentioned in their writings or interviews to the media. Such economic propositions are unsound besides being dangerous- they provoke civil strife.

If reforms mean only free entry of foreign investors to exploit as much as possible as fast as it can be or destroying the huge entrepreneurial base created in the small scale sector, disrupting growth of indigenous manufacturing in the small scale sector and millions of jobs or liberally allow inflation to break the neck of the citizenry, I have no hesitation in saying that it is fooling the whole nation and nothing more. These unwelcome policies are bound to deal a death blow to the entire body of economic development in the country. Viewed in the context of deliberate attempts to divide the country on all kinds of prevailing, invented or imagined grounds, it is a sure recipe only to perpetuate poverty in India and making the poor poorer forever. The much despised “licence raj” has made a silent come back in the name of reforms: it has produced scams of historic proportions whether in the 2 G spectrum allocation or coal allocation or dozens of similar kind. The consequences of the Enron scandal of an earlier era are causing untold misery and suffering to the citizens for ever increasing tariff for electricity and is the serious most lingering scam of the country. The small scale sector was sought to be ruined in 1991 too in the name of reforms,  only to serve the lobbies (domestic/foreign) , who were lobbying for long to abandon the list of items reserved for manufacture in the small scale sector only. They failed then but have succeeded largely now, by enlarging the defining limits of investment for the small scale sector. What was the medium sector earlier, was merged in the small scale sector, which effectively means that the reserved list was no more the reserved items for the small scale alone. One feature of the sturdy small scale sector policy was the government purchase policy and enforcement of compulsory procurement from the small scale sector under certain provisions relating to export oriented units, export promotion zones and now the foreign direct investment policy. The current FDI policy stipulates compulsory procurement to the extent of 30% from the SSI sector. I have never believed the government was really serious about it. It was just to silence critics of FDI and was to be abandoned in instalments in due course. Since I had seen this happen in the export oriented units case, I wrote on these lines in one of my articles on this website. The country is pursuing a dangerous policy both economically and politically, the consequences of which will prove disastrous.

Amartya Sen advocates greater spending on literacy and health. He has not seen the decline in these two sectors. These two sectors have suffered the worst from the market economy. The government was expected to stem the rot, improve service delivery and quality. Instead it has been silently watching total decline only to substitute public services by the private sector, whose greed has resulted in the literate being certified so without being able to read simple words, students unable to count up to 100 or read one page in local language but promoted to higher class. The death of the 23 children in a Bihar school due to contaminated mid day meal and dozens of similar complaints from other parts of India should have made  Amartya Sen and such other advocates of more spending change their views and accept the ugly realities that waste is not spending and that such sentimental economic remedies are bound to fail to serve a big country like India.

The only sound policy is the one followed before Rajiv Gandhi and thereafter  by Rajiv Gandhi. Others are spurious and illusory, devised to mislead the people into believing that the political economy is in the safe hands of an economist prime minister, who is the champion of liberalization and reforms in the country. Nothing more is far from the truth. Either the prime minister is constrained to act under the dual centre of power model or coalition compulsions or something still more devious or he has no magic wand to restore the economy to proper health. Rather than pursuing further the brand of reforms, the government must attend to the public grievances in all seriousness and remedy them. Unless so done, these reforms give the impression that they are meant to serve the interests and foreign economic policies of some developed countries at the cost of India and the Indian people. The protagonists of globalization have turned protectionists in less time than it takes for an egg to become a cock! Is India capable of such a fast policy upending? What employment opportunities remain for millions of unskilled, semi-skilled and skilled workers in a scenario of shut down public sector units and shrunken small scale sector space? Can any person of a sound mind ever imagine better literacy, education or health

The Times of India dated July 27, 2013 has published an article by Professor Arvind Panagariya, Professor of Indian Political Economy  at Columbia University , titled “What Amartya Sen Doesn’t See”. Both are renowned people. One advocates growth and the other is a champion of social spending. Both are concerned with poverty, illiteracy, ill health and other deprivations. Both consider developmental planning as the preferred instrument to achieve their goals. Policy comes to occupy the place of pride in such a discourse.

An examination of the growth story of India throws up exciting results. There was shortage of capital to invest in industry, infrastructure or agriculture for more than a decade after independence. Food scarcity was the most troubling problem before the government. Food grains, lentils, sugar and other agricultural commodities were in short supply. Industrial development needed to be launched in a big way. The geo-political climate was not very friendly to countries like India. Technology was costly to import. Machinery prices were so discouraging that for a long time Indian industry was forced to buy second hand machinery from abroad. Because of the scarcity of capital coupled with developmental planning, regulating investment became an undesirable necessity. Government policies of those days were framed after taking into account all these inhibiting factors. For a nation growing under the delusion of a tryst with destiny, every policy appeared people friendly. However any policy needs to be implemented by bureaucracy. The bureaucracy in those days was paid more poorly than now. That played the incentive for corruption, which assumed the dangerous proportions of the condemned licence-quota-permit raj (the reign of licence-quota-permit).The difference in the level of central leadership and the leadership in the states not only promoted corruption but nurtured it too. This converted well meaning policy initiatives as restrictive, anti-growth and development inhibiting practices by the executive in cohorts with the bureaucracy. India was seen by the advanced countries as a huge market only. Hence the clamour for “reforms” started from various forums such as the joint business councils, UNCTAD, UNIDO, World Bank, IMF etc. Political economists think the reforms started in 1991. That is historically incorrect: reforms were started by Rajiv Gandhi in 1985 as mentioned by me in my book on this site. I would suggest that political economists like Prof. Panagariya spend some time to browse through this book in the interest of the correct discourse on political economy of India. What Rajiv did was to liberalize the industrial licensing regime by almost 40%. That gave the desired push to growth. Freeing entrepreneurs from the reins of the licence-permit-quota raj was one of the boldest steps taken by Rajiv Gandhi. His initiative was welcomed by the industry and new generation entrepreneurs, who displayed exemplary enthusiasm in coming forward with huge investment proposals. There was so much excitement about liberalization during that period that demands were made for more reforms by several industry organizations. The end of licence raj was in sight. Unfortunately the untimely death of Rajiv Gandhi slowed that process. The government in 1991 could not risk reviving the licence raj. It had to exploit the goodwill generated by the reforms initiated by Rajiv Gandhi. From the point of view of a political economist, this is a significant development, which has been regrettably ignored in all the cacophony of the reforms being credited to the later government of 1991.

We are witness to all round decline in growth, development, living standards of the people in general, justified erroneously in the name of reforms. Excepting for converting India into an open market for foreign capital investors, there is nothing comparable with the Rajiv years or even earlier times. Just compare the foreign technical collaborations of the period up to 1980 with those of the last 10 years and the picture would be clear. How much high technology or the state of the art technology has been imported into India in the past 10 years? How many new entrepreneurs of the caliber of those of the Rajiv years have been created in the last 10 years? What big public sector undertakings comparable with the units set up under the pre Rajiv policies have been set up in the last 10 years? On the contrary, public  sector undertakings have been deliberately destroyed financially to force enter private exploiters to make windfall profits at the cost of the national economy. Whether it was the Reliance airport metro in Delhi, Air India/ Indian Airlines compared to private operators allotted lucrative routes at the cost of the public sector airlines or banks and several other institutions in health, education or research sectors, the performance of the last 10 years has been dismal. Facilitating loot of the country is hardly reforms.  The government and its leaders have been ridiculing the poor and their poverty by addressing them as aam aadmi, cattle class, above poverty line @ less than 0.40 a US Dollar per day income. Most unabashedly the members of parliament, ministers, economists, planners have been touting the daily earning of US Dollar 0.40 as sufficient to feed a family of 5 persons. Their economic theories appear to pale the  Nobel Prize winning ones when they make loud announcements in the TV cameras that a person can have a wholesome meal for just rupees 5 in Delhi and 12 in Mumbai. If true, these economists will eliminate hunger and poverty from the globe in a few weeks only! One went even beyond when he said that one can get such a meal for rupee 1 (one) also. So that is the essence of this reform & liberalization? The government is promising wheat/rice @ rupees 2/3 a kg to almost 87% of the population under the food security bill. If the economists think that it is under the food security that they can get full meals for rupees 2/3 a person, then the logic of their argument can’t be questioned. But is it politically healthy to cripple 87% of the population forever and convert them into modern day slaves, depriving them of work or jobs? That neither Pangariya, nor Bhagwati nor Amartya Sen have mentioned in their writings or interviews to the media. Such economic propositions are unsound besides being dangerous- they provoke civil strife.

If reforms mean only free entry of foreign investors to exploit as much as possible as fast as it can be or destroying the huge entrepreneurial base created in the small scale sector, disrupting growth of indigenous manufacturing in the small scale sector and millions of jobs or liberally allow inflation to break the neck of the citizenry, I have no hesitation in saying that it is fooling the whole nation and nothing more. These unwelcome policies are bound to deal a death blow to the entire body of economic development in the country. Viewed in the context of deliberate attempts to divide the country on all kinds of prevailing, invented or imagined grounds, it is a sure recipe only to perpetuate poverty in India and making the poor poorer forever. The much despised “licence raj” has made a silent come back in the name of reforms: it has produced scams of historic proportions whether in the 2 G spectrum allocation or coal allocation or dozens of similar kind. The consequences of the Enron scandal of an earlier era are causing untold misery and suffering to the citizens for ever increasing tariff for electricity and is the serious most lingering scam of the country. The small scale sector was sought to be ruined in 1991 too in the name of reforms,  only to serve the lobbies (domestic/foreign) , who were lobbying for long to abandon the list of items reserved for manufacture in the small scale sector only. They failed then but have succeeded largely now, by enlarging the defining limits of investment for the small scale sector. What was the medium sector earlier, was merged in the small scale sector, which effectively means that the reserved list was no more the reserved items for the small scale alone. One feature of the sturdy small scale sector policy was the government purchase policy and enforcement of compulsory procurement from the small scale sector under certain provisions relating to export oriented units, export promotion zones and now the foreign direct investment policy. The current FDI policy stipulates compulsory procurement to the extent of 30% from the SSI sector. I have never believed the government was really serious about it. It was just to silence critics of FDI and was to be abandoned in instalments in due course. Since I had seen this happen in the export oriented units case, I wrote on these lines in one of my articles on this website. The country is pursuing a dangerous policy both economically and politically, the consequences of which will prove disastrous.

Amartya Sen advocates greater spending on literacy and health. He has not seen the decline in these two sectors. These two sectors have suffered the worst from the market economy. The government was expected to stem the rot, improve service delivery and quality. Instead it has been silently watching total decline only to substitute public services by the private sector, whose greed has resulted in the literate being certified so without being able to read simple words, students unable to count up to 100 or read one page in local language but promoted to higher class. The death of the 23 children in a Bihar school due to contaminated mid day meal and dozens of similar complaints from other parts of India should have made  Amartya Sen and such other advocates of more spending change their views and accept the ugly realities that waste is not spending and that such sentimental economic remedies are bound to fail to serve a big country like India.

The only sound policy is the one followed before Rajiv Gandhi and thereafter  by Rajiv Gandhi. Others are spurious and illusory, devised to mislead the people into believing that the political economy is in the safe hands of an economist prime minister, who is the champion of liberalization and reforms in the country. Nothing more is far from the truth. Either the prime minister is constrained to act under the dual centre of power model or coalition compulsions or something still more devious or he has no magic wand to restore the economy to proper health. Rather than pursuing further the brand of reforms, the government must attend to the public grievances in all seriousness and remedy them. Unless so done, these reforms give the impression that they are meant to serve the interests and foreign economic policies of some developed countries at the cost of India and the Indian people. The protagonists of globalization have turned protectionists in less time than it takes for an egg to become a cock! Is India capable of such a fast policy upending? What employment opportunities remain for millions of unskilled, semi-skilled and skilled workers in a scenario of shut down public sector units and shrunken small scale sector space? Can any person of a sound mind ever imagine better literacy, education or health services from a political and economic system where 87% population will be obliged to starve without government largess? We have wasted too much time already. Better we change course and stay with proven policies of the past.

from a political and economic system where 87% population will be obliged to starve without government largess? We have wasted too much time already. Better we change course and stay with proven policies of the past.

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