Monday, September 27, 2010

Poverty eradication through wealth redistribution or wealth creation?

There is an interesting paradox about India's administrative architecture. It is widely acknowledged that the most critical (in terms of program implementation and organizational importance) administrative unit in the country is the district, headed by a District Collector. But the irony is that this administrative unit is barely involved (and informed) in all major economic growth promoting activities of that area.

To the extent that districts are the cutting edge of governance in India, what happens there is a reflection of the priorities of the government of the time. So what does the district administration in a typical Indian district focus on? In the present context, the list would include - NREGA; functioning of schools, hospitals, and ration shops; response to disasters (specifically, floods and droughts); managing food price rises; procurement of grains; pensions; SHG activities; self-employment activities under various programs etc.

The list of what is not among its priorities include industrial growth; pro-active facilitation of industrial ventures; attracting investments; planning the expansion of road, water and electricity networks; planning and implementing other infrastructural facilities; monitoring the quality of engineering works; preparing and implementing macro-plans on district's overall economic development (not village-level micro-plans) etc.

The two groups of administrative priorities distinctly get divided into welfare enhancing and growth promoting policies. Whenever the focus of district collectors fall on infrastructure, it rarely goes beyond irrigation, school buildings, and small rural roads. Involvement in infrastructure and industry is most often confined to land acquisition.

The Government of India recently invited bids for the city gas distribution network in many districts across the country, including four districts of Andhra Pradesh. How many of these district network plans were prepared in consultation with the respective district level stakeholders, including officials? What are the chances that the district administration will be involved in the execution of the project (apart from the issue of land acquisition)? Both answers will unfortunately be in the negative.

It is well-established that local participation (in planning, finalization, implementation and monitoring) at the level of all stakeholders is a sine-qua-non of any successful sustainable economic growth model. However, to the extent that districts are the cutting edge of implementation and have some of the best officials in the bureaucracy, it is indeed surprising as to how little they are involved in the vital economic growth generating policies.

In simple terms, those with the least knowledge of an area are driving the growth of that area. It is as though the mandarins in Beijing drove the Chinese economic growth miracle of setting up millions of Town and Village Enterprises (TVEs) without any involvement of the local bureaucrats and party apparatchiks.

All this gives the unmistakable impression that India's poverty eradication strategy, indeed even its politico-economic governance strategy, revolves around targeted welfare programs. Increasing economic growth, while important, does not form a major part of the immediate poverty eradication calculus. The energies of the major share of its bureaucracy are not utilized into the big issues that determine economic growth. The focus is clearly skewed towards wealth redistribution than wealth creation.

All this is unfortunate. History is replete with examples from across countries which conclusively show that sustained periods of high economic growth rates is the only path out of poverty. Targeted poverty reduction programs involving redistribution of wealth, while important, are only instruments of poverty mitigation not poverty eradication.

The relationship between economic growth and poverty reduction is well-documented and there is considerable debate about which way the causation runs. However, it cannot be denied that any poverty reduction can come only by expanding the pie. This is especially true of the remote and backward areas of the country, untouched by even the basic infrastructure investments and bereft of any industrial activity.

Even small investments in these have the potential to yield immediate and substantial direct and indirect impact on rural incomes and thereby poverty reduction. Imagine the job creation potential of a medium-scale manufacturing facility or the considerable and immediate economic multiplier benefits from an all-weather road or electrification of a remote village.

What is more, to the extent that all major issues relating to development are still being planned and decided exclusively by the state capitals and in New Delhi, Indian economic growth bureaucracy retains distinct features of the old command and control regime. And volumes have already been written about the failures and deficiencies of such command and control approaches to economic growth.

None of this is to elevate nominal GDP growth rates to a pedestal of sacrosanct nature. The argument is only that District Collectors should do all that they are doing now, but should be playing a central role in the development of infrastructure and industries, and enabling linkages between them in their respective districts.

There are risks associated with more active participation of district administration - decentralization of corruption, lack of requisite capacity at district levels, dilution of professional standards deficient understanding about the macro-growth picture etc. However, the beneficial effects more than off-sets the aforementioned negative effects, especially if the scope of involvement of district level stakeholders is clearly defined to exclude technical decisions and bid-related financial issues.

To conclude, instead of spending all their scarce energies with directing poverty mitigating welfare programs and fighting meaningless battles with price rises and labor migration, district officials should be more actively involved in the process of economic growth creating path towards poverty eradication.

1 comment:

Niranjan Boora said...

Till now I thought local administration doing both wealth re-distribution and wealth creation work. But from this article it is completely clear that our local economic growth completely is completely out of local administration control. Then why do we speak of decentralization policies. Are these only to maintain an the state of equilibrium of wealth.
This is just like maintenance of software to generate revenue from support instead of creating new products to see top-line or bottom line growth of the company.