From Business World of 14 February 2005. Despite my warning, Manmohan Singh created the employment guarantee scheme, and it generated massive corruption as I predicted.
Think twice once more
We have a rare piece of luck: for the first time since
Jawaharlal Nehru we have a Prime Minister who is educated, sincere, honest and
well meaning. He has consciously moulded himself in the image of Nehru; he
would also like to be remembered as a Prime Minister with a human face.
Nehru is remembered today only as
the builder of the socialist state whose follies and excesses we have been
struggling for fifteen years to dismantle. The Prime Minister is also about to
take the risk that he will be remembered as the builder of the greatest edifice
of corruption since the public distribution system (PDS), the fertilizer
subsidy and the power subsidy. These three are not only the pillars of
bureaucrats’ and politicians’ venality in this country. But the PDS has
prevented the diversification of our agriculture out of wheat and rice, and the
fertilizer and power subsidies have mired these two crucial industries in
inefficiency and underinvestment. The harm the subsidies have done to the economy
and the political system far exceeds the good they did to their beneficiaries.
Now the Prime Minister is about
to add a fourth pillar to the edifice of corruption: the employment guarantee
scheme. The employment it will generate is doubtful. But it will certainly
generate considerable employment on paper; and the billions that will be spent
on it will disappear into the pockets of petty politicians, clerks and
contractors. This is precisely the sort of scheme that our government
functionaries enjoy and misuse – a scheme which spreads responsibility thinly
and makes supervision difficult, a scheme that will create such a widespread
vested interest that no subsequent government will dare stop it. The Prime
Minister is at risk of building a structure of ignominy which will survive him
for decades if not centuries.
All bad schemes can be justified
by the good they could do. The PDS could do precisely what the employment
guarantee scheme is supposed to: it could lift the real incomes of the poorest
of the poor. The studies of Dr Kirit Parikh – an important member of the new
government – have shown how few poor the PDS reaches outside the major cities
and how much of the price differential it creates is siphoned off by officials
of Food Corporation officials, rationing inspectors, fair price shop owners and
their political patrons. And yet, the task of reforming or dismantling the PDS
is so Herculean that the Prime Minister would not even dream of attempting it.
It is much easier to set up a new high-sounding and highly misusable scheme
than to reform an old one.
And yet, only this Prime Minister
has the intelligence, the integrity and the courage not simply to stop the
employment guarantee scheme, but to reform the old instruments of corruption so
that they actually benefit the poor. All the money that is being currently
wasted on subsidies and cross-subsidies is theoretically available for more
equitable use; what is required is that it should be channeled into new, more
corruption-proof schemes.
The first principle of such
schemes is that it should subsidize the poor directly instead of making them
jump hoops. It should not be necessary for the poor to break stones in the sun
to get employment, or to find an honest ration shop owners; obvious indicators
of poverty and dependence – such as childhood or old age – should be sufficient
for them to get benefit. This argues for simple, unconditional per capita
subsidies to children and old people; the subsidies the government can afford
would be so modest that the well-to-do would not care to take them. Another
obvious characteristic of the poor is poor housing and fragile property rights.
Subsidizing the construction of mass, basic accommodation for the poor would do
more to remove the obvious stigma of poverty from the people than any other
programme.
Together with secure,
weather-proof housing could go a direct subsidy to electricity consumed by the
poor, instead of the present indiscriminate subsidy to the so-called
residential consumers and farmers. Electricity is not only an illuminant, but
it is the juice that powers an innumerable instruments that increase
productivity and improve life. One reason why labour productivity in this
country is so low is because electricity is available to less than a half of
the population and electricity round the clock to almost none except
politicians and bureaucrats – those whose productivity it is impossible to
improve. And the reason why only they get round-the-clock electricity is that
cross-subsidies have made the power industry utterly unattractive for
investment, private or public.
These are realities with which
the Prime Minister is all too familiar. Future generations will wonder how such
a Prime Minister could have instituted the employment guarantee scheme. He
needs neither the money nor the ignominy.
