Economy Mar 25, 2013
Pranab Bardhan is an eminent economist and a professor from the University of California, Berkeley, who has contributed to theoretical as well as field study research on rural institutions in developing countries, political economy of development policies and international trade.
In a recent visit to India, Firstpost caught up with Bardhan on what lies ahead for India, and what it can learn from China.
What according to you are the obstacles that prevent whole hearted reforms in India?
In India most of the economic reforms have been limited to reforms in trade and industry. A large part of our economy is still unreformed. Agriculture for instance, requires a lot of reforms and that has not happened. Business surveys shows in many parts of India, bureaucratic delays etc are still very large.
However, the most important issue is what happens to physical and social infrastructure? Physical infrastructure is roads, electricity, ports, railways, and telecommunications. India's physical infrastructure is still very bad compared to many other countries. Let's not speak about China here, their infrastructure is superb. But even compared to other developing countries, we are not doing well.
Even in social infrastructure (primarily education and health) we are doing very badly. Reforms in those sectors which would encourage more investments, and better performance in physical and social infrastructure to me is the most important thing. I want to widen the scope of reforms. I am in favour of reforms but not just which are limited to trade and industry.
India is a democracy, while China isn't. What are the lessons India can learn from China as far as development of economy goes?
There is a lot more democracy in India but it's highly flawed. However, with all the flaws its much more vigorous than the Chinese system. But, our democracy too has some problems, and in many ways our democracy also needs reforms. Our democracy is better than the Chinese system because, in democracy when people suffer they shout, and after sometime the government responds. In China this does not happen so often. Democracy even though it's very slow is more sustained, because once some compromised is reached, then everybody follows that. In China they decide very quickly and then only later the problems come up.
Democracy is also a problem, if democracy is primarily oriented to short term winning of elections. So quite often we go for short term populist sops that can hurt long term prospects of the country. So, poor people suffer in the long run for something which is done in their name is done today, to win elections. It's a trade off between long term interests of democracy vs short term democracy.
There are something's China has done better, which has nothing to do with democracy. One of the reforms, we have not done is the administrative reforms; bureaucratic reforms, police reforms and like.
Let me give you an example in the Chinese case which limits the abuse of power. In China a local official's promotion is based on how the local area has done. That is not the case in India, here tenure and seniority based promotions are give. So if you are appointed in some place in India for two years, and if you are corrupt, you will maximise your loot and people will suffer, what do you care.
The Chinese officer is not better, but his interest is based on that fact that if his local economy suffers, his promotion suffers. Administrator there has an incentive to perform better; our incentive system is completely warped.
Do you think the government's initiative like NREGA is really working, or is it causing inflationary pressures and hence the related problems?
I am a supporter of NREGA. Poor people need such programmes. But, NREGA has problems; a lot of money is wasted, stolen. But it's not the poor people's fault. It's the fault those running it, without sufficient and regular social audits. It needs better accountability as to how the money is spent. I haven't seen much evidence to prove that NREGA, adds inflationary pressures.
Keeping in mind the fiscal deficit issue is high amount of social sector spending justified?
Fiscal deficit is something to worry about. My problem in social spending is, it's not spent well; money is wasted, stolen. If the social spending is carried out efficiently and honestly then I am in favour of more social spending, even with the fiscal deficit.
A large part of fiscal deficits goes as subsidies to better-off people. So, for the sake of fiscal deficit, if I want to cut social expenditure, it essentially says, to subsidize the better- off, I want to cut social expenditure for the poor.
Fiscal deficit is not a sufficient excuse for cutting fiscal spending. Fiscal spending has to be done more efficiently. So, again it goes back to administrative reforms and accountability.
A lot has been spoken of the Gujarat Vs the Kerala model of growth. You are of the view that the Tamil Nadu works better. Why so?
The Kerala model is a good example of social welfare expenditures done reasonable well for long time. But, take the last 30-40 years and it has not done very well in terms of economic growth or industrialisation etc. It has a very high unemployment rate.
Tamil Nadu model has a good balance, and it has grown reasonably fast (almost as fast as Gujarat), as well as has done well on social welfare. Gujarat has quite a dismal performance for social welfare.
Tamil Nadu has school mid day meals since 1980's. It has done well even in child nutrition, women welfare, other social welfare like education and health, Tamil Nadu by Indian standards has one of the public health and sanitation programmes. I look for a good growth performance combined with social welfare.
In the past you've said that for the poor, the major hurdle they face is not due to more globalization, but to less. Do, you still stand by this view?
Globalisation can sometimes improve conditions of the poor and sometimes hurt the conditions of the poor. Globalisation can hurt if your jobs are at stake. Globalisation may not necessarily help you (non-poor) in a great way. But, compared to you globalisation can help very poor people. For example, Bangladesh is now the second best (next to China) as a success story in garment exports. A large number of poor young have benefits.
This is an example of globalisation directly helping the poor. I don't have anything for or against globalisation. I think globalisation brings in political competition; the question is who can succeed in that competition? According to me, those who can do things less wastefully and more efficiently.
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