Bibek Debroy: A New Year's GMI resolution

Why the government needs to cut flab

At this time of the year, people make New Year resolutions, even if most of them are rarely kept. Many such resolutions are related to health "" diet, exercise regimens, making oneself leaner and fitter.

And, at least, in urban and richer off segments of society, reducing obesity. An accepted measure of obesity is the body mass index (BMI), one's weight in kilos divided by the square of one's height in metres.

A BMI of 25 or more makes you overweight. A BMI of 30 or more makes you obese. Without getting into scientific nitty-gritty, the reason for accumulating fat is perfectly simple. Fat is a food reserve. There is enough food today.

Tomorrow there may be none. The body's fat reserve is a hedge against possible starvation tomorrow. I was intrigued to read about some genetic research conducted on Indians. This suggests Indians have a natural predilection towards accumulating fat.

Ipso facto, a BMI of 25 might be fine for Americans. But because of the tendency towards accumulating fat, an acceptable BMI for Indians might be more like 22.

Why do Indians have a tendency to accumulate fat? Has it something to do with the fact that we encountered more famines in the past? How long does it take for genes to adapt? I have no idea what the right answers are. But clearly, on these grounds, Indian bodies are more risk-averse.

And Indian minds are also more risk-averse about the role of the private sector.

There are accepted measures about the importance of government in the economy, such as government consumption as share of total consumption or government investment as share of total investment or even the tax/GDP ratio.

Depending on which of these you use, the importance of the government in the economy is anything between 15 and 40 per cent. The order of magnitude is completely different if one considers the role of the government in providing employment.

Including the public sector, 20 million people work for the government. The work force is around 350 million, with a labour force of almost 400 million.

Twenty million is 5.7 per cent of the former and 5 per cent of the latter. A disproportionate amount of the liberalisation debate, including a possible Sixth Pay Commission, is centred on 5 to 6 per cent of the work force.

However, in working out a parallel to the BMI, the government mass index (GMI) in employment should be computed not with total work force in the denominator, but with organised sector employment in the denominator.

Notwithstanding the National Commission on Enterprises in the Unorganised/Informal Sector, it is impossible to work out an acceptable definition of unorganised, except in a residual sense.

To complicate matters further, there are at least three inter-related definitions of unorganised. First, there is the labour law kind of definition of organised enterprises, those that use power and employ more than 10 workers or those that don't use power and employ more than 20 workers.

Second, there is a small-scale definition, based on threshold levels of investment in plant and machinery. Third, there is an indirect tax waiver definition, based on threshold levels of turnover.

But since the three definitions largely overlap, there won't be substantial disagreement if one uses 30 million as a figure for total organised sector employment.

The GMI in organised sector employment is thus 66.7, which should be pretty alarming. It has fiscal implications for pensions at the Centre and for wage, salaries and pensions at the level of state governments.

There is, of course, a side issue about what these government employees do. If the government does all the things it is supposed to do, especially in the social sectors, the absolute number of government employees may actually go up, especially at state government and local body levels.

But since reforms also mean easing of labour market rigidities, private organised sector employment should also increase.

Hence, GMI should decline. Can we, therefore, have a New Year resolution abut reducing GMI and reducing flab within the government?

Whatever aspect of the liberalisation debate one considers, that debate is really about the role of the government. Unfortunately, as I have said before, we don't trust the private sector.

The profit-hungry private sector will not only exploit the organised segment, but also the 55 per cent of the work force that reports itself as self-employed.

Therefore, we must create government fat to hedge against the spectre of such starvation and not be unduly concerned about creating a facilitating environment for private sector employment growth.

Not only must the government produce everything from condoms to cement and scooters to steel, the government must also guarantee employment. Note, the government isn't guaranteeing unemployment insurance, which would have been a different matter altogether.

The government will guarantee employment itself. If nothing else, irrespective of what happens to beneficiaries, there will be guaranteed employment for some government employees appointed to deliver the mechanism.

Downsizing government has been part of every government's reform resolution since 1991. But the advantage of making this a New Year's resolution is that we know such resolutions are not meant to be implemented.