Deepak Lal: Indian travails

The state's abysmal failure to provide the merit goods of education and health has increasingly led even the poorest to rely on private provision.

Having discussed some of the problems facing China in its economic rise in my last column, I examine India's current travails in this one.

First, one common problem faced is growing urbanisation, pitting urban against rural interests. In China as all land is still owned by the state, the demand for land for urban and industrial development has been met by apparatchiks dispossessing farmers of land, which is sold (with kickbacks) to developers. This has led to widespread rural discontent and thousands of riots, which have apparently been brutally suppressed.

In India the development of the SEZs has also led to the government acquiring rural land for their development with similar discontent, which in Eastern India could fuel the Naxalite insurgency. But in India as agricultural land is privately owned, there is a simple way to stem rural discontent. Instead of the government acquiring land and handing it to developers (with all its attendant corruption), the government merely needs to reclassify the uses of agricultural land in the SEZ areas, to permit industrial and urban development. The developers will then have to obtain this land themselves from the rural owners. This could be on a whole variant of leases""including retention of an interest with annual royalties or rents in perpetuity""or outright sales of freehold. The NGOs currently denouncing SEZs could be usefully employed in forming co-operatives of small rural landowners to negotiate with the developers on the terms of these leases. This would diffuse the discontent, which could sabotage the SEZs.

Second, both countries face political problems, which could derail their ongoing economic miracles. For China, as discussed in my last column, the problem is ending China's continuing financial repression, without loosening the Communist party's political control of the economy. For India the political problem lies in finding new avenues for "rent-seeking" for the political classes without too much damage to the economy, as liberalisation has closed many old ones. The development of PPPs for infrastructure and the SEZs provide some. But a fresh avenue is proposed with the UPA's desire to extend caste-based reservations to the OBCs in education and public employment and even to the private sector. If all these proposals of basing economic outcomes on birth, not merit, are enacted, we can say goodbye to the knowledge-based "Incredible India".

China during the Cultural Revolution implemented class-based reservations for employment and education and in the process lost a whole generation of well-educated youth. This was reversed by Deng Tsiao Ping, who oversaw the creation of a highly educated, technocratic class of meritocratic mandarins and increasingly a meritocratic society. Thus in the elite Peking University, where I periodically lecture, the annual intake consists of the top 10,000 students who sit the nationwide entrance exam taken by many millions. No question of any reservations or affirmative action in either education or employment in China.

India's past policy of reservations has already seriously affected governance, by damaging the functioning of the public sector, as Arun Shourie has copiously documented in his latest book Falling Over Forwards. But this is not all. As the eminent Indian sociologist, the late M N Srinivas, noted in one of his last essays (in Village, Caste, Gender and Method, OUP, 1996), existing reservations led the forward castes to evolve a strategy for survival. "Emigration from India is a major strategy, and the emigrants enjoying the admired status of NRI's". One of the baleful effects of the Nehruvian settlement was that, the economic policies supported by the English-speaking castes damaged the prospects of their progeny""except for those agile enough to become "rent-seekers". They, as well as others in the political classes, then sought and succeeded in placing their progeny abroad""thereby demonstrating by their private actions the bankruptcy of the public policies they supported. From international experience, I have come to see the ability of a country to retain its "best and brightest" as an important sign it is on the road to economic prosperity. With economic liberalisation the perceptions of the young about the possibilities of a fruitful life in India have changed. This is the greatest prize that liberalisation has offered, and it would be retrograde if the rush to reservations were to lead them once again to look abroad for their future.

As many Indian observers have noted, the way to deal with the problems faced by the economically and socially disadvantaged is not through reservations in higher education and employment, but to provide them the means to compete in a meritocratic society. This above all means access to primary and secondary schools. The Indian state's abysmal failure to provide the merit goods of education and health to its populace has increasingly led even the poorest to rely on private provision. Ideally what India needs are state-funded vouchers for the disadvantaged to finance their use of the private sector. Whether the dysfunctional Indian state can implement this remains doubtful. But, perhaps NGOs could be usefully used to distribute the vouchers to their intended beneficiaries.

For those who claim that a society based on merit will not eliminate the social stigma associated with caste, there are two responses. The first is that, a set of Hindu "cosmological beliefs" based on the doctrine of karma, which continue to have resonance, cannot be eliminated by state action to determine economic outcomes based on birth. Second, many material aspects underpinning caste have disappeared. As with the population explosion, the need to tie scarce labour to abundant land (which I argue in The Hindu Equilibrium was the economic rationale of the system) has ceased. But, as Srinivas noted, the core of the "cosmological beliefs" underlying the caste system""hierarchy and endogamy""though modified, still remain. There is little that can be done about hierarchy. But, the political class clamouring for caste-based reservations can do something about endogamy. They should all arrange marriages for their progeny with the children of the "non-creamy layer" of scheduled castes and tribes!