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N C Saxena, a former member of the National Advisory Council believes that the regulatory regime in the states continues to be oppressive. In an e-mailed interview with Aditi Phadnis, Saxena says that the fundamental problem in India is the low tax-GDP ratio and neither the last government nor the current one seems interested in increasing revenues. Edited excerpts:
The new government appears to be watering down a lot of the initiatives that the National Advisory Council (NAC) had taken. How do you feel about this?
Are they really watering them down? I don't know. Many schemes such as the Sarva Shiksha Abhiyan and Antyodaya (wheat and rice at Rs 2 and Rs 3 a kg for the poorest) were started by the previous National Democratic Alliance government. Providing public goods such as elementary education and health care is the responsibility of the governments all over the world. No government has said anything about scrapping such schemes. However, dilution of the National Rural Employment Guarantee Programme (NREGP) had started during the United Progressive Alliance regime due to financial constraints.
The fundamental problem in India is our extremely low tax-GDP (gross domestic product) ratio. In India, it is 15.7 per cent compared to 50 per cent in Sweden, and more than 30 per cent in Russia, South Africa, and Brazil. Even Ghana is higher than India at 22 per cent. Poor tax collection leads to insufficient allocation for social sector programmes. The international norm is six per cent of GDP on education and three per cent on health. In India, we spend only three per cent of the GDP on education and around 1.2 per cent on health. Former Prime Minister Manmohan Singh had promised in 2004 that India would spend two to three per cent on health, but in 10 years we did not see this happen. Unfortunately, neither the last government nor the current one seems interested in increasing revenues.
As regards the NREGP, it certainly needs changes. More money is spent today in less poor states, whereas more money ought to be spent under this programme in poorer states. Let me illustrate. There are about 150 districts in India where labour is scarce. These are mostly in Himachal Pradesh, Punjab, Haryana, Kerala, the north east and Uttarakhand. When there is road-building or infrastructure activity in these states, labour comes from outside. So Kerala gets labour from the poorer districts of Tamil Nadu, in Punjab it comes from Bihar and in the north east it might come even from Nepal. Kerala has only 400,000 poor households but 1.5 million people got jobs in 2013-14, that led Surjit Bhalla to comment that the middle class is benefitting from the NREGP in southern states. The total wage expenditure in Bihar in 2013-14 was only Rs 391 per rural poor, but it was more than Rs 10,000 in Himachal. This certainly needs to change.
Then there is the issue of the kind of assets you are creating. Constructing roads and buildings is not a labour-intensive activity since the wage component in total expenditure on these assets is less than 20 per cent. What needs more labour is soil conservation, water harvesting, digging ponds and afforestation. But these common property goods need constant protection and monitoring since these assets will remain productive only when people participate in their maintenance. It is pointless planting saplings when people are not involved in keeping those trees alive. Unfortunately, the current approach is hierarchical with a short time horizon, where people are not involved in any post-wage employment activity. In its absence, what you are doing is equivalent to digging holes and then filling them up. The entire structure of the National Rural Employment Guarantee Act or NREGA thus needs to change. We must shift to labour-intensive productive activities that lead to drought-proofing, with frequent monitoring of the status of assets.
What is you view of changes in the food security law?
I am not aware if the current government is contemplating any change in the Act, but we need to see it in perspective. Look at the macro picture. Foodgrain production per capita is more or less stagnant at 205 kg per annum for the last 20 years, but government-held stocks of food have risen, and are more than double the norm. From the stagnant production, India has been exporting more than 10 million tonnes of cereals per annum, leading to a decline in availability from 510 g per day per capita in 1991 to 440 g in 2013. This has adversely affected the cereal intake of the bottom 50 per cent, which continues to be significantly less than the cereal intake of the top decile of the population. Their expenditure on health, education, liquor, tobacco, transport and fuel has also gone up. Food is still needed by the poor, but not demanded for lack of purchasing power. Endemic hunger thus, continues to afflict a large proportion of the Indian population despite mountains of grain in government godowns. In my view, it is unethical to export and feed livestock of other countries while starving our own people. Surely, there is something wrong with this picture?
Since farmers need to be provided minimum support price, we need to find an outlet through the public distribution system (PDS) for the 60 million tonnes of grain that we procure every year. But the PDS needs reforms. The unique identification (UID) programme will certainly help eliminate duplicate and fake beneficiaries from the PDS rolls since no resident can have a duplicate number if it is linked to their individual biometrics. The government should also abolish the dual pricing system and sell stocks to the fair price shop dealer at the market price, say, Rs 20 for wheat. The consumer would go to him with only Rs 2 in cash as before and with her/his UID card to buy a kg of wheat but the rest Rs 18 would get transferred to the shopkeeper through the card. This will vastly reduce leakages and subsidy, as well as improve the dealer's attitude towards the buyer.
In 1999, the price of foodgrain for the poorest was fixed at Rs 2 for wheat and Rs 3 for rice per kg. When the market price of these commodities is more than Rs 20, why give it for Rs 2 and 3? Why not fix it at Rs 4 and Rs 5 and reduce the subsidy burden?
What about the land acquisition Act?
A close examination of the Act, as it exists now, suggests that acquisition of even one acre of land in current Indian conditions would take at least three to four years since the proposal would have to pass through about one hundred hands. The new government must find ways to simplify the procedures, so that land is available to the acquiring body and compensation to affected families, as soon as possible. The direction of any amendment to the new law should be to retain the direct costs that go to the landowners and drastically cut down the indirect transaction costs. The 2013 Act did not strike a good balance between the two. Setting too many committees has made the Act anti-farmer and anti-growth, but certainly pro-bureaucracy and pro-civil society.
There is a lot of rhetoric about shifting power to the states.
The regulatory regime in the states continues to be oppressive. Marketing and processing of agricultural products are hampered by various regulations passed under the Essential Commodities Act and the Mandi Acts. Farmers cannot move paddy from Fatehpur to Kanpur. To set up a brick kiln in Uttar Pradesh, you need six licences from various offices.
Let us hope the new committee repeals such outdated laws. I recall when Narendra Modi had come to the Planning Commission, I pointed out to him that in Gujarat to make charcoal from prosopis, a weed that grows wildly in semi-arid areas, one needed three licences from the forest department, to fell prosopis, to transport wood and then to convert it to charcoal. He went back, investigated and scrapped the licences. Unfortunately, such practices still continue in other states, like in Tamil Nadu. Governance at the state level certainly needs greater attention from the current government.
