India has started its 11th Five Year Plan (FYP) from a relatively high basis because of much progress achieved in many sectors of the economy, thanks to the rising and pushing middle classes and entrepreneurs, thanks to reforms and a more pragmatic approach in planning, including the Private-Public Participation (PPP) projects.
The emphasis on agriculture and infrastructure, after decades of neglect, is highly welcome. To improve health and education is no less important. While the Plan focuses on the public sector, the private sector is bound to play an increasing role in agriculture, infrastructure, industry, services.
As in the past, the Planning Commission does not mince its words on the shortcomings and weaknesses of the economy, of the administration and, implicitly, of politicians: delay, red tape, waste, lack of supervision, corruption are amply documented. Such a frank assessment is essential when considering the tasks ahead. As Montek Singh Ahluwalia, the Deputy Chairman of the Planning Commission, writes, “the macro economic requirements for nine per cent growth are challenging but not impossible”.
One is inclined to think that the main challenges and constraints are not so much in the economic fields, but more in the realms of politics and administration as well as in the availability of qualified cadres.
Politics and Administration
Many defects have been recorded in numerous official reports, public statements, private enquiries since a long time. In the 1960s, for instance, UP was already suffering from the curse of frequent transfers of District Magistrates (DMs) and today senior IAS officers stay for less than one year in the same post. This disease is common by now to many States, as a consequence of clashes between DMs and local politicians. (See reference, The Eleventh Five Year Plan, Vol 1, p. 238)
No less obvious are a number of defects in social services, particularly rural education and health, such as absentee teachers and doctors. (See Amartya Sen’s article in The Hindu, January 9, 2005) According to a UNESCO Report on Corruption in Education, the Indian teachers’ absenteeism amounts to 25 per cent of the total number resulting in the waste of 22 per cent of education funds. (Hindustan Times, August 13, 2007) Political interferences, including corruption and rackets in universities, do not help either the so-badly-needed reforms.
At the higher political levels major development issues attract decreasing attention or concern in Parliament and in the State Assemblies. True, India still does not lack committed politicians, but too many of them are more interested in being elected or re-elected than in the welfare of the people, a trend common to many poor or rich countries. It would be interesting to find out how many MPs and others have read—and with care—the three volumes of the Plan!
Malpractices and corruption, misallocation of public funds, non-recovery of government revenues divert considerable amounts of public money which could be used for economic and social goals. (See appendix) Again, such weaknesses are found with a similar magnitude in other emerging countries and the rich states are not immune to corruption either.
The Plan rightly emphasises the role of district planning, but should one focus so much on Panchayati Raj (PR)? Its achievements since 1957 are not impressive. “In spite of massive flows of funds, there is a widely shared concern that the results have not been commensurate with the investments.” (Vol 1, p. 225) Should one really hope, after so many disappointments, that PR can produce substantial achievements? While trying to improve the system, one could imagine other ways to tackle district administration.
The first factor concerns the size of a district. The relatively small sizes of districts in Punjab and Haryana, deliberately so carved by the British (2000 to 3000 sq km), have no doubt played a role in the expansion of these areas during the Raj and after 1947. Districts of 6000 to 10,000 sq km or even more are much less manageable. Could they be bifurcated?
Instead of pushing further PR, would it not be more appropriate to strengthen the existing networks of the district administration: an IAS officer, directly recruited as DM, not transferable following the whims of local netas, assisted by top class Agricultural, Education, Health Department officers? Such a team could improve the efficiency and discipline in their respective fields, checking or reducing laparvahi (care-lessness) of their subordinates. Many instances confirm that when small officials are well led and supervised, they deliver their duties in a satisfactory manner. Since independence until today, one comes across districts led along these lines which brought substantial progress.
Would it not be advisable to promote still further, than mentioned in the Plan, major, medium and minor irrigation works? In the Archives of Cataluna (Spain), one can read: “Irrigation makes you rich, irrigation makes you free.” (1243) Irrigation, unlike temporary employ-ment schemes, contributes in a permanent manner to the progress of living conditions for the poor: rising agricultural wages and more job opportunities. This has been confirmed, under the British, in the canal colonies of Punjab. It is more striking today in the Green Revolution districts in northwest India, in the deltas of the southeast and some other prosperous districts.1
The Plan reviews the present shortcomings and remedies needed for water supply, sanitation, sewerage, disposal of solid waste, transport, slum clearance: “Lack of resources, non- willingness to progress towards municipal autonomy, hesitation in levy of users charges, role of parastatals.” (Vol. III, p. 395) While local politicians—though not mentioned—bear heavy responsibilities, one must, however, mention what can be done by smart officers. Surat had fallen so low that plague reappeared. A new IAS Town Commissioner, S.R. Rao, who took over, shook up his babus, made a strict enforcement of regulations and laws. During 1995-96, he put the city in order. Manjit Singh, IAS, had similar achievements to his credit in Jaipur with the support of the Chief Minister (2001).
After so many decades of neglect, the Planning Commission has picked up the right priorities. It is now to the municipalities to implement them.
Here again one cannot escape the dubious connections between politicians-civil servants-businessmen. The free or quasi-free electricity supply to farmers does not seem to be the best way to improve the supply of electricity. The losses of the State Electricity Boards (SEBs) through theft and pilferage, non-payment of electric bills by certain politicians and factory managers, poor maintenance of networks result in losses of 40 per cent of most State Power Utilities. “This has made them financially sick and unable to invest adequately in additional generating capacity.” (Vol. III, p. 349)
These defects have been known for more than twenty years. Can they be removed within the five years of the Plan in order to add 78.577 MW to the 167,000 MW existing in 2007? Besides, large amounts of funds are needed to improve the present networks. The rising role of the private sector should help, but the challenge is particularly tough bearing in mind political, administrative and technical constraints.
In spite of delays and abuses in a number of construction works, one comes across success stories, where again the combination of political will and efficient officers results in fine achievements. Let us mention R.C. Sinha, IAS, implementing the Mumbai-Pune Expressway, or E. Sreedharam, the railway engineer who is constructing with superb efficiency the Metro in Delhi. The first network of 56 km, fitted in the Budget, was completed nearly three years ahead of schedule.
Lack of Qualified Cadres
Until around 2000 India enjoyed a fairly large supply of qualified cadres: doctors, engineers, businessmen, civil servants, chartered accoun-tants. The small number of expatriates in multi-national corporations operating in India was striking. Hindustan Lever was mostly run by Indians, whereas when they reappeared in China in the 1990s they needed 80 expatriates. According to a survey in 2007, 59 Swiss enterprises in Shanghai relied for their top management on only 43 per cent mainland Chinese, 42.5 per cent of foreigners and 14 per cent from Hong Kong.
Since the past five years alarm bells are ringing in India. Five hundred thousand cadres, if not more, may be lacking in information technology by 2010. Companies in Mumbai and other cities are complaining of the same lack. In construction industry (housing, roads) the percentage of qualified engineers and skilled labour is declining. This goes along “the inadequate quality of construction work”. (Vol. III, pp. 240 and 241)
The sheer number of students (14 million) and of graduates needs qualifications. According to the Quarterly Report 2005 of McKinsey, out of 650,000 engineers with seven years’ experience, only 130,000 are fit to join a multinational corporation. (In China, only 10 per cent of 1.6 million.) “Skill shortage” is also emerging in steel, electronics, electric equipment, petroleum and gas.
Lack of qualified cadres is no less obvious in education and health. Higher education enrolment should increase to 21 million students in 2012. The high standard of the IISs, of the IIMs, of certain Faculties and Research Centres in several universities is well known. However, even when taking into account new private universities, it is far from sure that in many universities the quality of students and teachers will follow the quantitative increase. Consi-derable improvements are no less required at the Ph.D level.
One sees broadly similar gaps in health: the boom of private clinics and of some public hospitals offering the best level of medical care and the weaknesses of many other hospitals. Particularly worrying is the situation in villages. “The shortage of all key cadres in rural areas is growing.” There is also “non-availability of drugs… no motivation will to serve in rural areas, demotivation and corruption.” (Vol. III, p. 197) A report of the Planning Commission submitted to the Prime Minister mentions the lack of 600,000 medical doctors, 200,000 dentists, one million nurses. (Navbharat Times, August 3, 2008)
In the field of agricultural research, according to a survey in 2006, research institutes do not only lack funds, they suffer from a shortage of 1819 scientists and 1960 technical and administrative staff.
These shortages could be partly alleviated by the following factors: the number of highly qualified Indians returning from the USA to work in their country has been increasing since 2000. A number of firms are opening their own training centres in order to improve the level of their staff. Following the crisis in Western countries India may rent some of their cadres who have lost their jobs. In spite of such arrangements, the situation is bound to remain tight, even if the economy slows down.
At this stage it is difficult to forecast the full and lasting impact of the crisis in the Western world on emerging countries. “China and India are still the most dynamic parts of the world economy,” writes The Economist of December 13, 2008. However, in both countries one perceives alarm bells with a slowdown of growth. For India, the growth of the GDP in 2008-09 has fallen to 6.7 per cent. The target of + nine per cent of annual growth cannot be achieved at the moment.
Even if growth decelerates, the constraints mentioned in this paper need to be addressed. Referring to agriculture, Rakesh Mohan, the Deputy Governor of the Reserve Bank, wrote: “Agriculture needs a new mission comparable to the Green Revolution.” (Economic and Political Weekly, March 18, 2006) The success of the latter was due to the vision and thorough commitment of the top leadership (Lal Bahadur Shastri, later Indira Gandhi) and a brilliant team implementing the Green Revolution: C. Subramaniam, the Minister of Agriculture, and some first class ICS/IAS officers, plus the remarkable assistance of the Ford and Rockefeller Foundations. Today, India does not need so much external support, but the spirit behind the Green Revolution could considerably help in reducing the present constraints and weaknesses.
In spite of dubious politicians, new upper middle classes mostly concerned with money, in spite also of the growing gap between the urban elites and peasants, there are enough talented and competent Indians to meet the challenges of the 11th Plan. The key factor is the political will and commitment overcoming petty and short- sighted interests.
1. I gave plenty of such evidences as well as observations on district administration in several books and in a working paper ‘Observations on the Dalits in Indian Villages, 1963-2004’ New Delhi, Indian Institute of Dalit Studies, Vol. II, November 2007.
Gilbert Etienne is a Professor Emeritus, Institute of International and Development Studies, Geneva.
The Economy of Leakage and Seepage—the Cases of China and India
What I mean is a three-tier system, that is, misallocation of public money, non-recovery of public revenue, corruption proper. Here are some examples, most of them from official sources, audits, research by scholars. One could add many broad declarations by the most respected political leaders who, in both countries, have been very outspoken on these issues for many years. I have focused mostly on recent years. (See box below)
According to Prof Hu Angang, the total annual losses due to leakage represented 14 to 15 per cent of the GDP from 1991 to 2001. (China and World Economy, no. 4, Peking, 2002) Following a study in 2007, the cost of corruption only would amount to three per cent of the GDP, that is, $ 86 billion in 2003.
A large part of leakages are connected with “blind investments” committed or encouraged (in case of private companies) by local authorities (provincial, district and village authorities) which cover 70 per cent of government expenditures. They lead to overcapacity of units, neglect of economies of scale, acute competition, excessive use of energy, all kinds of wasteful expenditures. Although these defects have been obvious and officially denounced for the past twenty years, the Central Government can hardly correct them. They lead also to local protectionism (taxation of goods from another province, or sometimes from another town).
Fiscal evasion $ 38 billion, 1993.
Illegal electric connections $ 804 billion, 1993.
Costs of pseudo-official banquets $ 10 to 20 billion, 1993, 1998.
Illegal taxes raised by local authorities $ 800 million to $ 1.4 billion, 1999.
Non-performing loans of banks $ 200 to 500 billion cumulated, 2002.
Wages arrears of migrant workers in cities $ 12 billion, 2003.
Losses of China Aviation Oil (CAO) $ 550 million, 2004.
Malpractices in the State Owned Asset Management Company $ 810 million, 2003.
Frauds in banks $ 320 million, 2004.
Thefts by 4000 civil servants who left China in the $ 50 billion cumulated, 2006.
last 20 years
Misuses of funds in 38 government departments $ 1.1 billion, 2004.
Uuauthorised loans by banks $ 73 billion, 2005.
Civil servants’ embezzlements for construction of $ 171 million, 2004.
Illegal loans $ 3.3 billion, 2006.
Malpractices in research institutes $ 81 million, 2004.
Abuses in hospitals $ 350 million, 2005.
Losses of foreign enterprises due to counterfeiting and piracy $ 30 billion, 2006.
Embezzlements of pension funds in Shanghai $ 400 million, 2006.
Private expenditures in 160 casinos established in $ 72 billion per year, 2005.
neighbouring countries of China
Embezzlements and other irregularities in the $ 3 billion, 2004 and 25 per cent of
Agricultural Bank of China loans as non-performing loans
Enquiries with 6997 State owned enterprises $ 36 billion of problematic funds and “economic crimes” involving $ 684 million, 2006.
Bribes given by 2000 students for admission at $ 12 million over a few years.
Embezzlements in 4400 commercial bribery cases $ 200 million, 2007.
Misuse of State funds $ 3.6 billion, 2006.
Land revenue and government spending misappropriated 10 per cent of total due, 2007.
Fraud and theft by brokerage executive in Hainan $ 3.8 billion, 2008.
Official expenditures on a pseudo-“business” trip $ 140,000, 2008.
Misuse of Central Government funds by local authorities $ 14.6 billion, 2008.
Counterfeiting and piracy of goods or adulteration enter also the picture concerning foreign as well as local goods of all kinds.
Other abuses are connected with labour: use of child labour and sometimes quasi-safe conditions in some small and medium enterprises, migrant workers in cities underpaid or paid late working more hours than is admitted.
Another major concern is the accelerating degradation of environment which is also connected to leakage and seepage. The laws and regulations are not respected by local authorities which keep on encouraging new projects to raise more taxes and, in certain cases, pocket part of them as bribes.
As regards India (see box below), one must add other abuses: child labour is estimated between eight and 12 million, if not more. There are a number of land grabbings for new industries without due compensation, though less common than in China. One comes across cases of poor safety in mines. Bonded labour has still not been fully eliminated. While, as in China, rules on labour work in big enterprises are on the whole respected, there are many abuses in the unorganised sectors of industry and services.
In spite of many laws and regulations on environment, they are often disregarded by local authorities and entrepreneurs.
Adulteration of a number of products, drugs, agriculture goods, chemical fertilisers, pesticides is widespread. One also comes across counter-feited goods.
In the early phases of development, lack of capital was a major constraint. It is no more so in the emerging countries. In authoritarian China and democratic India the shadows mentioned above do not prevent considerable development, including the falling number of extremely poor people. However, the recovery of part of the amounts being leaked could strengthen economic and social policies. As P. Chidambaram declared on TV when he was appointed the Finance Minister in 2004, “money is there, it is its bad use that hurts us”.
Non-recovery of telephone bills $ 750 million, 1995
Non-recovery of telephone bills of Members $ 4 million in 2004 of Parliament in Delhi
Fiscal evasion $ 30 billion per year
Capital flight $ 40 to 160 billion cumulative.
Bad loans of banks $ 12 to 14 billion cumulated, 2001.
Frauds in banks $ 1 billion, 2001.
Subsidies often of doubtful value 15 per cent of GDP, 1997 to 2002.
Losses of State Electricity Boards $ 4.3 billion, 2000 and $ 6 billion, 2005.
Losses in the supply of electricity 40 per cent of production.
Losses for the economy due to poor electricity and transport Two per cent of the GDP per year
Thefts in coal mines $ 200 million, 2003.
Corruption in the allotment of land in Noida $ 100 million, 2003.
Funds blocked in delayed projects $ 10 billion cumulated, 2002.
Diversion of public money devoted to $ 3 billion in Uttar Pradesh, anti-poverty programmes cumulated, 2004.
Losses in the distribution of foodgrains from the 5 million tonnes out of 14 million
Food Corporation of India tonnes, 2005.
Bribes collected by civil servants $ 10 billion, 2006.
Frauds about university examination questions $ 1 million, 2004.
Losses for the State due to adulterations of oil products At least $ 2 billion per year, 2005.
Estimate of black money 40 per cent of GDP.
Anniversary costs of the Chief Minister of Uttar Pradesh paid by the State $ 287,000, 2003.
Film industry losses due to fakes $ 870 million per year, 2007.
Diversion of supplies for the Army in Siachen Glacier $ 1.2 billion, 2002-2007.
Diversion by several States of funds devoted to national rural employment programmes $ 150 million, 2007.
Estimate of bribes to get bank loans 61 per cent of applicants, 2008.
Tax arrears, Ministry of Finance $ 26 billion, August 2008.
Helicopter trip by a Minister of Orissa (90 km) $ 2400, 2008.