Reconciling development with democracy

MANI SHANKAR AIYAR

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EVERY time I visit Europe in recession, I tell myself, if this is recession, then can I please take a piece of it back with me to India? For recession in the developed countries means a temporary disruption in an otherwise never-ending spiral of greater and yet greater prosperity, while poverty in India is not a transient interruption but a permanent reality. Where rising and widening prosperity is the norm, the pain of adjustment to decline, or even stagnation, can be quite intense; but if poverty is the condition of life, it can be taken more fatalistically. What causes disruption in a developing country like mine is less the level of poverty than growing inequality that shifts the tectonic plates of society and societal relations.

Second, where till fairly recently it was an axiom beyond question that development was desirable, now questions are being raised by disaffected sections of society, such as the tribal communities of central India who have suffered intense and repeated displacement in the name of ‘development’, whether development is desirable or disruptive. Indeed, that is increasingly the central dilemma confronting our democracy.

So, while one must sympathize with Europeans who have now undergone several successive years of low or no growth, and southern Europeans who are being asked to sacrifice social welfare to reinvigorate growth in their economies, the political and social consequences of the slowdown in Europe appear to be qualitatively different to the causes and consequences of growth without equity in India.

The consequences of uneven and unequal development in India cannot be understood without placing the development model in the context of political democracy. For India was the first, and thus far only, country in world history to have become and sustained a full-fledged democracy before even embarking on the path of development. The other 150 countries or so who came to one form of liberation or the other after our independence in 1947, thus expanding the number of member states of the United Nations from 51, when India joined as a founder member, to just under 200 now have sometimes secured democratic forms of government; none but India has been able to sustain it. This makes India unique among its emerging peers. And when Indian democracy is compared with developed democracies, two distinct differences become apparent.

 

First, that whereas independent India became a full-fledged democracy at birth, all developed democracies slowly evolved from democratic local government to democracy at the top. In the case of the ‘Mother of all Parliaments’, this evolution took place over an entire millennium from the Magna Carta to the 20th century, and in the case of the US and France over 200 years from the mid-18th to the mid-20th century. Thus, Catholics in the UK were denied the vote until 1832; the property qualification for voting was not removed till 1867; and half the population – women – got to vote for the first time only in 1928, a good century and a half after the Industrial Revolution made Britain the first industrialized country in the world and the British Empire the one over which the sun never set (which led one wit to remark that this was because even God could not trust the British in the dark!)

In France, the Bastille fell to the cry, Liberte, Egalite, Fraternite. But because the French forget to add, ‘Sororite’, French women did not get the vote till after the Second World War. In the United States, whereas the self-evident truth was solemnly pronounced that all men have the right to Life, Liberty and the Pursuit of Happiness, a coda was added that this does not apply to native Americans and those imported against their will from West Africa. Indeed, Lincoln’s Proclamation of the Emancipation of Slaves took 101 years from 1863 to 1964 to translate into the civil rights legislation.

In contrast to the slow, halting and tardy growth of democracy in Europe and America, independent India secured, on day one, one person one vote democracy, universal adult suffrage, affirmative action for historically disadvantaged sections of the population, the separation of the executive from the legislature and the judiciary, and the rule of law. After 14 general elections, hundreds of state assembly elections and hundreds of thousands of local body elections, democracy has got deeply embedded in our polity. Voter turnout is higher in India than in many older democracies and it is the poorer sections of society who are much more conscientious about voting than the better off. The extension of democracy to the grassroots, along with reservations for women, has resulted in 3.8 million representatives having been elected to the local governments, of whom 1.4 million are women. There are probably more elected women in India alone than in the rest of the world put together. Democracy is the leitmotif of our politics.

 

The implications of running a political economy in which everyone has only one vote but a few have many (currency) notes and most have much less is that stability depends upon the bulk of the electorate believing that social justice, a fair deal, and a measure of equity are more important than just GDP growth. The promise that one day, some day, perhaps several generations down the line, everyone will benefit from growth and, therefore, we need not concern ourselves overmuch with widening inequality of income and wealth, is an approach that has little salience at the ground level.

It is in this wider socioeconomic and political context that the relationship between poverty levels and the rate of poverty alleviation, on the one hand, and the nature of growing inequalities as the inevitable consequence of higher growth, on the other, has to be put in perspective and evaluated. Does the West’s experience of dealing with the political fallout of increasing inequality give us cause to be complacent or have questions of growth and equity in India’s full-fledged democracy to be considered in themselves and with reference only to themselves?

 

The governing class has to meet the electorate every five years or sooner and the electorate have long shown that they regard election time as revenge time. They want some evidence of social justice here and now. Growth without equity is not acceptable. Hence the critical and, in my view, the central question before the Indian polity: Can higher growth and more equity be promoted by a combination of economic reforms for higher GDP growth and the more efficient provision of public goods and services for greater equity, especially for those who are not on the high growth trajectory or, indeed, have been pushed off it altogether – that is, ‘The Remaining 70 per cent’?1 

The National Council of Applied Economic Research, the only Indian research body to have researched income rather than consumption, has estimated2 that if our economy grows at an average of 8.75 per cent per annum over the years 2010-2015, as projected by the Planning Commission, then, by the terminal year of the Millennium Development Goals, 2015, the top 20% will increase their share of the country’s national income from 51% to 55% while the share of the bottom 20% will shrink from 6.1% to 5.5%. In absolute terms, the bottom 20% of India’s population would have added about Rs 2000 per year to their annual income while the top 20% in urban India would have added as much as Rs 75,000 – 37 times more than the poorest 20% – to their annual income.

 

Since NCAER’s published quintile estimates comprise the top 20% Indians with an average annual income of Rs 154,000, that is, principally, the lower middle class,3 the upper segment of the high income class will probably see their annual incomes booming by 370 times or more and the sliver of the very, very wealthy garnering perhaps 37,000 times more than the poorest Indians. This is asserted with some confidence because NCAER have also estimated that within the category of the million richest Indians, comprising about 0.01% of India’s population, the gap between the top 200,000 and the bottom 500,000 ranges from an annual per capita income of $4,36,564 to $61,000, as detailed below:

 

GDP (PPP) annual per capita income(in$)-2010

1st 0.02 million population

4,36,564

0.02-0.04 million population

1,42,664

0.04-0.06 million population

1,05,019

0.06-0.08 million population

96,278

0.08 mn-0.1 million population

82,839

0.1-0.5 million population

57,901

0.5-1 million population

44,456

Average for the 1st million population

61,000

This guesstimate of sharply worsening income inequality is based on the NCAER finding that the lowest income earners, those earning less than Rs 20 a day and comprising at least 60% of India’s population, secure only 19.6% of India’s national income while the richest 5% secure nearly a quarter of the country’s national income, 23.8%. The share going to the highest income and wealth percentile is probably much higher since NCAER’s reported income survey figures are able to capture only 54% of national income, the remaining 46% not being admitted to, a figure which closely resembles the estimate by Global Financial Integrity that over the period of economic reforms, the unaccounted share of the Indian economy has risen to 43% from 27%.4

 

The other deeply disturbing NCAER finding is that the poorer an Indian is, the more entrapped in personal debt he is likely to be. Thus, the poorest 5%, earning less than eight rupees a day, consume Rs 3590 a year against an income of Rs 2145 a year: their share of expenditure is 167% of income. As one goes up the scale, income approximates to expenditure only at 15%. It remains as high as 79% for the best off 5% segment of 50% of our population and does not significantly taper off till we have reached three-quarters of our population. It is only the richest 5% of our population whose percentile savings at 37% approximates the national savings rate. It is this high level of personal indebtedness of the poor, combined with easy access to corporate debt for the rich, that necessitates our regarding not only the utterly destitute as poor but also the vulnerable as poor.

Rapidly widening inequality in income and wealth, especially between the handful at the very top and the huge bulge at the bottom is gravely exacerbated by slow progress on human development indicators, with worrying implications for both the stability of the country’s much vaunted democracy as well as the sustainability of its present model of growth.

The Director of the Indira Gandhi Institute of Development Research, Mumbai, has said: ‘India has success in growth but there is extreme failure in progress on social indicators or the MDGs, including environment. We are not only behind China but the progress is slower than Bangladesh… the cost of inequality HDI is 32%. The loss due to inequality is the highest in education dimension (43%) followed by health (34%) and income (16%).’

Thus, our ranking in the latest UNDP HDI (2011) at 134 (out of 167), is virtually the same as it was twenty years ago or even thirty years ago. Of course, our HDI values have risen to 0.547 in 2011 from 0.308 in 1991, marking a rise in annual average growth in HDI values from 1.38 percentage points over the two decades, 1991-2011, to 1.56 percentage points when measured for the last decade alone.

 

But the contrast between the marginal increase in outcomes and the exponential augmentation of outlays is striking: while total social services expenditure of central and state governments together has more than doubled between the initial and last year of the Eleventh Plan, reaching a high of 17.39% of GDP in the budget estimates for 2012-13, HDI values have increased by only 0.18% in the last year over the average HDI growth rate for the previous two decades. Given that India has been consistently among the poorer performing countries in the world on UN HDI, including comparable ‘emerging economies’ such as China, Brazil, South Africa, and way below most countries of Latin America and Africa, including several African countries South of the Sahara, the committee drew cold comfort from our HDI growth rate having been ‘among the highest’ and are more concerned at ‘the loss in human development due to inequalities in different dimensions of human development across states in India.’

A much higher score on HDI values would be possible if service delivery were to be significantly improved. For this to happen, constitutionally established institutions of local self-government have to be given a central role in the delivery of public goods and services. The single most important instrument to promote equity in our system without detracting from high growth would be to use centrally sponsored schemes (CSS) to empower panchayati raj institutions (PRIs) and gram sabhas to promote inclusive growth.

 

In the early nineties we thought there would be two wheels of progress – economic reforms and grassroots governance, while the first has moved relatively smoothly, the latter has been punctured so often that it has resulted in a skewed pattern of development.

While GDP growth in the Tenth and Eleventh Plan periods has averaged 7.6% and 7.9% per annum respectively, it has also been noted that poverty alleviation over the same period has averaged an annual rate of 1.5%. The Twelfth Plan acknowledges that ‘the rate of decline was too slow’ and that ‘the problem of extreme concentration of income at the very top, that is, the top one per cent’ is a ‘concern… reflected in the public debate in India.’ Recognizing that ‘an increase in inequality with little or no improvement in the living standards of the poor is a recipe for social tensions’, the Twelfth Plan also sees that ‘any given level of inequality is much more socially acceptable if it results from a system which provides greater equality of opportunity.’ To this end it recommends ‘greater equality of opportunity’, particularly by ‘assuring every child access to good health and quality education.’

In this regard, the committee is particularly pleased to note that in its section on ‘Inclusiveness as Empowerment’, the Twelfth Plan recognizes that ‘inclusiveness... is also about empowerment and participation’; that we have to, therefore, be ‘building a participatory democracy’ which ‘brings to the fore issues of governance, accountability and people’s participation to much greater extent than before.’

However, the Twelfth Plan does not delve in any significant measure into the question of how these key requirements of inclusion are to be achieved. Nor has the plan prioritized the role of the ‘institutions of self-government’ that the Constitution has created. In fact, in the ‘twenty-five core indicators’ listed by the plan to ‘reflect the vision of rapid, sustainable and more inclusive growth’, the institutions of local self-government find no place at all. ‘Inclusive growth’ is not possible without ‘inclusive governance’.

 

We need to yoke ‘economic reforms’ with ‘institutional reforms’ to compensate for growing inequality by enabling larger outlays on social sector and poverty alleviation financed by these larger outlays. While very much larger outlays have been achieved, outcomes have nowhere near matched outlays. This is principally because institutional reforms, launched in the same year (1992) as economic reforms, have lagged far behind economic reforms. In consequence, income inequality has worsened while human development indices have not improved commensurate with increased outlays. This is the principal challenge of reconciling development with democracy that faces India today.

 

Footnotes:

1. The paragraphs that follow are substantially based on Chapter II of the Report of the Expert Committee on Leveraging Panchayat Raj Institutions for the More Effective Delivery of Public Goods and Services that the writer had drafted. He was the Chairman of the Committee that presented the Report on National Panchayat Raj Day, 24 April 2013.

2. Rajesh Shukla, How India Earns, Spends and Saves. Sage, New Delhi, 2010.

3. Income tax starts applying only above an annual income of Rs 1,60,000 per annum: Budget, 2011-12.

4. Abheek Barman, The Economic Times, 23 November 2010.

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