Want to empower the poor? Give them cash……Varun Sood & Lison Joseph
Q&A
Raghuram Govind Rajan, 48, currently the Eric J Gleacher Distinguished Service Professor of Finance at the Booth School of Business, University of Chicago, and an honorary economic adviser to Prime Minister Manmohan Singh, wants a bold reform of Indias current leaky subsidy regimes. Among the first to have warned of heightened risks caused by high Wall Street compensation, which encouraged reckless risk-taking behaviour of bankers, especially in light of the unregulated financial derivative products that eventually lead to the financial crisis of 2008, Rajan wants the government to live up to its promise of empowering the poor by giving them cash, and thus giving them the choice of how to spend it. Excerpts from an interview to DNA:
We are at the 20th anniversary of reforms in India. When Narsimha Rao took over as PM, the mood was downcast. We are again at a similar point where a political catharsis seems to have crept in. Do you think this is the time for the UPA government to launch a new round of reforms that could bring back the roar in the growth story?
I think the Indian economy is doing well. It is easy to sound very pessimistic. But 8.5% growth plus a little more is very respectable. But I think the danger is that we take the growth for granted. And we assume that it will go on no matter what happens in Delhi. Now it is easy to become pessimistic in India because a lot of reforms that happen in India happen not in a big way, not in a giant scale. But I do think that some reforms that need to happen will happen only by good governance. And I feel we are in the phase of debating these things. We have debated them enough.
What are the critical reforms the government should initiate?
Clearly, the thing uppermost on the mind is the land acquisition. Keeping this in mind, we find a way to take social justice. Now we need to find some way where can maintain social justice while taking land for industrial purposes, given that there is much higher industrial productivity for industrial land than agricultural land. There must be better ways of rehabilitation. Now, I do think those who are worried about rehabilitation process, the environment, etc, have a point. But I think we need to have a dialogue, which is progressive than the one which puts a full stop. That is the number one priority. The process of rolling out projects primarily related to land acquisition is very short term. In the long term, we should realise that we are also in the race with other countries to improve human capital, which includes better schooling both at the primary and secondary schooling level. We also need to create world class universities that have the ability to create new technologies, universities that propagate new ideas, which means setting up institutes in humanities and social sciences and not just technological centres. Education is a big part. Healthcare is also a big part in order to improve human capital. How to provide cost-effective services to all is the question. The issue of malnutrition is most important, because if we dont fix this issue of malnutrition, we are creating a liability for long term. I think if we do these well, if we can find ways to include all these dimensions, there is no reason why our growth rate should be 8-8.5%; it can be 11%. However, if you dont do them, then there is also no reason why our growth cant go down to 3-4%, which is back to Hindu rate of growth. Eventually these constraints would become binding because if industry cant find enough skilled people, industries cant expand. If we dont get people out of agriculture into industry, these will become constraints.
As regards land acquisition, there is an existing proposal that states that 26% of profits should be shared with the local community. Do you think this is a win-win situation for all?
Some sharing process by which the local community benefits from the growth has to be there. Now, the history of rehabilitation projects across the world is not a happy one. We need to think cleverly and try different approaches. However, we must not hold progress indefinitely hostage to say that a few people will be dispossessed. Agreed, when you see those people, you can feel it. And that is why safeguards are important. But then, to wait for a scheme which will under all circumstances make them much better-off, is hard. You have to settle for something, which should give them enough of an opportunity. Now, industrial activity always generates huge amounts of wealth and sharing it in some way which is more equitable is important. Unfortunately, this is the place where leaks are tremendous. And picking that governance process which can tackle this is most important to do. And this is why you can legislate whatever scheme you want, but if you get around it, there is no point in it. You need to find a structure so these are not violated.
In recent times, the Indian government has been held hostage by NGOs and the ministry of environment. Many large projects are on the slow burner
I think the debate is important and I think all voices represented in that debate is the hallmark of democracy. But an efficient democracy, at some point, decides that the debate has to end. And we need to move forward. So, I would say we need to collect all the voices, inputs and come up with something that might not please everybody, but that benefits many, and then move forward. You cannot be held hostage by every minority interest.
After much hand-wringing, India spends about 1.5% of GDP on public health. Given the malnutrition and disease challenges that the country faces, is that enough?
The percentage is not as important as how it is spent and who it is spent on. US is spending 15% of GDP on healthcare. It is not clear if it is getting value for it. But what should be the priority of government is to decide if running those hospitals is the best way. They can give people vouchers that they can use and spend in these hospitals. By and large, we must think what the right role of the government in every area is. For example, in healthcare, the regulatory aspect is very important. How do you make sure that a quack does not operate on gullible people? There is a lot of antibiotic prescription in India by people who dont have any training. How do we deal with such problems?