Centres of inclusive growth: Economic Times 19th March 2011

The protagonists of economic reforms argue that the new India is where things are happening. Those who were walking are on a bicycle, those on a bicycle have moved on to a two-wheeler, the scooter owner now has a car, and so on. Also, almost everyone has a mobile phone; and stories of how fishermen in Kerala get better prices due to the telecom revolution are legendary and a vindication of reforms. On the other hand, India remains low on human development and the Human Development Index ranks us 119 in a set of over 170 countries. We still have starvation deaths and farmers suicides. What is the true picture?

The answer is that the Indian development model has been schizophrenic and while a lot of good has been happening, the fact that 41% of the population earns less than $1.25 a day is a dark reality. While the government has a lower number, it cannot be denied that we are low on development and, so, there is a call for inclusive growth. Reforms have probably permeated urban areas but may have only scratched the periphery of rural India, thus presenting a dualistic picture.

The model so far pursued is to induce various measures across different areas and different population at different points of time. Banks lend to the priority sector and the microfinance institutions (MFIs) are reaching out to the same group. In between there is interest subvention. This helps the farmer in one year, but does not create productive assets. There are several government programmes that target the farmers, and this year, around Rs 11,000 crore has been allocated. The Budget makes allocations for different crops every year to address the issue of low productivity, though pulses and oilseeds have repeated interest. There are allocations for health and education, and while the sums are not significant, there is definitely good intention. However, education and health expenses invariably lead to the creation of below-standard facilities along with ubiquitous leakages.

The National Rural Employment Guarantee Scheme (NREGS) has been a big step forward in having a dole-like system where the unemployed get relief for 100 days a year. The allocations are huge, at around Rs 40,000 crore a year. NREGS spends money in the ratio of 60:40 on wages and materials and deals with non-capital goods. The average number of days that are used by households is 35-40 instead of 100. The ratio of works completed is just under 5%.

Our approach to inclusion has, hence, been on allocations with limited focus, and the objective has been to meet targets, which though laudable is not adequate. Besides, since the schemes do not work together, different people are covered at different points of time. The result is that the beneficiaries would be slipping in and out of suffering depending on their level of inclusion.

As the efforts are not cohesive, the results are not satisfactory. One gets a feeling that the money, to the extent that there are no leakages, is not being efficiently spent. Clearly, there are issues with the project design. Is it possible to bundle all these products together to make these schemes more effective? The road ahead evidently should be to deliver an inclusive package where focus must be on quality rather than traversing a wider geography.

A new approach would be to create centres of prosperity (CoP) within the country, which actually make the population self-sufficient and prosperous. We have to narrow the canvas and concentrate on a set of pre-decided villages or districts to begin with. The objective must be to cover these centres in their entirety such that an entire package of benefits flows to the concerned people. Providing employment through the NREGS should be accompanied by making the areas chosen the new agricultural fields of the revived green revolution. Funds must be used to ensure that the lacunae in agriculture are addressed and that farmers work with a motive rather than use it as a temporary option. Warehousing initiatives should be linked to these specific areas.

The intention should also be to improve the quality of life by setting up basic infrastructure facilities of the highest order: electricity, water, sanitation, education and health. Education at the primary and secondary level should actually be aimed at attaining comparable levels in cities - an English education perhaps - so that every individual in the village has scope to aim for the best and can actually look towards getting a competitive job in industry. This will help to lower the level of inequality that exists between rural and urban incomes both in terms of people as well as infrastructure. Similarly, modern hospitals should be set up that get in the best medical staff to provide rural access. These CoPs would be the way forward as we can see private investment being channeled into these areas once the growth potential is created.

Where do we start? Given the limited funds that are available, the government should start with the least developed areas in the less developed states with the panchayat being the fulcrum. A strict audit would be the corollary to ensure that the funds are well spent and that the structures needed for building these centres do work in the desired manner.

We have seen states like Punjab becoming success stories of agro-based progress where new cities have developed as alternatives to the metros. Similarly, new agro-based rural hubs with a bundled development package can bring in prosperity by making our allocations more effective. The selection criteria will remain a practical challenge given multiple political interests. A rule of thumb, such as the least developed districts in least developed states can be the starting point.