Mani's misplaced Aiyar

Mani's misplaced Aiyar
Sunil Jain

The Congress party's most getting-established economic ideologue, Mani Shankar Aiyar (Manmohan Singh's a poor shadow of himself and Jairam Ramesh's odour is mixed at most times), has raised strong objections to last week's edition of this column. Mani's Aiyar (!), in his May Day article, is especially directed at one of the column's arguments that the labour policy designed ostensibly to protect labour (by not allowing a hire-fire policy) has actually hurt it, by stifling industrial growth. A CII survey, apart from data on declining employment growth, is quoted in this context.

Interestingly, Mani quotes the same statistics in his article, but reaches an exactly opposite conclusion! So, what's the catch? The catch is that Mani has latched on to just one aspect of what was argued, and has distorted the picture as a result. He's absolutely right in arguing that labour growth in the organised sector has fallen in the nineties, primarily due to the fact that large firms get more capital-intensive actually growth in the private sector has gone up a bit, the largest fall is in the public sector, but never mind. So far, so good. Mani and I are in perfect agreement.

Mani argues, again with sagacity, that a higher growth in employment can take place only if agriculture and the unorganized sector are allowed to race ahead. Sadly, agricultural growth, he says, has actually fallen from the last decade of the Nehruvian model to the first decade of the Roavian model of economic reforms. The problem is that Mani hasn't bothered to look at the other set of statistics in last week's column, which have a lot to do with politicians such as him. Take agriculture. The crux of the problem of low growth is the poor level of investment in the sectorsince the early nineties, in real terms, public investment here has fallen, and though private investment has risen, the total has stagnated. Nor is it that the government is not investing in agriculture anymore, but that due to demands of Mani's brethren, around half the amount spent goes in subsidies -- more than half of which don't even reach the targeted class.

Politicians like Mani, for instance, don't allow farmers to be charged even to the extent of recovering the cost involved in just maintaining canal systems. As a result, most canal systems in the country don't even deliver a fraction of the water they should. Naturally, growth is a casualty.

Similarly, as stated in this column last week, close to 55 per cent of last year's Rs 9,000 crore subsidy on urea went not to the farmers, but to prop up inefficient fertiliser units. If, for the past two decades, fertilisers had been imported, with absolutely no change in the prices paid by the farmers, the government would have saved a third of the total expenses of several tens of thousands of crore.

Pity, the country's farmers don't realise how politicians like Mani have short-changed them and instead look upon them as their protectors. A similarly sad story is that of the public sector, once again ostensibly set up to help growth. Apart from the fact that employment in this sector fell from 1.52 per cent in 1991 to a negative 0.1 per cent in 1998, is the issue of the losses PSUs incur. In 1996-97, the government earned Rs 10,258 crore on the Rs 2,02,021 crore invested in central PSUs compare this with even the interest paid by the government on its borrowings, and the PSUs lose around Rs 14,000 crore a year.

Similarly, in order to protect domestic industry, the ideal that Mani espouses is continuing with the old system of import curbs and high duties. Never mind that this in turn hiked prices of raw materials and made India's exports less competitive. India's share in global exports fell from 0.61 per cent in 1977 to 0.47 in 1986, but grew each year that import duties were reduced from 1991 to 1996. And since most of our exports, such as textiles, are labour-intensive, the employment impact of this policy are obvious. Mani may love to talk of Chinese ghettoes and prison labour, but there's no denying that if India had China's kind of export growth in textiles (the two countries were on a par once), its earnings would have been $25 bn higher, and that would also have meant a major growth in employment.

Sadly, even people like Manmohan Singh, P. Chidambaram and Yashwant Sinha, haven't been able to break the back of this crucial aspect of our warped socialism. That's why the first decade of reforms haven't yielded the kind of results we hoped for. And the future of reforms seems bleak with even leaders like Manmohan slipping into Mani's kind of political doublespeak.

Manmohan talks of `reforms with a human face', though he knows full well that the old system hit precisely those very humans. Expecting change from this generation of politicians is, perhaps, to use Mani's elegant turn of phrase, not a rational expectation.