Globalisation

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Planning, Ideology, Globalisation Surjit S. Bhalla* National Seminar on Development & Nationhood: An India Perspective Jan 03, 2005 *O[x]us Research, New Delhi11

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Objectives Assess the development role that planning has played, and is expected to play. There is a presumption that the world has changed with globalisation ∴ new role for planning? “A fundamental and radical rethinking of planning is called for…the economy for which plan methodology was set up for …is no more” (Desai, p.134) Role of P & G in Planning, Ideology, Globalisation (P.I.G) has been extensively discussed, but what has not been well documented is the role of perhaps the most important intermediary - Ideology

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P.I.G. Overview But hard to pin down role of ideology, whether it originates from Left or Right. One possible method of identifying the presence of ideology is to note the presence of firmly held views irrespective of facts suggesting otherwise. This presentation makes some initial attempts to identify the presence and role of ideology in Indian policy making, as well as an evaluation of planning, and the future direction of planning.

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Unraveling Contribution of Planning… The Indian economic experience can be divided into four stages: Pre-planning Stage: 1950-1957 Planning Stage: 1958 (2nd FY Plan, Mid-Term Appraisal) Planning with a Human Face: 1980s Reforms without a Human Face: 1990s – 2004?

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…Unraveling Contribution of Planning… Look at what happened to growth (and distribution) prior to the 1980s – this yields estimates for the pre-planning and planning stages. If growth was significantly lower in the pre-1980s, was it because of our closed economic system/ideology or was it due to exogenous factors? Comparison of 1980s with 1990s yields estimates of planning with a human face vis-à-vis reforms without a human face.

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…Unraveling Contribution of Planning… Several authors have used this comparison to assess the role of economic reforms. The list is long – Acharya, Bhalla, Deaton-Dreze, Dreze-Sen, Panagariya, Rodrik-Subramanian, Sen-Himanshu, Virmani to name just a few. If economic growth of the economy and/or the poor is higher, then this is indicative of a ‘superior’ path of development.

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Comparative Performance: Four Stages of Development

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Comparative Performance… In the pre-planning period, 1950-58, India recorded its highest TFP growth ever – 3.0 % p.a. TFP growth has been the same for the 80s and 90s. The planning period (1958-80) records the lowest TFP growth ever – only 0.9 % p.a. This insipid performance has little to do with the oil crisis; for the period 1959-1972 TFP growth was only 1.1 % p.a.

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…Comparative Performance Conclusion: Old style planning provided India with lost decades of growth; this is also conventional wisdom accepted by most, though not necessarily, all analysts.

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The New Debate: 1980s v/s 1990s… It has been reasonably well accepted that the old (pre-1980s) economic system did not deliver. The debate has moved on to a comparison of economic performance in the 1980s and 1990s. The 1990s were characterised by significant economic reforms, the non-planning face of development, which attempted to dismantle the earlier economic system of planning in the 1980s.

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…The New Debate: 1980s v/s 1990s These reforms (1990s) were brought in by a team led by Dr.Manmohan Singh, who was Finance Minister at the time, and is currently the Prime Minister. Ironically, the same team is ushering the new era of planning in an era of globalisation. Evaluation of the most important initiative of planning with a human face in the presence of globalisation is the Employment Guarantee Act.

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The 1980s v/s 1990s… Official data on poverty are provided by NSS data on Consumer Expenditures (CE). NSS has also conducted surveys on Employment, Unemployment, and Income (E&U). Data from these surveys are available for 1983, 1987-88, 1993-94, and 1999-00.

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…The 1980s v/s 1990s An analysis of growth, distribution, poverty, unemployment, income, and consumption growth can therefore be conducted from the 80s and 90s. This comparison can yield insights into whether planning with a human face yielded better dividends for the poor and others, than reforms without a human face.

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Growth Rates (% p.a) 1980s v/s 1990s

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Alternative Growth Estimate to Ponder Sen-Himanshu (2004) state that in 1999-00, the growth in per capita consumption of the rural poor was one fifth the national average, and of the urban poor, was one half of the national average. This yields the following cumulative growth for six-years for different sectors of the population: 1990s cumulative 6 year growth (in %)

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Time Taken

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Cost of Poverty Eradication – Negative Income Tax

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The Need for Human Face Planning? “There are attempts nowadays to portray all problems arising out of globalization as if India was a paradise before 1991 or 1981” (Desai, p.188). It is felt that something is wrong with the picture presented earlier…1980s was growth with equity, 1990s growth without….evidence is all “simulations”….even the Sen-Himanshu growth rates Gini rises by only 5 percent! ….And NSS wage data does not reveal the growth or distribution pattern simulated by most authors” Yet the demand is there for a new paradigm – the flagship of this demand is the EGA.

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The Employment Guarantee Act Why is it important to discuss the EGA? …Because it is the most important planning initiative of the new government. It is self-described as an agenda which will usher reforms with a “human face”. The EGA espouses universally held goals: provide employment to alleviate hunger and poverty. Question is whether the EGA is even a good instrument, let alone the best, to reduce poverty and hunger?

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Past Employment Schemes Why is the employment guarantee act considered to be a panacea for poverty reduction? Because such schemes are supposed to be super effective in reaching the poor. Why? Because the poor are poor because they are unemployed, so providing employment will solve the poverty problem. - Target Group: The Poor - Self-Targeting: Via provision of low wages

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Will EGA alleviate hunger? No

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Will EGA provide additional employment ? No Objective: Provide employment to the poor. Fallacy 1: By definition, poor are not out of work. Fallacy 2: The unemployed are the educated in urban areas; we need a social security system for them, not EGA, as they are not expected to dig Keynesian pits. Overwhelming Conclusion: EGA will not provide additional employment for the poor.

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Rajiv Gandhi Index value for Employment Guarantee Scheme

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Poverty in India, circa 2000 Some statistics: According to official data, about 26% of the population was poor in 1999-00. Today, the number is likely to be close to 20%. Alternative estimates (eg: Deaton-Tarozzi price deflator) would place it close to 12-14%.

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Need to raise poverty line If NSS wage growth assumed to parallel consumption growth for the absolutely poor, poverty is close to 10% today. This low level of poverty suggests a reassessment of poverty lines; India has moved to being an economy with relative poverty instead of absolute poverty; thus, need for poverty line to be raised by about 20% in real terms.

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What’s the Last Word? The EGA is yet another instance of ideology masquerading as science. Whenever planning not there, India has done better. Higher growth brings about lower poverty – and lower planning brings about higher growth.

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