The Hindu : Public spending

Online edition of India's National Newspaper
Wednesday, Mar 13, 2002

Opinion

Opinion - Leader Page Articles

Public spending

By P.V. Indiresan

Here is a lesson for our politicians and for our bureaucrats. People do not respect populism. They want quality services.

THE CENTRAL budget is quintessentially an exercise in macroeconomics. Curiously enough, criticisms of the same budget get to be as microeconomic as they can be. As a rule, critics and commentators look at the budget from their own narrow perspective; judge it in terms of what benefits they will get, or what costs they will bear. If they themselves were to be asked to device a budget of their own, that too will get brickbats, not the same ones, but no less in number.

Let us face it. The Government collects barely 60 paise on every rupee it spends. One and all are agreed that fiscal deficit is bad. Logically, we should all pay more taxes and eliminate the shortfall. Unfortunately, each one of us wants only others to bear the burden. So, the deficit has become a festering sore with no one knowing how to remedy the problem.

For years, we paid for fiscal profligacy through inflation. Over the past fifty years, per capita income increased nominally 65 times but in real terms, the increase was only 2.8 times. In effect, 96 per cent of the increase in wages and other income was illusory. In recent years, we have kept inflation in check — at the cost of employment. This year, even IIT graduates have found it difficult to find jobs. Since 1996, employment in the organised sector has actually shrunk even though population has increased, and the number of educated has increased even faster. It is probable that the remedy we have found for inflation is worse than the disease.

In management concepts, there are two well-known theories: the X-theory assumes that people are inherently bad, and will shirk their responsibilities. In contrast, the Y-theory postulates that people are inherently good and will gladly discharge their duties. The Government operates on the former principle. It treats all taxpayers as potential criminals. It may profit more if it applies the Y-theory and organises itself on the premise that people will gladly pay their dues.

However, there is a hitch. Both politicians and administrators have earned a bad reputation for incompetence and worse. People do not consider either of them trustworthy. Where they have done a good job, the public does not grudge the expense. The IITs, for instance, are very expensive. They are also exclusive and cater to a microscopic minority. Nevertheless, they have been quite generously supported irrespective of which Government is in power. Hence, if only politicians, and bureaucrats too, prove that they will provide world class services, at any rate services of acceptable quality, people will pay, and pay gladly.

Unfortunately, politicians are uninterested in quality services. They have an erroneous belief that people will be pleased by bribes, by free services. The most glaring example of such misjudgement is that of Parkash Singh Badal, who as Punjab Chief Minister, in a spurt of populism, to please the rural electorate that voted him to power, made electricity supplies free. In the process, he made the richest State Government in the country bankrupt within 2-3 years. Instead of being grateful to him for his largesse, the people have now thrown him out. Still, politicians do not learn. The Congress (I) Government that has taken over has promised to continue that folly. It would earn respect, and balance the budget too, if it provided quality electricity at a fair price.

There is another instance of the maturity of the electorate. This government had the happy idea of imposing a one-rupee cess on every litre of diesel to be earmarked specifically for improving highways. That money has been used for what has come to be known as the Golden Quadrilateral linking the four major metropolitan cities, and for the East-West, North-South corridors. These highways will offer elite services, not the marginal quality ones we have had all these years. They are not ostensibly pro-poor as all services are expected to be — they are meant for high speed and not for bullock carts. They link our largest cities and bypass villages about whose welfare so many tears have been shed all these years. They are expensive. For all these reasons, on the face of it, like the IITs, these highways are as un-populist as possible. Yet, the scheme has been a success. No one grudges the expense. No Medha Patkar is opposing the construction of these roads. Those who have to bear the cost are doing so ungrudgingly, even happily.

Here is a lesson for our politicians and for our bureaucrats. People do not respect populism. They want quality services. They will gladly pay the price for quality services even if that is expensive. In short, people will pay higher taxes if they are sure of quality services; otherwise, they will not pay.

As neither politicians nor bureaucrats command much respect, these services will have to be entrusted to private agencies — the way the highways are being constructed. However, privatising the services may exclude the poor entirely. So, it appears that joint sector programmes will be best.

Then, consider a cess on sugar, cooking oil, beverages, tobacco, and alcohol — to be used exclusively for health services and for protected water supply. A cess on these is likely to be welcomed provided it is guaranteed that it will be spent only on health services, and as a guarantee of efficiency, it will be spent by competitive joint sector agencies.

Likewise, the service sector will be keen on quality education. The Infosys founder, Narayana Murthy, has been crying hoarse about the need to improve the quality of education. After all, education is the true capital of the service sector. The Government talks of 6 per cent expenditure on education. The service sector accounts for over 50 per cent of GNP. The service sector does not show high profits only because it pays high wages. A cess on such high wages, exclusively earmarked for quality schools, will almost definitely pass muster.

Once again, this too will have to be in the joint sector. Sometime ago, some of our NRIs offered to bring in the princely sum of a billion dollars for establishing international quality university education in science. The Government wanted them to hand over the money with no strings attached. That was the mistake. People do not want to pay without strings attached. If the politicians and the bureaucrats come off the high horse, learn a little humility, they will find that people will meet the entire cost of ensuring quality education — not only for their own children but for all.

Even if not everyone will agree to this proposition, it appears that substantial number of people will pay a fair price for quality service, and none at all for shoddy service. Then, we need to redefine Government service: less government, more (and better) service. Then, the Government will have little difficulty in collecting taxes/ user charges, to support the poor even, and the fiscal deficit will fade away.

Send this article to Friends by E-Mail

Opinion

Stories in this Section

Mr. Modi must go

Straitened circumstances

The U.S. and India: setting the focus