Opinion - Leader Page Articles

A state of illusion

By Pratap Bhanu Mehta

The retreat of the state is as much an illusion as its supposed virtues were... Most of our woes are the creation of our own politics and structures of governance.

KARL MARX was right about one thing: whenever we discuss the state, we discuss the illusion of the state more than its reality. Marx presciently diagnosed that societies project all sorts of qualities onto the state that it manifestly does not possess. The state is supposed to overcome the contradictions of civil society, it is supposed to be impartial, not be the handmaiden of particular classes and so forth. Not so, Marx insisted. The state, in its actual workings will reflect the contradictions of civil society not overcome them; it will be a mechanism for the maintenance of the interests of particular classes rather than the interests of all. In a curious kind of way, the ubiquitous talk around us about the "retreat of the state" reflects the extent to which we still are in the grip of an illusion when we discuss the state. The retreat of the state is as much an illusion as its supposed virtues were.

Given all the talk about privatisation, the slowing down of capital investment by the state, the eulogies to liberalisation that have come to grip us, one might be forgiven for thinking that the Indian state is indeed retreating. So, learned commentators attribute all our ills to the retreating state. If there are starvation deaths it must be because the state is retreating, if we are not educated or healthy, it must be because the state is abdicating its functions and so on. It is true that the Indian state is to blame for most of the ills of the economy, and the unconscionable human deprivations it produces. But whether it is the "retreating" state that is to blame for our ills is a more doubtful proposition.

Let us look at the bare facts. Start with expenditure. Total expenditure has, throughout the 1990s remained roughly around 16 per cent of GDP. More alarmingly, non-development expenditure has risen considerably. But the state has by no measure beaten a significant fiscal retreat. Although debatable, the number of employees of the Indian state has come down by barely under one per cent. If you take into consideration the massive expansion of quasi-state bodies at the lower tiers of Government, the state actually expanded in the 1990s. Subsidies are again on the increase. The Centre's per capita social spending on health and education has been marginally increasing through out the 1990s, though it is still below the norms for developing countries. The aggregate per capita expenditure of the states in the social sector suffered a brief decline in the mid-1990s, but has actually been increasing during the last two years and is projected to increase. Government tax revenues did decline as a percentage of GDP in the 1990s because of liberalisation, which aggressively cut trade taxes. Ironically, however, India's tax to GDP ratio will only grow in the coming years, because the fast growing sectors of the economy which had been given tax holidays are likely, in the near future, to come under the tax net. The simple fact is this: fiscally the Government has not been retreating though most of what it spends does not go to important things such as infrastructure investment or health or education.

Our economic and social future is not being jeopardised by the retreat of the state, but rather its continual presence in ways that both distort efficiency and impede the cause of justice.

It has become fashionable to say that liberalisation is incompatible with social spending or anti-poverty programmes. But to blame liberalisation for our weaknesses in these areas is surely a case of mistaken identity. We should simply ponder the fact that before liberalisation, spending on health, education and the social sector as a proportion of GDP was actually less than what it is now. So much for liberalisation being incompatible with social programmes. If liberalisation is indeed to blame for the fact that the Government does not spend on these sectors, as it should, what explains our dismal spending in these areas for 40 years after Independence?

If liberalisation and privatisation have any raison d'etre it is the following. Liberalisation will produce growth, and only growth will in the long run increase the Government's revenues. Privatisation will prevent the state from spending our money on unproductive uses. For instance, the average rate of return on public sector units is less than two per cent. If the Government simply sold most of them and put the money in a bank it would earn more and employ people more gainfully. De-regulation and Government stranglehold of certain sectors will prevent the state from letting political considerations override considerations of fiscal prudence.

For instance, if the criteria that banks use to give out loans are politically determined rather than based on probabilities of return, it leaves all of us poorer because we the taxpayers have to bail out these banks. It is true that in certain cases, say credits to a particular class of farmers, social considerations may override simple considerations of monetary return, but as a general principle we will all be better off if politics does not distort sound investment decisions. The privatisation, liberalisation and de-regulation package is meant to restore the state to financial health so that it can expand in those areas, say health and education, where it needs to expand more. Therefore, there is no need to assume that liberalisation will lead to the retreat of the state. And there is certainly no evidence that it is the retreat of the state that explains our failures in these areas. For instance, there is nothing in any liberalisation package that prevents the state from distributing part of its millions of tons of stock to the genuinely needy. What is preventing the state from doing it is that it is too caught up in venial politics of scandal and interest to actually care.

It follows therefore that those who blame our economic woes on the "retreat of the state" are missing the point in more ways than one can list. First, the state has not retreated; it has simply got more misshapen. Second, our problems are not due to the rise of neo-liberal market ideologies but are in large measure created by our politics. Third, in order for the state to grow in a healthy manner it badly needs to be reformed. Fourth, it is the case that international institutions such as the World Bank and the IMF have a lot to answer for. But in the case of India, their influence on our policy options is overrated. Ironically, the two recommendations of the Bank that India refuses to follow are the following: increase its tax over GDP ratio and increase spending on health and education. In other words, even advocates of liberalisation do not envisage a retreat of the state.

Perhaps the best reason for abolishing the IMF and World Bank is this: at least if they were not around we would not be able to find convenient scapegoats for our own colossal mistakes. Just as we attribute illusory properties to the state, we also seek illusory explanations for our ills in the workings of international institutions or market ideologies. Blaming a retreating state that is not actually retreating, blaming international institutions whose power, at least in India's case, we overestimate, has become an intellectually lazy and politically convenient way of disguising our true predicament: most of our woes are the creation of our own politics and structures of governance. But then, as Marx knew better than most, politics runs more on illusions rather than on cold hard facts.

(The writer is Professor of Philosophy and of Law and Governance, JNU.)

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