What you must not do, ministers

Financial Express, 23 May 2009

The Congress manifesto promises a large number of welfare programmes and schemes to help the poor. There are promises to expand the number of schemes, the scope of schemes and the expenditure on them. One way of doing what the party has promised would be to spend more money with business as usual. The approach towards implementation would be unchanged; the budgets and staffing would grow by 50%. This would protect vested interests, and it would not upset the bureaucracy. But it is a bad idea for India, and it will hurt the Congress in the next general election.

Schemes that fail to deliver money to poor people are not new. The Congress leadership knows full well that most money that goes into education, health or subsidies is wasted. Yet, in the last five years, the government did little to improve governance and attempt to ensure better delivery of either subsidies or public goods. The strategy taken up, instead, was to harness the windfall of tax revenues coming in owing to high economic growth, and to spend money under conventional schemes. If the same strategy is followed today it could result in a much bigger disaster than one might think.

The last five years of unprecedented GDP growth have had two effects. First, GDP growth led to growth in jobs and incomes. And second, welfare programs of the government helped people who were not part of the growth process. The latter were feasible because tax revenue growth was high, which gave the government the capacity to spend.

Circumstances are going to be different in the coming five years. First, GDP growth is expected to be lower. It might be a long time before India witnesses another 5 years of above 8 percent growth. The probability that this will happen in the next 5 years is low. This means that a lot more people may need help under the welfare schemes like the NREGA than they did in the previous 5 years, which will increase the number of claimants of welfare spending. Second, tax revenue growth will be slower because GDP growth is lower. This would mean the government would have less money to spend. Given the already large fiscal deficit and the high debt to GDP ratio, the government has much less scope to spend.

P. Chidambaram, the Finance Minister in 2007, succintly summarised the problem when he questioned the logic of pouring more water down leaking pipes. In good times, the incompetence of existing schemes was about wasting money. But now, in the midst of a deep business cycle downturn, we need programs like NREG to work as a social safety net. With exports and industrial production actually declining month after month, it will be a mistake to assume that more of big spending schemes can work. First, this would raise government debt and force the government to spend larger and larger amounts on interest payments, crowding out all other expenditure. The instability of government finances could imply that more spending on welfare programs converts a difficult downturn into a macroeconomic crisis. But more importantly, the electorate is unlikely to be satisfied with schemes that exist but which do not benefit them.

One example of a scheme that shows a huge disconnect between increased expenditure and outcomes is the Sarva Shiksha Abhiyan (SSA). The scheme, along with the mid-day meal scheme, emphasises ensuring student attendance in schools. This scheme is based on the assumption that it is poverty, child labour and lack of understanding of the benefits from education that is the the biggest impediment to education. But as a number of studies have shown, the bigger problem is on the other side: it is in the teaching. Hiring teachers does not ensure that they are present in school, and their presence in schools does not ensure that they teach. As a consequence, children go to SSA schools and fail to learn how to read or write.

Faced with a choice between free SSA schools and private schools that require payment of fees, roughly half of India's parents choose private schools. In other words, the entire enterprise of lavishing money on SSA ends up being directed at the educational requirements of half the voters (and a declining share at that). When more than half of voters see that a government does not care about their educational needs, this will hurt Congress.

What is needed today is not more money into the existing Ministry of Education. What is needed is a paradigm shift in the way the government thinks about education and addresses the problem of how to educate young Indians. It is no longer a question of herding children into malfunctioning schools where nobody cares about educational outcome. It is no longer sufficient to measure "success" in the field of primary education by counting expenses, schools, teachers or students. Success must be defined only in terms of learning outcomes: by measuring how many students at age 10 can read and multiply.

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