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No escape from dealing with employee costs: Secretary

By Our Special Correspondent

Mark Baird, consultant, World Bank, speaking at a discussion on the Bank report on `India: Sustaining Reform, Reducing Poverty' in Chennai on Monday. Looking on from left are Paul P. Appasamy, Director of the Madras School of Economics; U. Sankar, professor, MSE; Michael Carter, country director, World Bank-India; Raja J. Chelliah, chairman, MSE, S. Venkitaramanan, former RBI Governor, and N. Narayanan, Tamil Nadu Finance Secretary. - Photo: N. Balaji

CHENNAI Sept. 15. Tamil Nadu has no option but to deal with the problem of employee costs, which have reached a level equivalent to 60 per cent of its revenue, the Development Commissioner and Finance Secretary, N. Narayanan, said today.

A "soul searching" done by the Government in the wake of the recent strike (by employees over curtailment of pension benefits) only confirmed that the wages of Grades III and IV employees were much higher than those of corresponding staff in the private sector, he said.

The Government faced the problem of high cost of subsidies, especially in the power sector, employee costs and pensions. "We have to let the 16 lakh farmers of the State face income shocks" (through introduction of charges for electricity). Though the Government initially sought to neutralise its impact on the farmers through direct compensatory payments, ultimately, the solution lay in increasing their income. "There is need for strong (income) support to farmers".

Mr. Narayanan was participating in a discussion on the World Bank's recent report, "India: Sustaining Reform, Reducing Poverty, organised by the India Office of the bank and the Madras School of Economics here.

`Why comment on internal matters?'

He wondered why the World Bank commented on internal federal matters such as Centre-State relations, advocating linking of grant of Central funds to reforms being initiated by the States. Opposing an overly supervisory approach by the Centre to the States and ministry-wise conditionalities imposed for funding development programmes, Mr. Narayanan said Tamil Nadu wanted the issue handled by the Finance Commission, which could link devolution of funds to resource gaps of States, "development outcomes" and tax:SDP (State domestic product) ratios.

He differed with the World Bank's scepticism of the PPP (public-private partnership) concept and said Tamil Nadu had recorded some success stories such as the Tirupur water supply project and the East Coast Road under the concept.

On health care, the State favoured "medicare to the poor in the public sector" and "affordable medicare to middle-income groups in the public and private sectors". The World Bank should indicate "specific" positive impacts expected on the poor by reform measures, so that it would be easy for policymakers to sell the reforms to the public, said Mr. Narayanan.

Avoidance of fiscal deficits

The former Reserve Bank Governor, K.Venkitaramanan, questioned the emphasis on total avoidance of fiscal deficit, and said fiscal deficits linked to creation of infrastructure assets would catalyse investment in the private sector and economic growth.

He also criticised the tendency to dismiss the PPP as a "gimmick". Financial instruments, employed in a whole range of situations, varying from Enron to the allied occupation of Iraq, fell in the same category of leveraging public equity to raise private financial resources, he said.

Growth rate

Raja J. Chelliah, Chairman, MSE, said an eight per cent growth rate for the Indian economy was not feasible, and even if achieved, it would only result in a "tremendous ecological degradation" in Indian conditions. He favoured massive Central funding for a five per cent growth rate in four major States, including Bihar, which accounted for 50 per cent of the country's poor, while the other States could be allowed to pursue their own growth targets.

U. Sankar, professor, MSE, felt that the World Bank report could have provided "some more empirical evidence" of its assessment of the impact of fiscal deficits. He said transaction costs and environmental laws that adopted the approach of criminal jurisprudence rather than encouraging sustainable ecological practices should be counted among the adverse factors in the investment climate in the country.

Michael Carter, Country Director, World Bank, and Mark Baird, consultant, emphasised that the report took due note of the positive achievements of India on the economic front in the past two decades.

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