The Hindu : Business : Wanted, a job-oriented economic policy

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Monday, May 17, 2004

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Business

Wanted, a job-oriented economic policy

NOW THAT the results of the Lok Sabha elections have come out, eyebrows are being raised on the shape of economic policy that the new government may come out with. The verdict of the elections is clear. It makes out that no amount of reform can be tolerated unless it addresses basic issues such as employment promotion, reduction of poverty and provision of basic services. The fact that, despite several reformist initiatives, the verdict went against the ruling parties in Karnataka and Andhra Pradesh, as also against the former Finance Minister, Yashwant Sinha, who was captain of the reform programme in the Vajpayee Government for a long time, speaks volumes on this thinking. The verdict also supports the contention that, irrespective of the performance of the economy, the crucial concerns today are the above mentioned basic issues rather than the much hyped "would-be India" factor.

Limited options

However, we are left with the reality of being part of a globalised world, where the options are limited. Schettinger, Economic Advisor to the outgoing Prime Minister, during the course of his electoral debates, has focussed on these limited options. On the other hand, Jairam Ramesh, Secretary, Economic Affairs, of the Congress Party, in an exclusive chat with Business Line, has presented the issue in more simple terms. According to Mr. Ramesh, disinvestment and the role of the public sector are crucial areas in which political parties may differ. According to him, a Common Minimum Programme, as during the times of the United Front Government, will help the new government tackle such issues of contention amicably.

Beyond the above two positions, what is crucial for the people is the qualitative changes in economic policy that may help lighten their day-to-day problems, let alone solve them.

Public policy

Viewed from this angle, it is necessary to examine the whole issue in a more scientific manner. It needs to be discussed in terms of the core of public policy architecture. Public policy is something which the government does or chooses not to do. It is the total of all governmental activities that has an impact on society. Public policy gets shaped in a definite policy environment. General policy, as established by the executive, legislature and the courts, helps define the environment in which agencies work. But given such an environment, policy is based on demands made by a large number of individuals with a common problem that is beyond their ability to resolve.

Powerful social groups thus try to raise such demands through political parties, and in the electoral process, vote banks become the determining factor that influences the thinking of political parties and coalitions. It is this phenomenon that explains the difference between party manifestoes and election manifestoes. Electoral promises often are not in tandem with the party manifesto which brings out the ideological position of the party concerned.

Gap between policy and practice

Going by the experience of coalition governments in the country, one can discern a wide gap between policy and practice as indicated above. The industrial policy of the Janata government in 1977 was most articulate on a decentralised development strategy which that government could atleast profess in the pre-liberalisation period. The United Front Government, while stressing its commitment to decentralisation in economic policy, could only follow the liberalisation policy kick-started by the previous Congress government.

The NDA Government also did not come to power with a clear agenda of liberalisation. But having come to power, it became a staunch supporter of liberalisation. It was in fact the internal conflicts within the Sangh Parivar that came out in the form of a pro-small industry tilt since its second year in power. Setting up of a separate SSI ministry, appointment of an expert committee on small enterprise, for the first time by the Planning Commission, creation of the Credit Guarantee Fund and the Credit Guarantee Corporation, and the piloting of a Small Industries Bill, were major steps initiated by that government. But the practice was far from satisfactory. The SSI Ministry is not a powerful ministry in the Union Government. Unlike in many other countries, the policy initiatives on livelihoods and enterprise development are politically tuned. It is these that one should ponder while discussing the shape of economic policy for a new government.

Apart from populist rhetoric, economic policy during the liberalisation era has largely followed the World Bank-IMF prescriptions, rather than having a forward-looking pragmatic approach. For example, for the last one and a half decades, pro-employment policies have been announced off and on, named differently — such as National Programme of Rural Industrialisation, Cluster Development Programme and SHG/Women empowerment. While the new concepts are very much in tune with the emerging international literature, their actual contribution on the employment front is very much limited. While there were profuse announcements, in practice they meant a little more of budgetary allocation to NABARD, SIDBI, or to the government departments concerned.

A pro-poor approach to development should essentially mean enhancing the capabilities of ordinary people and helping them to stand on their own feet. Development of enterprises is obviously the best means. The Special Group of the Planning Commission estimated more than half of the employment during the Tenth Plan period to come from growth buoyancy. Given the fixed nature of Plan allocation, what can best be done during the Plan period is to enhance the productivity of various growth-induced programmes. But since the productivity of the growth-induced programmes themselves is dependent on job quality, there should be a conscious effort to enhance job quality. But how can high quality jobs emerge if there is no concrete policy for job creation as such? It is in this context that an immediate introspection is required. Any discussion on job quality needs to be based on strong labour market interventions by the Government. The experience of most OECD countries in this area has much relevance in the Indian context. But unfortunately, in our reform programme, these aspects have never been dealt with.

Alternative strategy

In order to translate the recent verdict of the people into sound economic policy, it is necessary to think of an alternative development strategy with specific focus on employment. The basic building blocks of such an alternative strategy should be targeted at two levels: (1) at the level of aspiring new start-up entrepreneurs; and (2) for the existing small and medium enterprises which are reeling under the strains of globalisation. For the start-ups, the following vital steps can produce good results:

A flexible training opportunity: All unemployed persons should get such an opportunity. It can go as an annexure of the formal education system. No aspiring start-up should be denied the opportunity of a training in entrepreneurship.

Credit guarantee: No aspiring entrepreneur should be denied credit. Better and larger facilities for project implementation, through a wide spectrum of institutional arrangements, including business incubators.

The rural industry programmes of today are implemented with the lead role of the Government. They are funded from budgetary sources, and stakeholder participation is limited. The relevant question in this context is whether these programmes could be substituted by a single national programme with a significantly positive stakeholder participation. This is based on the perception that employment promotion is the responsibility not only of the government but of the society as a whole. Therefore youth unemployment should be addressed in the form of a concrete policy initiative.

In this context, it is important to initiate an exclusive youth programme (which one may call the `Prime Minister's Youth Business Programme'), which should be implemented by a national Trust, called the `Prime Minister's Youth Business Trust'. The creation of a much larger Trust Fund is expected to widen the horizon of public programmes for employment generation in the agro and rural industries sector. The annual budgetary resources available for implementation of the PMRY, REGP and NPRI programmes now are a paltry Rs. 430 crores, compared to the substantial resource requirements. It is necessary to at least double this amount, in order to make some tangible impact on enterprise creation in rural areas.

The proposed Trust Fund will have the goodwill to mobilise resources from the private sector, donors and the financial institutions.

The Trust should be a mechanism to assure that: all unemployed persons willing to undertake an entrepreneurial activity, and having a business plan, are not deprived of the necessary finance; and all unemployed persons willing to enter into an entrepreneurial activity are not deprived of training opportunities.

It is important that, youth as a social constituency is formally brought into the mainstream of development policy. The architects of economic policy should remember that the poll verdict is for more of pro-poor and pro-employment policies, rather than for a pro-rich element of the globalisation-liberalisation programme.

P. M. Mathew

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