Rural jobs & growth key to lasting reforms

The Narendra Modi government is stacking up its “reform credentials”. The inclusion of the Goods and Services Tax into the constitutional scheme, an initial step, has been followed with a double-punch by putting to rest the Raj tradition of a separate railway budget, another first. The rail budget reform got welcome Opposition support, including from the Congress and Biju Janata Dal, while Nitish Kumar’s criticism that it would make the railways less autonomous can only be put down to reflexive dissent with an eye to the media coverage such tactics generate. Mamata Banerjee’s Trinamul Congress was similarly truculent, barring Dinesh Trivedi, a former rail minister, who dulled the edge of the party’s attack by not opposing the move. The net budgetary support for the railways is Rs 5,000 crores, or just one quarter of one per cent of the annual Budget. But having to get its budget passed independently by Parliament exposes the railway minister to inevitable “populist” demands to steer it through. This extra burden will now be borne by the finance minister, the redoubtable Arun Jaitley, whose reform credentials are growing by the day.

The railways are reportedly implementing commercial accounting standards. Suresh Prabhu, the energetic rail minister, could consider tabling an advance supplement based on the results of the first three quarters of the fiscal year (April to December) with the budget documents for next fiscal, followed up by yearly outcomes in the annual report tabled in Parliament. But let’s not kid ourselves. What is well begun is only half done. Process reform, like the new rail budget mechanism, is necessary but low hanging fruit. To show results, process reform has to induce management and operational changes. In the “big data” age, access is available but the key is to use it to change behaviour. That is what matters. Since 1991, economic reforms have primarily focused on sunrise sectors — industry, commerce and finance. Tech grew under the government’s radar as it remains export-oriented. Inevitably, urban boats have risen significantly. Two-thirds of jobs are generated there, which explains the continuing migration from rural areas.

But connectivity and business as the key drivers of growth blur the urban-rural distinction. Business, the driving force for growth, looks at supply chain networks as the critical cartographic feature, not administrative borders. Similarly, markets don’t end at city limits particularly if e-tailing is to grow. But we can’t ignore the fact that even till 2030 India will remain a significantly rural space. In 2001, there were nearly 19,000 villages, each with a population of over 5,000 people, and nearly 4,000 villages with a population of more than 10,000 people. Reclassifying these villages as urban spaces, on the basis of population size and the extent of non-farm occupations, could increase the statistical level of urbanisation from 31 to 50 per cent of the total population. This takes the estimates of the share of urban population in 2030 to 70 per cent. But even the 450 million left behind in villages will be a significant market and a sizeable votebank.

The government has been diligent in rolling out new schemes to pull people out of poverty. Financial inclusion via the Jan Dhan Yojana, economic and social security through subsidised insurance policies and the focus on public health and publicly-financed housing have all helped. Most of these initiatives are still in the process reform stage. Tangible results — such as more disposable money in the hands of the poor — is still some time off. It is unclear, for example, how many of the 200 million bank accounts opened under the Jan Dhan Yojana, Aadhaar and mobile numbers (JAM) are operational in a substantive way. Enlarging the direct benefits transfer will expectedly make financial inclusion real. But last-mile implementation is a slow process.

Glimmers of hope persist. The Arvind Subramanian Committee Report on price support for pulses is a signal that the government is shifting attention from reform areas where progress is ongoing, to neglected but high potential value addition sectors: agriculture, rural development and water. Agriculture needs to be brought out of the shadows, where it has been consigned since the Green Revolution in the 1970s. If the government is to lead, it first has to raise its presence in these areas by decentralising personnel, functions and finance to rural areas. At present, on an average, only one-third of state government jobs are based in local governments. The majority are centralised in the state capital and the departmental offices in the districts. This kind of personnel allocation needs to be reversed, and officers reallocated closer to the people. This means starting a conversation with state governments. Piyush Goyal, the effervescent minister of state for power, coal and renewable energy, has recently successfully done just such a conversation around restructuring discom debts.

This cooperative federalism model can be replicated for personnel reallocation — targeted funds for measurable actions. A second conversation also has to be started for levying income-tax on agriculture. The tortuous but eventually successful negotiations around GST provide the replicable model for this thorny issue. As in everything else, leadership counts. The Prime Minister should consider shifting the attention of his “A” team — Niti Aayog — from industry, infrastructure and commerce to agriculture, irrigation, rural development and social protection. The Niti Aayog seems saddled with all kinds of residual work. It can usefully focus on delivering tangible, measurable outcomes from two key taskforces on agriculture and poverty alleviation. Suggesting which PSUs to sell, planning new tourist islands and drawing up action agendas to win 50 gold medals in the next Olympics can be done elsewhere. Surely creating jobs in rural areas and putting more income in the hands of the poor should rank higher on the priority list.