Sen versus Bhagawati and Panagaria debate
Growth-oriented reforms without strict regulation may not be the true starting point for
a poor country like India


By

Prafulla Kumar Das
Professor
Regional College of Management
Bhubaneswar
 


The Bhagawati versus Sen's debate generated much heat. During that time, Arvind Panagaria also jumped into the fray to prove Amartya Sen wrong in the assumption and management process of the Indian economy (The Times of India, Kolkata, July 27, 2013). Sen, the advocate of socialistic pattern of economy, strongly advocates massive expenditure on education and health for producing healthier and literate workforce. A healthy and educated nation would join the road for accelerating growth. Higher growth achieved through education and health would generate sufficient revenues which, in turn, would further attack on illiteracy and ill-health. Thus, a virtuous cycle would emerge.  On the contrary, Jagadish Bhagabati and Arvind Panagaria (both from Columbia University) are in favor of pure growth through which improved literacy and good health would emerge. They gave a call for: ending license-permit raj, liberalizing foreign trade and investment or generous entry of private players in banking, telecommunications and aviation which Sen was outright disdainful (they allege). Panagaria mentions that the writings of Sen are only understood by a few with specialized knowledge. On the contrary, intellectual origins of the reforms are to be found in the writings of Bhagawati, Padma Desai and T N Srinivasan.

Panagaria is of view that as India started with an extremely low tax-base as well as low income at independence, the available revenues were small. Providing for public investment for industry, agriculture, infrastructure, defense and administration left meager revenues for investment in education and health. At that time, the option was to either settle for slow and all-round growth or pursue growth friendly policies that would allow rapid expansion in income and revenues which he calls Track–I policies. Panagaria, Bhagawati, Desai and Srinvasan are the supporters of Track-I policies which Panagaria calls superior to Sen's theory (the first one). But, nowhere Panagaria mentions that the Track-I policies would ensure all-round development and income distribution. On the other hand, both the parties agree on removal of poverty, illiteracy, ill-health and other deprivations. If removal of social ills is the aim of both the parties; they should strive for the goal to be achieved sooner. Statistics says that although liberalization brought better growth over the period of twenty years, the gap between the rich and poor has been widened during the period. Significant progress has not been made in the front of expansion in education, health and housing. Therefore, probably Sen's support to food security bill, employment guarantee schemes and government health services is justified.

Of late, alcohol and other drugs have made deep inroads in the country. Thanks to open advertisement and glorification of alcohol consumption in the liberalized India. In case of cash transfer to the accounts of the beneficiaries, there has been an apprehension that the amount may be wholly used up in the consumption of intoxicants. In addition, while the educated has not been in a position to prioritize its list of expenditure, how poor with so many constraints would be able to do that? This thought might have prompted Sen to oppose cash transfer to the accounts of the beneficiaries. On the other hand, banking service infrastructure in rural India has not been properly developed. Multi-national and Indian private sector banks are not willing to increase the reach and access of banking services in rural India. They virtually have no priority sector lending. Without erecting these facilities and their management system, how money transfer would be possible?

Panagaria probably forgets the bitter experience of Dhabol Project of foreign investment (Enron) in the production of electricity in India. While coming to financial sector investment, requirement of investment in banking and insurance services is meager. LIC was started with seed money of Rs 5 Cr or Rs 50 million whereas, it has already paid few thousand million rupees to the Government of India as dividend and its contribution to infrastructure development of the country has been enormous. Foreign institutional investors (FII) are interested in the country for investing in retail, aviation, telecommunications, insurance and banking services. It is for the availability of over billion consumers and low and secured investment. These foreign entities are doing business in the cities and are not investing in priority sectors. In addition, allegations of speculative and insider-trading and siphoning of resources are frequent against foreign entities although Indian private and public sector units are also involved in financial crime. Without appropriate legal authority and control mechanism, these crimes can hardly be contained. The recent unearthing of mining, sand-lifting and chit fund scams bares the systems gap and immediately calls for stricter regulation to save public resources. Sen probably anticipated the black money to come back through hawala route as FDI. That might have been the reason for which he was against FDI unless barely required and right regulations in place. FII have been purchasing the domestic shares at throw away prices which is, in real sense, 60 to 90 times less than their actual price. Perhaps, Sen was against FII for that reason. Sen probably likes if companies are really interested in doing business in India, they should establish their own units with minimal import and they should not be allowed to raise funds through share market before a lock in period (say five years) of being operational in the country.

Panagaria and other writers on liberalization support 'higher and fire' policy. What they say that ability to fire employees encourages investors to establish their units. It increases employment. Rise in demand for doing different jobs would push up the wage and ensure stability. What is the reality in India? Now, more and more people are joining the unorganized work-force. Even, a degree in engineering commands a salary of Rs 5000.00 (Rupees five thousand) or an MCA degree Rs 5000.00 (Rupees five thousand) or an MBA degree Rs 10,000.00 (Rupees ten thousand) only. If they are to run a family of five, all the above degrees are not capable to lift the job-holders above the Indian poverty line. In spite of the low wage (salary), these people do not enjoy job stability. Without strict implementation of minimum salary for a particular position and job stability for the employees, how money would come to more number of hands to spend for? I know somebody who is a D.Litt. in Business Administration and was a professor in a private college. In spite of clear recommendation of AICTE to pay salary as per its norms which was about Rs 120,000 for a professor, he was being paid less than Rs40, 000 per month. He was removed from the job without assigning a valid reason. Surprisingly, he was not given even a verbal warning during his four-and-a-half year tenure in that institution. The condition of teachers in most of the private professional colleges is no different from my friend's. It was also observed that entry of private players in the field of education although expanded the seat availability (reach), access has been beyond the reach of the middle class. The dwindling quality of education is alleged to be due to the entry of more number of private players to the field. Therefore, I should say Sen was not mistaken to mention that Panagaria did not have the knowledge of ground realities prevailing in India.

Panagaria probably did not pay attention to the Economic History of India. India was not only the most populous country in the world; it was the most prosperous as well. Of course, socialism did not contribute to the erstwhile developed India. But, capitalism introduced by the British Raj made India one of the poorest countries in the world. British could inject in the minds of Indian people that they were a superior race and their economic system was better. That was the reason for which they ruled the country for two hundred years with the help of the native of India and a few hundred British officials. Even today, many educated people of India glorify the British system and liked the British to rule the country for some more years. Therefore, in order to restore vitality in Indian economy, India should adopt some economic system that would ensure progress and equity in the country. In the post-independence period, different economic models were adopted under different rule (Prime-minister). Growth-driving, export oriented economy dependent on foreign loan was responsible for economic shambles in early seventies and late eighties that dragged the country to the point of currency depreciation and further liberalization. Thus, the cycle of 'Black' made its ugly appearance. In the nut shell, our friends who wanted to prove that capitalism would be the appropriate choice for development in a poor country like India should also argue for implementing in totality the best of American and British systems in vogue. At that time, if Sen objected to the system, Panagaria and others have the right to criticize and prove him wrong.

(Professor at Regional College of Management, Bhubaneswar, India and views expressed in the article are of the author. The author has no ill-relationship with Jagadish Bhagawati or Arvind Panagaria and other similar authors. Contact: dasprafulla@rediffmail.com)
 


Prafulla Kumar Das
Professor
Regional College of Management
Bhubaneswar
 

Source: E-mail August 14, 2013

          

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