Empowering public sector : An Alternative Path

These are excerpts from Prof. Prabhat Patnaik's speech inaugurating the Delegate Conference in KGOA's 45th State Conference held at Trivandrum. This is as reported by one of the attendees of the conference - Birenjith PS. Any errors/mistakes caused are purely unintentional.

Since you are all gazetted officers, I thought I will speak about the current debate going on about government policies. In the beginning of 11th five-year plan, like any other five-year plan, policy makers were concerned about poverty and hunger. People thought that growth will automatically trickle down to the poor. That didn’t happen. So they were thinking of how we can bring about inclusive growth. But at the end of 11th five-year plan, as far as the 2008-09 data shows, hunger and malnutrition are far more widespread in our country than any other year since 1954-55. Now that the 12th five-year plan is about to come, the same question of how we can eradicate poverty and hunger is going to arise. But I can tell you with an unfortunately large degree of confidence that nothing would happen as we reach the end of 12th five-year plan.

However it is not a difficult task to eradicate hunger and malnutrition. Two simple measures will be sufficient to meet this. The first is to guarantee universal employment. The second is to ensure public provisioning of a minimum amount of certain bundles of goods and services, at very cheap prices or free of cost. Since the bundle of essential goods and services are provisioned at cheap price, everyone requires only a minimum purchasing power to access them. This purchasing power is guaranteed by universal employment. The essential bundle of goods, for example, can include 35kg of food grains per month per household at, say, Rs.2kg per kilogram. This bundle can also include a minimum set of health services. Studies show that the primary reason for peasant suicides, or in general rural impoverishment, is the burden of increased health expenditures. So if a minimum set of health services are available pretty cheap, everyone will be able to access them in spite of limited purchasing power. Those with higher purchasing power can of course access advanced health services such as beauty therapy or whatever.


While these two measures can promise eradication of hunger and malnutrition, the entire direction of government policies is to stay back from public provisioning systems. One such step towards keeping away from public provisioning was the classification of the people into APL and BPL categories. This classification was completely arbitrary. For example, out of lakhs of families in Asia's largest slum, Dharawi, only around 150 households are classified as BPL. Another area where the government has been staying back is education. The self-financing colleges have commoditized education, and have been using this commodity for profit-making. In short, we are moving in the exact opposite of the right direction.

One of arguments put forth is that we don’t have enough resources. The government is facing a resource crunch, and hence let the private parties come forward. This is a completely bogus argument. If there are resources in society that can be taken by private parties, even State can acquire a share of these resources by appropriate methods of taxation. Note that India has one of the lowest tax to GDP ratios. Its position remains 7th or 8th from the bottom. So the resource crunch argument is not valid. When the government stays back, it opens up opportunities for the private parties. It is basically opening up fresh provinces for private parties. This is the core of neo-liberal policy framework. Another argument they make is that even if we privatise, we are not avoiding the poor. We are ready to give cash assistance to the poor to access private institutions. Suppose we are planning to give cash assistance. Then government will be able to assist only a little fraction of the large mass of poor people. If the resource crunch remains a binding argument for initiating privatisation, then it remains a binding argument for the government to become incapable of giving cash assistance to the entire impoverished people.


What I would like to emphasis now is that there is an alternative to the current direction of government policies. We are not just saying this. We have carried out this alternative path in Kerala in the last 5 years. In the 10th 5-year plan, when UDF was in reign, The tax to GSDP ratio of the state was the lowest in India. The fiscal deficit was less than 2%, when the center's guideline was to keep the fiscal deficit within 3%. The state voluntarily kept the fiscal deficit less than 2%.But in the 11th 5-year plan period, when LDF was in power, the tax to GSDP ratio went up. This increased tax revenue gave the government an additional degree of freedom. There was another pool from which government could save resources. Now that many provinces are opened up for private parties, the states were competing each other to invite big private players. The private players also started playing a bargaining game with the states in matching the subsidies given by one state with those given by another. We did not do any such thing to entice private players. We were not deliberately stopping them from investing in our state. But we didn’t give any subsidies for their investment. This can save a huge amount. Do you know how much subsidies did Gujarat give to Tata Nano to shift to their state from Bengal? It spans across financial years, and roughly amounts to around 2000 crores every year. By staying back from such enticements, we could save a lot. All these gave the government an additional degree of freedom. It is also important how this additional degree of freedom is utilised? Or in simple terms, what do we do with the increased tax revenue or savings from not subsidizing private players? This amount was spent on welfare schemes. This not only helped us in reaching to the people directly, but it empowered people in terms of their purchasing power. This increased domestic expenditure. Increase in domestic expenditure expanded domestic market. Expansion of domestic market in turn motivated all kinds of small or medium domestic investments. And this resulted in increase in growth rate. In Kerala not only did the welfare expenditure go up, even the growth showed upward trend. When the national GSDP growth remained at 25% over a period of 3 years, in the same time, Kerala showed a growth of 28%. So all the growth that they could achieve by cutting down public provisioning systems, and all welfare measures were below that we could achieve by enhancing welfare expenditures. The whole talk that growth and welfare contradicts each other is, in my opinion, basically wrong.


What is stopping other governments from taking this alternative path? I believe it is commitment of the government, or the interest of the government that is lacking. This can be illustrated in three examples drawn from the experience of Kerala. One is the tremendous improvement made by the Kerala public sector industries over the last 5 years. This improvement was not made by cutting the wages, by restricting any union activities, but just by ensuring proper functioning of individual units. When a public sector institution is facing a problem, you can either privatise that institution or can find out other solutions to solve that issue. It is your interests that leads you take one of these decisions.

Image Credit: Dr.M.R.Baiju

Second example is the public distribution system in Kerala. Even though the APL/BPL classification hurt the PDS in Kerala too, state implemented many other measures to ensure public distribution of food grains and other essential goods. The third one is health insurance. When we thought of implementing Health insurance in Kerala, many friends and our well-wishers asked me personally and through other means, why are we doing this? Health insurance is usually the beginning of privatising health sector. Because once you spent a huge amount for insurance, you will be forced to cut down from public health expenditures. That will open up this area for private players. But the LDF government was committed to implement health insurance without a single paisa cut in the public health outlay.

So we should strengthen our struggle for the enlargement of public sector. In addition to all the reasons detailed so far, the public sector is important for the success of democracy. Privatisation leads to reduction in worker's rights. Globally you can see that the percentage of organized workers in private sector is far less compared to organized workers in public sector. Any reduction in worker's rights is fundamentally anti-democratic. So strengthen your struggle for the enlargement of public sector.

This post is licensed under "Creative Commons - Attribution - Shared Alike Version 2" with rights attribution to Prof. Prabhath Patnaik.