Downsize! It's time to put govt on a weight-loss programme

For all the breathless talk from the Manmohan Singh government about implementing economic “reforms”, it has failed to grasp the idea that the most fundamental reform it can possibly usher in is to downsize itself.

In fact, the Manmohan Singh government has arguably been the most egregious expander of Big Government, which is supremely ironic given that in 1991, when he implemented the PV Narasimha Rao government’s reforms, he appeared to realise that the real reforms lay in delicensing, deregulation and downsizing.

More than 70 percent of the government’s total annual expenditure is channeled towards feeding itself, and servicing interest costs and subsidies. In that sense, the Indian government is the true embodiment of Ronald Reagan’s characterisation of the government as a baby’s alimentary canal - with a big appetite at one end and no sense of responsibility at the other.

In his latest budget, Finance Minister P Chidambaram signaled that he was making expenditure cuts to stay within the ‘red lines’ that he had drawn for himself on fiscal deficits. Yet, he slipped in yet more instances of expansion of the already bloated government by providing for, among other things, a mahila bank.

Some of the government’s aversion to downsizing itself is, of course, motivated by self-preservation. That aversion is widely shared in other countries, including in China, where the momentum for reforms is likewise stalled by an equally bloated government. As Wang Yang, a senior Chinese official who is known for his reformist outlook, acknowledged in Beijing last week, “Reforms are aimed at cutting off pieces from one’s own body.” The interests of the government, he said, had become a stumbling block to reforms.

On Sunday, however, the Chinese State Council - which serves like the Cabinet - unveiled a modest effort at cutting down on Big Government in a way that ought to inspire the beached whales within the Indian government.

Even though critics argue that the latest reforms don’t go far enough, the proposal does envisage the scrapping of the Railways Ministry in China - which is something of a radical move (and one that _Firstpost_recommends for India as well ) - and other measures that are calculated to “reduce red tape and administrative intervention in business”.

[caption id=“attachment_655405” align=“alignleft” width=“380”] Reforms are aimed at cutting off pieces from one’s own body[/caption]

The State Council claimed that the prime motivation behind the restructuring was to ensure that the government would not “meddle in what is not our business”. State Counsil departments, it claimed, were focused excessively on microdetails, and were therefore intervening overmuch in the market.

Instead, it added, the government should focus only on ensuring that the allocation of resources was given over to the market. Likewise, even in the management of social issues, social organisations had a more critical role to play than even the government, it said.

Hear that, Messrs Manmohan Singh and Chidambaram? The notionally Communist government in China is talking openly of assigning an increasing role for “market forces” - oh , the horror! - in the allocation of resources, and for social organisations in implementing social welfare programmes.

Contrast with the manner in which the government has favoured cronies in the allocation of national resources - from land to telecom spectrum to coal blocks - and you begin to understand why government has no intention of going on a weight-loss program. Contrast that also with the cradle-to-grave social welfare net that the UPA government is looking to build, with the ruinous worldview of a Hugo Chavez (but without the oil wealth that he commanded).

In his reply to the debate in the Rajya Sabha on the President’s Address, Manmohan Singh repeatedly said that he was “proud of expanding expenditure in the social sector”. And although he claimed that they were needed to access health and education and livelihood and food security to the poor, the reality is that they are often ill-conceived social welfare programmes that inadequately address the genuine tribulations of the economically enfeebled.

Indicatively, the UPA government’s intends to formalize a food security provision targeted at the poor. For all the bleeding-heart liberalism that characterizes such feel-good initiatives, the measure will do nothing to address the problem of malnutrition, according to experts.

As Howarth Bouis, director of HarvestPlus at the Washington-based International Food Policy Research Institute (IFPRI) told Mint newspaper last week ,India’s efforts to fight malnutrition may not bear fruit unless there is greater focus on policies so as to promote diets rich in nutrients and micronutrients, rather than cereals and aggregate calories, as the Food Security Act does in a fit of misplaced focus.

“Most of the poor,” says Bouis, “can afford as much of rice, or wheat, as they can eat. And if you look at consumption patterns of these items across income groups, it does not change very much. The huge difference between low-income and high-income groups is in the consumption of non-staple foods-fruits, vegetables and pulses. I think that’s what is limiting better nutrition, not just in India but in much of the developing world.”

Yet, anyone who offers a reasoned criticism of such flawed policies is portrayed as somehow lacking in sympathy for the poor. And throwing good money after bad is evidently enough for the government to project itself as being pro-poor.

Even nominally Communist China appears to have come around to the realization that market forces are better at allocating resources and that social organisations can do a darned sight better job of providing social security than oversized governments. That idea now has to cross the Himalayas and implant itself in the minds of the Big Government behemoths that populate Delhi.