Why Raghuram Rajan is right about India being a one-eyed king

Irony has long been a handmaiden of Indian politicians and their utterances but a former Congress minister pointing out to a current BJP minister just how underdeveloped India actually is takes the proverbial cake. That senior government functionaries must not be criticised for labelling India "andhon mein kaane raja" is an absolutely acceptable point of view.

However, a lecture on underdevelopment, coming from those largely responsible for institutionalised corruption, crony capitalism and almost 60 years of gross mismanagement, and for the present sorry state of the Indian economy and society, the cheek of it all leaves one gobsmacked.

That said, the ostrich-like state of denial demonstrated by the BJP minister so targeted would also leave any sensible person speechless.

It ill behooves a senior minister to take her marketing people's rhetoric and wannabe vendors' lavish tributes either seriously or literally. It is even worse to forget one's basic arithmetic and not understand - or pretend to forget - the difference between the rate of growth and the absolute level of an important parameter.

Consider a country A that has a per capita GDP of Rs 1,000 in year one and grows at a rate of one per cent per annum. Its per capita GDP will be Rs 1,010 in year two. On the other hand, let's have a country B with a per capita GDP of Rs 100 which grows at ten per cent per annum. It will have a per capita GDP of Rs 110 in year two. Growth is very important but it has to be seen in the context of absolute levels of not just one parameter but many if we are to judge just how "developed" we are.

In fact, the objection to Reserve Bank of India (RBI) governor Raghuram Rajan's statement should have been that he was being far too kind - we do not qualify as a one-eyed king in any sensible context unless of course we compare ourselves with the failed states of sub-Saharan Africa or the Middle East.

A country that has about 20 per cent of its population officially categorised as living below a very harshly defined poverty line has little to crow about, and much to be ashamed of. And about the officially "non-poor" the following quote from professors Jagdish Bhagwati and Arvind Panagariya is illustrative: "Moreover, since the official poverty line is itself set at the subsistence level, many among the officially non-poor are far from having a comfortable existence." (Bhagwati and Panagariya in India's Tryst With Destiny, page 119).

We thus have about a fifth of our population living below bare subsistence level of consumption, a large but unspecified number above bare subsistence but in deprivation and poverty nonetheless and a small upper crust that is not deprived in any significant sense.

If development is freedom not just from abject destitution and all that it implies but also freedom from malnutrition, illiteracy, ill health, inequality and exploitation then we are too far from any kingly dominance - one-eyed or otherwise. In the case of many development indicators - infant mortality, maternal mortality ratio, child immunisation - we don't come first even within South Asia.

A society in which manual scavenging exists even after almost 70 years of freedom and democracy can really not claim regal status of any sort.

Much is made of the "demographic dividend" that we are to reap - or should be reaping about now. But nobody mentions the consequences of a combination of capital and skill-intensive growth in manufacturing and services, slow growth in agriculture and abysmal quality of primary and secondary education.

The results are for all to see - a sea of unemployable youth, the absence of employment opportunities for such unqualified/unskilled labour in manufacturing and services and the violent demand for reservation in government jobs by Patels and Jats and very likely others who feel "economically deprived".

Affirmative action was to correct centuries of gross social discrimination, not to be an employment guarantee scheme for the aspirational but uneducated and unskilled. The state, through decades of neglect of social capital - education, skill development and public health - and a dysfunctional economic policy has set the scene for a demographic disaster; a burgeoning population and nothing productive for them to do.

And how will this increasing demand for government jobs measure up with the very admirable policy objective of "minimum government, maximum governance"? Either the percentage of reservation in government is increased - putting an end to whatever meritocracy still survives, or the size of the government is increased, or both. But then how will public finances be managed? The situation appears to be an impossible one.

Economists have argued persuasively for the need for labour reforms to change technology choices in industry and bring about labour-intensive growth. Political compulsions, however, seem to have stymied that particular set of good intentions.

Perhaps it is appropriate to let Rajan have the final say. In a 2006 paper, Rajan argued that the persistence of underdevelopment can attributed not to the absence of appropriate institutions ("inclusive institutions... based on constraints on the exercise of power and on a pluralistic distribution of political power in society, enshrined in the rule of law." (Acemoglu and Robinson Why Nations Fail), but to the existence of powerful interest groups that oppose the emergence of, or subvert the functioning of such institutions as their effective operation would endanger their established positions of power and privilege.

This conclusion presents a much larger problem than a casual, imprecise reference to one-eyed kings. It indicates that bringing about development as freedom ("the removal of the major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivations, neglect of public facilities as well as intolerance or overactivity of repressive states..." - AK Sen in Development As Freedom) requires more than announcing new yojnas and tweeking budget allocations. It requires "taking up arms against a sea" of vested interests, powerful constituencies.

Politicians however, have never had the courage to do so and the Economic Survey 2015-'16 more or less says so. Short-term electoral interests have always triumphed over the perceived long-term interests of the people they promise to serve but end up ruling instead.

Therein lies our tragedy.