People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 35

August 27, 2006

A Critique Of The Approach To The Eleventh Five Year Plan - II


Amiya Kumar Bagchi, 
Debdas Banerjee and 
Achin Chakraborty


MANY of the factors, which the Approach Paper identifies as constraints to faster growth are in fact ‘ideologically’ structured constraints. For example, the Approach Paper says: 


“A key issue … is the need for greater flexibility in some of the labour laws. In particular, there is the need to consider appropriate amendments in Section V-B of the Industrial Disputes Act, 1947 to facilitate exit and Contract Labour (Abolition and Regulation) Act to give to the industry the flexibility necessary to compete in international markets”.


“The inflexibility of our labour laws may be denying us the opportunity to expand employment in the organised manufacturing sector.”


Is Planning Commission ignorant of the fact that not more than 9 per cent of the workforce engaged in manufacturing belongs to what otherwise is called the organised sector? Moreover, about 30 per cent of the workers in the organised manufacturing are now casual workers. Second, from the data in a particular state, which is ‘infamous’ for its political ideology, i.e., West Bengal, it is clearly evident that more than a quarter of the total workers directly employed – in the factories those were registered in 1985 and thereafter – have been in factories employing 100-500 workers (incidentally, these are the entities which are covered by Chapter V-B of the ID Act, 1947). New employment in newly registered factories with ‘up to 19 workers’, on an average, was about 16 per cent of the total new factory jobs. Larger numbers of jobs were created for the workers in the larger factories. Of the total number of new jobs created annually in the newly registered factories, on an average, 24 per cent has been in the size-class ‘20–49 workers’, 19 per cent in ‘50–99’, 26 per cent in ‘100–500’ and 14 per cent in ‘500 and above workers’ category of factories. 


The pervasiveness of small firms however suggests other more universal forces at work. For example, less the urbanisation more the underdeveloped transportation networks tend to be, resulting in small and diffused pockets of demand that leads to small-scale localised production. Underdevelopment also breeds small firms. Demand for simple items like bread, apparel, footwear, metal products, and furniture are rather efficiently produced using non-factory methods of capital and labour combinations. There is little incentive to consolidate production in several large plants and incur the extra distribution costs (for the services of the highly organised intermediaries).




While discussing the surge in the recent growth in the services sector Planning Commission comments: “The sector has the unique opportunity to grow due to its labour cost advantage reflecting one of the lowest salary and wage levels in the world”. Are we as Indians proud of, or feel ashamed having the lowest wage and salary in the world, leading to the ‘race to the bottom’ for the working people across the globe? Should we not make an endeavour to move toward an economy where the people with a decent/fair wage live with dignity? That the low wage has never been an advantage for India in the exports market excepting making the country the sweatshops of the developed North is amply evident in the trade statistics. In 1980, manufactures based on labour and natural resources constituted about 40 per cent of the total non-oil Indian exports. Thereafter the importance of these kinds of commodities in the Indian export-basket, instead of decreasing, rather increased to about 60 per cent in 2000. Ghana, India, Morocco and Turkey, among other developing economies, experienced the largest increase in the share of labour- and resource-intensive manufactures, while, between 1980-2000 countries like Taiwan and South Korea managed to pull down the importance of this product group, along with the drop in the share of primary commodities. 


Several such ideology-laden statements one would find in the Approach Paper. For example, it says: “Several problems facing agriculture today are the direct result of distortions introduced by policy. The policy of providing free or highly subsidised power to agriculture for example, encourages excessive drawal of water contributing to a fall in the water table”. First of all, we would like to know what proportion of the irrigation pump-sets are connected to the grid power. Second, can we then infer that “the BPL ration cardholders eat more foodgrains than others”? 


The Approach Paper has rightly diagnosed poor quality of instruction as the main problem of elementary education in India. However, the suggested solution does not seem to have emerged from a thorough understanding of the ground realities in India. As the paper rightly points out, one of the major causes of poor quality of learning is teachers’ lack of accountability and low level of motivation. Thus, ensuring good quality of instruction poses a difficult challenge. After suggesting that ‘authorising panchayats and citizens’ education committees to oversee teacher performance can help increase accountability’, the paper notes, 


A more powerful method of enforcing accountability is to enable parents to choose the schools where they will send their children. Enabling people to choose between available public and private schools (by giving them suitable entitlements reimbursable to the school) and thus creating competition among schools could be considered.


The suggestion sounds like that of an over-enthusiastic undergraduate student of economics, who has just been introduced to the welfare consequences of a system of voucher vis-à-vis direct public production, responding to the instructor’s question to impress. While the instructor might be impressed by her pupil’s ready grasp of the course material, those who have a little experience with the state of school education in India will be struck by the downright absurdity of the suggestion. 


‘Enabling people to choose between available public or private schools’ presupposes availability of more than one such school within a reasonable geographical distance. The voucher idea seems to have been ‘informed’ by the ‘fact’ that in India private aided and unaided schools account for 58 per cent of the total number of secondary schools. Introducing a voucher system in this context effectively means all private schools will be aided schools and the amount of aid will be in proportion with enrolment. Even if we accept the argument that a privately run school with government subsidy tagged to enrolment will provide the incentive to the school for expansion of enrolment, don’t we have to know how these schools are spatially distributed? At the moment, if I am living in a typical Indian village the nearest upper-primary or secondary school is roughly three kilometres away. My voucher would reimburse my tuition fees if I took admission in a ‘good’ private school. Where could I find it? It’s in the town, about forty kilometres from my home. The voucher is like winning a ‘trip’ to Singapore that reimburses only your airfare and you have to pay for your hotel bills and other expenses (which is roughly equal to your annual income, say). The idea that the voucher system can improve the quality of schooling in India reminds us of the economists’ joke in which a group of ship-wrecked people in an uninhabited island are trying to open a can and the economist among them suggests ‘let us assume we have a can-opener’. Surely, the Planning Commission must be joking. 


What the textbooks do not write is that the governments have good reasons to find the system of voucher attractive as it allows them to make the transition from public provisioning to a complete pay-as-you-go system in a somewhat covert manner without much social resistance. First, it is shown (by logical deduction) that the welfare consequences of the voucher system are at least as good as direct public provisioning. The argument is that, in either system, the consumer is not paying or paying only a fraction of the cost, but in the voucher system the consumer enjoys the additional benefit of exercising her choice between different providers. People find it convincing. But the trick that any government will be tempted to do in practice is that the voucher amount will not be indexed to cost escalation, so that sooner or later the schools will start charging the parents to compensate for their ‘losses’. And this charge will rise over time, gradually turning the whole system into a virtually private one. In spite of repeated suggestions by World Bank enthusiasts very few countries in the developing world have attempted to introduce the system. The case of Colombia is rather curious. A voucher system was introduced in 1992, which offered vouchers to entering sixth grade students residing in low-income areas and who had previously attended a public school. The voucher program was designed to help poor students make the transition to secondary school in areas where public schools were filled to capacity. The value of the voucher was initially high enough to pay for tuition at low-cost private schools, but it was not indexed to price escalation, and as a result, in a couple of years’ time, students’ parents were typically making out-of pocket payments equal to the voucher value to cover tuition costs. Most elite private schools in Colombia even decided not to accept the vouchers. The voucher system in Colombia covered only one per cent of national secondary enrolment, before it was discontinued in 1997. 


It is rather unfortunate that the Approach Paper has reposed its faith exclusively on the exit option, even though the current social scientific research reveals the complexity and variety of options.