Two chief ministers of two important states have just fallen because of land scams in their capital cities - Mumbai and Bangalore. One belongs to the CONgress; the other to the BJP. In both cases, their respective "party high commands" in Delhi are putting in "replacements." To my jaundiced eye, this does not seem "democratic"; nor is this "federalism"; rather, it is purely "clientelism" being practiced by the main "political parties" of our centralised, socialist State. Of course, this central State is itself floundering in major scandals. And both these parties are riddled with corrupt elements. One wonders whether anything will improve in either Maharashtra or Karnataka after new chief ministers take over.
In the meantime, elections are being held in Bihar - and they are due in West Bengal. More chief ministers will be installed.
What can be said about the fiscal health of our state governments? In this context, I am happy to share with my reader a study on the subject conducted by Deutsche Bank (this link will be available for 90 days only). According to this study, all our state governments are in the red, some more than others. The worst performing are West Bengal, Bihar, Orissa and Uttar Pradesh. On these huge states, the report concludes as follows:
We find that Jharkhand, Bihar, West Bengal and Uttar Pradesh are some of the states having the worst fiscal dynamic. Given that Bihar, Uttar Pradesh and West Bengal together would account for more than one-third of the rise in India’s population between 2010 and 2025, their poor fiscal ranking is particularly worrisome....
As population increases sharply in these states in the next decade and a half, the pressure on these respective state governments will mount to generate new employment and attract higher investments, failing which the incidence of poverty and human development conditions (already in a poor state) could worsen even further. Fiscal support to prop up growth and development would likely be minimal, given that these states already remain severely challenged on that front. If the incidence of migration gathers pace, as people shift elsewhere looking for employment opportunities, the fiscal position of these states could deteriorate even further, as the government’s own tax revenue falls, thereby raising the deficit and the debt. Continued and rapid progress toward fiscal consolidation, therefore, is essential.
I began this post with the crises in Maharashtra and Karnataka - and now we see that the crisis is widespread. Whereas Maharashtra and Karnataka are in better fiscal health - particularly because robust private sector growth is fueling revenues - the fact remains that Mumbai and Bangalore are very badly governed, and the biggest scam being operated by their state governments concerns urban land. I maintain that it is the poor of rural India who need urban land. Only then can widespread poverty be tackled. Only then will the size of our domestic market attain its full potential.
Interestingly, the lead article in the ToI today is by a former chief secretary of Karnataka, lamenting the poor governance of our cities, while recommending Mayors. A timely awakening, I think. Yet, self-governing cities are never clients of higher levels of government - and that is something we must also wake up to.
The Deutsche Bank report cited above, on the fiscal health of our state governments, should prompt us to realise that what we need to urgently tackle is this unlimited spending by both the Centre as well as all the states of this so-called federation. The report starts off saying that our debt-GDP ratio is 80 per cent, that we are "a high debt economy" - and that one-third of this is debt contracted by states. The report also studies inflation in India, which shows no signs of abating.
Clearly, some drastic measures need to be taken. The classical liberal prescription of sound money, limited government and local self-government are all required. While these will restrict the scope of government, and its spending, we also need to institute complete economic freedom for our people so that they can prosper in the free market. This requires the inviolability of Property and unilateral free trade. This will also spur urbanisation along our twin coasts - furthering opportunities for the advancement of our rural poor. I have an earlier post advocating new cities along our coasts, which will sprout on their own if we institute free trade unilaterally.
If we persist with our current policies, we will end up with situations like the one now unfolding in Europe - where the Irish government has gone belly-up. The "welfare state" that Chacha is trying to establish will be a huge disaster.
I will conclude with what our central finance minister is now up to, increasing the size of his budget by over 7 per cent in order to fund various subsidies, with Parliament having passed two supplementary grants to the tune of 744 billion rupees or 1.1 per cent of GDP. According to DB, this "reflects a desire to spend the windfall revenues from the 3G spectrum auctions and disinvestment." All this money will be "consumed," not "invested."
As I have maintained for long, India does not suffer from the "population problem." In India, the people are not the problem; rather, they are the greatest resource we possess. In India, on the contrary, it is The State that is the problem.
No comments:
Post a Comment