What the 10% EWS quota and the farm loan waiver have in common
They are a manifestation of deepening fault lines in our democracy. They will benefit only a minuscule minority.
Here are five reasons why the Economically Weaker Sections (EWS) reservations announced by the Narendra Modi government are the equivalent of farm loan waiver for the non-agricultural economy.
Both will eventually benefit a minuscule minority: 10% EWS quota does not mean 10% of the upper caste population will get jobs. The actual number of jobs will be a fraction of newly created jobs in government and state-owned firms. This number is very small and continuously declining. For instance, according to Centre for Monitoring Indian Economy statistics, there were only 17.6 million jobs in the public sector in 2011-12 (latest available data). This number declined by 1.2 million between 2001-02 and 2011-12. Similarly, farm loan waivers do not benefit all farmers. They do not cover informal loans at all. Even formal sector lending carries various exclusionary conditions such as land ownership levels, debt limit and cut-off date of loan etc. and benefits only a fraction of farmers.
Both have a huge political appeal despite minuscule actual benefits: This is because of two reasons. One, policies such as loan waivers and reservations claim to provide relief from what is a systemic crisis in farming and employment in our economy. The electorate desperately wants some solution to these problems and such policies are peddled as game changers. Two, no political party normally opposes such policies, lest they antagonise the targeted group of beneficiaries, which is a huge multiple of the actual beneficiaries.
Both of them lead to perverse incentives: If a party gains politically because of farm loan waivers, it’ll have little incentive to carry out structural reforms in agriculture. The latter have a bigger fiscal cost and might not even bring relief in the short term. The electorate too draws on this cynicism and rewards populism more than foresight. The jobs crisis is no different. A long-term solution to this requires a drastic improvement in India’s educational ecosystem. Without this, employability will not improve. It is the lack of skill sets which forces PhDs to apply for jobs of peons in India. Reforming the education system to enhance employability will require resources, political will and time. Announcing EWS reservation to assuage the concerns of a section which does not qualify for reservation on the basis of social discrimination is the easy way out. Such a demand, however, is bound to give a fillip to more agitations demanding separate reservations for other groups, or worse, proportional reservation according to population.
Both of them are a manifestation of deepening fault lines in our democracy: The Indian State did not undergo any radical socio-economic reform before or after Independence. Factors such as land monopoly and social inequality in labour markets were among the important structural constraints which stalled the original vision of state-led economic transformation. Land inequality kept the level of domestic demand depressed in the Indian economy. Caste-based occupational restrictions prevented the Indian economy from exploiting a large pool of its labour reserves.
This was not the case in countries such as China, South Korea etc. To be sure, India’s uninterrupted (except the brief period of the Emergency) parliamentary democratic set up coupled with large-scale linguistic and socio-cultural differences has always acted as a hindrance against a countrywide radical political force to pursue such an agenda. The first-past-the-post system has allowed parties to get a significant number of seats by exploiting caste-equations, many of which are regressive in nature. As the economy transforms and aspirations increase at a much more egalitarian level than ever, the old political order based on a status quo of upper caste upper class privilege is increasingly coming under strain. Steps such as loan waivers and EWS reservations are driven more by the fear of losing existing votes to the opposition’s populist rhetoric rather than ideological considerations. Because they cannot provide long-term solutions, such policies are nothing but desperate attempts to kick the can down the road.
Both involve a degree of deceit: Even the re-distributional roots of solutions to the agrarian and jobs crises are not to be found in farm loan waivers and EWS reservations in their current form. Farm incomes have a direct conflict with pursuit of low inflation in the economy today. Unless the economic policy regime is willing to tolerate high inflation, this problem will remain. While macroeconomic stability is often given as an excuse for inflation-targeting, it is also a fact that it is the relatively well-off who tend to gain more from low inflation. Stable inflation in the long-term is crucial for protecting the value of investments, which are more a preserve of the rich. To be sure, hyperinflation can hurt the poor too, but current price levels in India show that farm prices have been deflated in the name of inflation-targeting. Similarly, any pursuit of labour market equality in India is meaningless without state intervention in the private sector. Most of the new and well paying jobs are being generated in the private sector now. Given the ideological and material (most political funding in India comes from the rich) influence of the elite sections over the political class as a whole, these real game changers are extremely unlikely, if not impossible to come into play.
First Published: Jan 22, 2019 07:59:48