HVK Archives: Seoul's successes - Indolence keeps India behind
Seoul's successes - Indolence keeps India behind - The Times of India
Kaushik Basu
()
23 January 1997
Title : Seoul's successes - Indolence keeps India behind
Author : Kaushik Basu
Publication : The Times of India
Date : January 23, 1997
Coming into India from the East, as I recently did, can be
disconcerting. From Kyoto to Bangkok it is evident that Asia is on
the move. That is why one gets an occular jolt as one steps out of
the airport in Delhi or Mumbai and drives into the city. It is not
the way the middle classes live, which is much the same in India as
in Korea or even Hung Kong. What is disturbing is the poverty and
the squalor.
The Republic of Korea and India make for an interesting comparison.
It was about 50 years ago that both countries attained
independence, Korea a year after India. Both countries were
crushingly poor with bleak prospects. The Koreans saved six per
cent of their incomes, the Indians over 10 per cent. Korea managed
to export less than one per cent of its national income, India just
over four per cent. In 1950, Alec Adams, the British charge
d'affaires in Korea spoke of how he and other foreigners living
there entertained "the lowest opinion of Korean intelligence,
mores, ability and industry. It is hard to believe... that they
will ever be able to successfully govern themselves."
30 Times Well-off
Today an average Korean is 30 times as well-off as an average
Indian in income terms. Over the next 10 years, Korea is expected
to overtake several European economics. And unlike in much of
Europe and America, this achievement has been coupled with a
remarkably rapid mitigation of poverty and with sharply rising
living standards of the working class.
India's policies were born out of an uneasy compromise between
Gandhi's dreams of a simple, village-based economy and Nehru's
Fabian ideals of the welfare state with a heavy-industry
foundation, based on what he had learnt at Harrow and Cambridge. He
would found his effort on a bureaucratic structure that was a
leftover of the Raj. Years later Nehru would tell Galbraith: "I ant
the last Englishman to rule India."
To please both sides, India began subsidising small-scale
industries and handicrafts, and also building large steel plants
and dams. The welfare state part, however, was never adopted and
"socialism" became a word that had to be used repeatedly to make up
for this lacuna. A large planning effort was started and handed
over to a bureaucracy, which was large and grew continuously.
Calcutta's state-run Great Eastern Hotel has so many employees that
a simple calculation shows that if the employees were to move into
the hotel it would be a self-sufficient housing project - slightly
cramped but manageable!
Korea and India's paths began to diverge in the fifties and more
so, after Korea's military coup of 1961 that brought Park Chung Hee
to power. Park was a Communist in his youth. Indeed when the coup
took place, the Kennedy administration thought that it was a
Communist takeover. Unlike Nehru, he was a dictator of the worst
kind. His only virtue was that he was imaginative in terms of
economic policy, willing to experiment and change. Thus while
Indian policy was marked by obduracy, Korean policy was known for
its flexibility. Korea had some initial advantages. The Americans
had forced an extensive land reform programme. But the key to its
success was its open economy, export-orientation and intelligent
government intervention which relied on market forces and at the
same time boosted savings and investment and provided plenty of
support for primary education and health facilities.
By the early eighties, Korea's average tariff rate was seven per
cent, India's 35 per cent; Korea's exports were 32 per cent of her
GNP, India's was five per cent; Korea's investment was 28 per cent
of her GNP, India's 22 per cent. And by 1994, India's per capita
income was $ 330, Korea's $ 10,330.
While in some ways this is a sad story for India, it is also one of
hope. The Korean example shows how quickly a country can transform
itself. India also has not done too badly since the early
eighties. It has grown reasonably well, and especially during the
last three years, it has grown by more than six per cent per annum.
Through the eighties, India's poverty has fallen steadily. If we
are to improve on this performance so that poverty is finally
overcome, it is essential that we stay on course with the reforms.
Minimal Programme
There are many things that need to be done but given that it is a
fairly disunited government at the helm, here is a minimal
programme that I would recommend to the government on the budget
eve. First, it should continue with the opening up of the economy.
There will be a tremendous signalling effect to the world if India
opens up consumer-goods imports. Moreover, there is no better way
to ensure that the quality of our domestic production improves and
we are better able to compete in the world market.
Second, we have to increase our savings and investment rate to 30
per cent - the Ninth Plan target of 26 per cent is too
unambitious. There are examples of how savings can rise in a short
period. In Korea the savings rate was 19.5 per cent in 1982; by
1986 it had risen to 31.5 per cent. The other example is India's
own. Our savings rate was 15.4 per cent in 1972 and it rose to
23.2 per cent by 1978 and it has remained stuck in a groove ever
since then. It is time to give it another push.
Legal Environment
To achieve this we have to reform our banks and provide a general
legal environment where contracts are respected. The legal
environment is the key to investment and lending. Consider one
very important form of investment - that in human capital. If we
could get 20 or 30 year loans, many people would more willingly
forego the opportunity costs of their children's labour and send
them to school. Indeed, in developed countries people buy more
education than they can afford at any point of time by borrowing
against the future income they expect to earn from greater
education. But in India it is virtually impossible to get a loan
to go to school or college. The reason why banks do not lend for
this is that they are not sure of being able to recover the loan
with interest later.
Third, the government needs a much larger education programme. A
part of the problem can be tackled by the market once a suitable
environment is provided. But this is an area which needs
government involvement. First of all, India spends too little on
social services, which include health and education. In 1994, for
instance, the Indian government's expenditure on social services
was 9.3 per cent of the government's total expenditure. The figure
for Korea was 32 per cent. The standard response of Indian
bureaucrats to this is that in India social security is largely a
state government responsibility. But even if we consolidate the
expenditures of the states and the Centre, the amount spent on
social security does not exceed 16 per cent. We must allocate much
more money to primary education. People have talked about the need
to save on government administration by cutting back on personnel.
If that were not possible for political reasons, the government
should at least try to relocate some of its existing personnel to
the education sector.
Back
Top
|