Print

Mail

wiki links

Helping the poor is the best investment India could ever make

By Jeffrey Sachs

Wednesday, Aug 04, 2004, Page 9

A decisive blow against poverty was struck when India's new finance minister, Chidambaram, released the 2004/2005 budget.

India is a country on the move, with rapid economic development and dazzling dynamism in the information technology sector. Yet it is also home to 300 million of the world's poorest people.

In May's national elections, India's rural voters unseated the ruling coalition. The lesson was clear: focus on rural poverty. The new government has listened, putting forward a program that is dazzling in its implications, both for India and for the developing world.

India's new government is led by a "dream team" of development experts. Prime Minister Manmohan Singh is one of the world's leading development economists. It was Singh, serving in mid-1991 as India's finance minister, who began India's market reforms.

He dismantled decades of inefficient and ineffective government restraints on trade, investment and entrepreneurship, unleashing more than a decade of the fastest economic growth in India's history.

renowned team

Upon becoming prime minister, Singh brought into government an experienced and internationally renowned team, including Chidambaram, who served as finance minister in the mid-1990s, and Montek Singh Ahluwalia, who heads the Planning Commission, the key body assessing India's medium-term public investment strategies.

When Singh's government came into office, there were fears that he would be hamstrung by left-wing coalition partners, who would demand that market reforms be dismantled as the price of their participation in the new ruling coalition. Chidambaram's 2004/2005 budget puts those fears to rest. The document is a brilliant lesson in development economics: it shows how to combine a full-speed-ahead approach to market reforms with urgently needed attention to poverty. In short, the budget is a model for all developing countries.

At the heart of the budget is the realization that reducing poverty requires both rapid economic growth and targeted investments aimed at the poorest of the poor.

Rapid economic growth is to be based on the private sector, including foreign direct investment. Thus the budget supports critical areas of market reform and growth promotion, including measures aimed at deepening the financial sector, promoting exports and liberalizing foreign direct investment.

The key, however, is that the budget does not rely simply on "trickle-down" economics to raise living standards. The second pillar of poverty reduction is targeted investments for the poor, particularly for the rural poor.

This approach commits India's national and state governments to ensuring that all Indians, including the poorest, have access to basic social investments, including health, nutrition and schooling, and to basic infrastructure including electricity, information and communications technology, safe drinking water and inputs for modern agriculture. Every village is to be lifted up in the next few years, empowered with the basic tools to become economically productive.

immense scale

The scale of the challenge is immense. There are an estimated 600,000 villages in this vast country of 1 billion citizens. Villages far from major ports and cities tend to be poorer and less invigorated by the recent economic growth.

The government proposes to equip these villages with the basic infrastructure and services they need to take off economically.

The government's programs are not mere populist promises. They reflect sensible investments that the government intends to pursue. The budget calls for a surtax on incomes to help pay for increased social expenditures.

The lesson for other developing countries is that spending on the poor for health, education, safe drinking water, electricity and the like is not simply pandering; it is a serious and productive investment.

It may be expensive to educate a child, but it is far more expensive to a society to leave a child without education. Uneducated children will be burdens on their societies for decades to come. It is far more rational to spend a little extra income now for a few years of schooling than face decades of social costs resulting from masses of uneducated adult workers.

But even India, with its growing economy, cannot afford to make these investments out of national resources. India will need some help, at least temporarily, from richer countries and international institutions like the World Bank and the Asian Development Bank.

The rich world should not be grudging in its help to India. By providing a few billion dollars per year in assistance now, the donor world would ensure a prosperous, democratic and stable partner in India for decades to come. In other words, it is time for donors to step up to help reform-minded yet poor countries like India, and even more urgently, those in Africa that are similarly committed to economic development.

Economics professor Jeffrey Sachs directs the Earth Institute at Columbia University. Copyright: Project Syndicate
This story has been viewed 2552 times.