A Prescription to Cure Poverty
Ideas for mitigating poverty in India
I left graduate school armed with everything I could know about financial accounts, book-keeping and all that goes into making Annual Reports digestible. Entering postgraduate studies with a brief knowledge of the humanities meant that the next couple of years would be spent unlearning and re-learning the specifics of the human condition.
I had learnt that the direction taken by the human, physical and financial capital is decided by corporate leaders. Nonetheless, a huge section of populace is still denied access to finance & credit thereby depriving them of a chance at bettering their future. My work with a couple of organisations, ranging from apex financial institutions to micro-finance firms lending to small entrepreneurs, provided me with three different learnings:
•that access to technology and cooperative effort can help tackle economic inequality,
•that competitive financial markets can turnaround rural economies, and
•that financial literacy would be the first step to financial inclusion which would in turn facilitate the process of social inclusion.
The major takeaways from these experiences soon culminated into the idea that poverty reduction in India would have to be constructed on the solid foundation of the triumvirate of ‘Education- Technology-Finance’. Noted economist, Amartya Sen, gave us the seminal idea that, ‘poverty is not the lack of money; it is not having the capacity to realize one’s full potential as a human being.’ Destitution is a combination of social, economic and at times even political inequalities. Thus, policies need to be geared towards subtracting these inequalities and multiplying the avenues to build capacities-human and physical.
Rationality in the age of Information & Skilling in the age of Automation
The output of the education system should be a free-thinking citizen and one who is also a skilled professional. Thus, as expressed by Paulo Freire in his Pedagogy of the Oppressed, education should not just bestow functional literacy but also build consciousness. Only a person with political and social consciousness would be able to demand a model of development most suited to the needs of the community. At the same time, if the person is armed with the requisite skills, he would be able to build the model of economic prosperity best suited to the needs of the community.
There has been a great deal of talk about the demographic dividend that India can reap given its large young workforce. Unless armed with skills, the dividend may never be reaped. The situation could turn especially grave in the emergent age of automation. The Technology at Work V2.0 report estimates that 85% jobs in developing countries could become obsolete in the near future. In this scenario, skills should be geared towards encouraging entrepreneurial spirit. In terms of the traditional Circular Flow of Income model, education should prepare a workforce that would be able to transition from employment accepting ‘Households’ to employment generating ‘Firms/ Businesses’.
Technology: The Great Equalizer
Technology is a function of scientific progress and infrastructure. The relationship between education and technology can be said to be cyclical. Education helps transform scientific theory into praxis thereby creating technology more suited to Indian needs; in turn technology would dissolve distances and make education accessible to all.
In a predominantly agricultural nation, technological innovations in the field of agricultural implements are surprisingly low. Few organisations like the Prayog Parivar, founded by the late Professor Shripad Dabholkar, are working to bring technology and scientific knowledge suited to small & marginal cultivators. Thus, bridging the Digital Divide should focus energies on bringing scientific progress to the lowest common denominator.
Say No to Relationship Finance
Raghuram Rajan and Luigi Zingales talk about the perils of relationship capitalism in their book Saving Capitalism from the Capitalists. Relationship capitalism can to some extent explain why Public Sector Banks in India have found themselves in a debt trap with mountains of non-performing assets (NPAs). The alternative to this is ‘arm’s-length capitalism,’ which means that access to credit/finance should be based on arms-length dealings between the lender/borrower, at rates determined by the free market. This can only happen when financial markets are truly free and competitive.
Venture capital, angel investors, capital markets are a viable alternative albeit only in urban centres. The rural centres still depend on traditional sources of finance that most times practice usury. To propel economic prosperity in rural centres, it is essential that credit is made available to them at competitive interest rates by developing micro-lending institutions, strengthening the already existing cooperative credit societies, providing access to financial literacy and access to expert of financial knowledge. People in power are able to command capital. If the freedom to command this power is made equally available to all, then people would surely be able to map a more precise path to better living conditions.
Underscored by Infrastructure
This is where the role of development finance begins. Providing quality education, healthcare, access to sustainable energy, communications networks would require huge amount of funds to be channeled to target areas. In a country like India, where there is regional disparity in growth figures, it is essential that efforts are concentrated to develop Tier-2, Tier-3 cities and rural areas. Providing quality infrastructure in these areas would help build economic capacities by attracting financial and human capital to these areas and in turn reduce the urbanisation pressures on existing urban centres.
Nevertheless, letting infrastructure spending run rampant is hardly a panacea. Infrastructure would have to be provided in a staggered and structured manner and fashioned to reflect the growing needs of the communities it seeks to serve. What could help facilitate this process is identifying and classifying areas based on economic and natural potential. Thus, building cold storage warehouses in fishing towns, developing inland waterways for transport in coastal areas would be examples of geography and economy specific infrastructure. The essence being that infrastructure should interact with the local needs as also incorporate the element of sustainability.
Tackling poverty in India is not just a static proposition but a fluid road-map that will need to be contextualised and adjusted based on impending circumstances. While the Developmental Triumvirate remains the same, how the elements interact to deliver fair equality of opportunity and capacity building would be a challenge for the bureaucracy in India.