The doctor’s mis-diagnosis

The prime minister's recent speech to CII is a perfect example of how seeming truth can be put in the service of mystification. Many sentiments in the speech were laudable: corporate India should not engage in unfair practices, make India an inclusive society, and discourage morally disquieting conspicuous consumption. But the speech was an exercise in mystification in two senses. It obscured the true causes that prevent India from becoming an inclusive society. And second, it seemed like an exercise in displacing blame. The speech was symptomatic of the ideological and moral confusion of the government.

The PM, more than anyone else, understands the social contract between industry and government. Industry's job is to generate growth, expand employment and through increased tax revenues that growth facilitates allow government to take care of all the social welfare functions it should properly attend to. In a partial way this social contract is working: the government is sitting on the largest expansion of tax revenues any government has probably seen in a three-year period; citizens are happy to save, pay a cess when demanded. Industry and citizens can always voluntarily do more, but the truth is that the government is not using all the resources it has to achieve its objective. In a way the CII speech was not so much an indictment of business as it was of a government now shifting ground. When he came to power the PM promised a reinvention in government. Now he expects everyone else to pick up the slack for the government's non-performance.

The PM rightly focused on inordinate wage increases, inequality of access and inflation. All three challenges curiously emanate from the source whose metaphorical name is 'Arjun Singh'. Economists like Arvind Subramanian and others have been relentlessly arguing that all three problems are linked to rigidities in the supply of skilled labour. Wages are inordinately increasing because there is a shortage of skilled labour; India's capacity to absorb capital inflows without running the risk of inflation is seriously hampered by the shortage of skilled labour; and the biggest source of inequality is access to education. Yet education is where UPA's three years have been the most regressive. What good would even scholarships do if the median quality of your institutions continues to tumble? It would have been far more appropriate and truthful for the prime minister to grasp this bull by the horn instead of giving homilies on philanthropy.

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