Caring State, heartless Market? What a stereotype!

The market seems to be delivering more inclusiveness, despite its huge inequities


Kapil Bajaj | June 4, 2010

In studying how the mighty institution of the Market functions in India, one can appreciate the wide gulf between organised and unorganised sectors of the economy, which allows the former to batten on the latter.

If you are a craftsperson, driver, tailor, sweeper, carpenter, plumber, roadside food vendor, housemaid, rickshaw puller, or private security person, you are likely to be serving those in the organised sector for low or barely growing wages/prices, without social security, and living with your family in cramped, insalubrious habitations.

You are likely to be creating, day in, day out, great value for those in the organised sector without receiving commensurate returns because of your inability to collectively bargain for better wages/prices and employment conditions.

Your hand-to-mouth condition will have you desperately needing the State—another mighty institution, juxtaposed here with the Market—to provide subsidised services like reasonable quality education, healthcare and sanitation.

In providing such services, access to which deeply affects your economic performance, the State disappoints you because of corruption, inefficiency, and other frequently cited reasons.

The State’s intervention in the Market also does not go far enough to enable workers and small producers/entrepreneurs in the unorganised sector to get easy access to credit and cheap housing.

So, both the Market and the State fall far short of their promise to deliver ‘inclusive growth’ and ‘inclusive governance’ to over 80 percent of India’s labour force that works in the unorganised sector.

One thing is clear, however; almost anyone can participate in the Market—from rickshaw pullers, construction workers, balloon sellers, cobblers, ear cleaners, junk dealers, housemaids, letting agents, touts of various kinds, to little children rag-picking, selling magazines, serving tea, and squeegeeing cars waiting at traffic lights.

Almost everyone can find some way of selling their wares, labour or skill, even though the work might sometimes be highly exploitative or outside the bounds of law.

It is true that market opportunity is unevenly distributed across the country but labour mobility offsets that unevenness to a significant extent. Moving labour, legally or illegally, is itself a big market in India.

Despite its huge inequities, the Market is, in fact, a pretty inclusive institution in that it allows you to participate in its transactions without much trouble.

Making the Market work better

Surveying the work of NGOs is a great way to understand the needs that the Market and the State have failed to provide for.
The NGOs, for example, have been primarily responsible for starting the microfinance movement in India. Some of these NGOs later transformed themselves into more formal institutions, such as NBFCs, to channel commercial funds into small loans for their poor but economically active clients.

Microfinance came into being because banks—public sector accounts for about 70 percent of banking in India —failed to serve adequately the majority of Indian population, leaving room for exploitative moneylenders.

Some NGOs like MYRADA, BASIX, and Pradan go beyond the financial inclusion agenda to promote livelihoods in rural and urban areas, often by organising small artisans and other producers and helping their clients to market their products.

Activities such as microfinance, livelihood promotion, and organising workers and small producers can be subsumed in an overall effort to make the Market work better for the poor.

How inclusive is the State?

While the Market works on the simple principle of give and take that even a child understands, the State, as it exists today in India, is a complicated and largely corrupt machinery that scares people away.

A Supreme Court-appointed committee recently described the public distribution system (PDS) as plagued by black marketing and diversion involving a “vicious cartel of bureaucrats, fair price shop owners and middlemen”.

Malnutrition deaths are not uncommon in India, which suggests the failure of the State in supplying food to the needy despite spending hundreds of crores on PDS, Integrated Child Development Services (ICDS), mid-day meals, and other such schemes.

The State has also been faring badly in providing quality education. Government schools are widely perceived as providing low quality education that doesn’t make children even moderately competitive.

It is an established trend across the country among all classes of people to prefer the mushrooming private schools to government schools.

That means that the poor have to shell out more on fees at private schools that lie way above  their income bracket without any assurance of quality, again because of poor regulation from the State.

The reputation of government hospitals is not very different from that of publicly run schools. Spending by all classes of people on private healthcare has been on the rise, again putting the poor at a disadvantage.

The poor have been excluded from accessing adequate water supply and sanitation.

Bribes need to be paid to access almost all public services, including registration of births and deaths and obtaining driving licences.

Bribes also decide who gets social security, such as widow and old-age pension.

Small operators in the unorganised sector, whose wages are already depressed, pay various kinds of illegal gratification to police and slum-lords without the State coming to their aid. The State, whose stated goal is to foster inclusive growth, seems hardly inclusive itself.

Where is public in ‘public policy’?

Ordinary Indians have long been kept from understanding the processes of governmental decision-making and have no way of holding the State accountable for its actions.

While the bureaucracy has never been directly accountable to citizens, people’s representatives listen to the diktats of their political parties rather than responding to the needs of their constituents.

Citizens have no voice in governmental decision making beyond voting once in five years. Power is too centralised to allow people at the grassroots to influence public policy.

Since the 73rd constitutional amendment, states have enacted their Panchayati Raj laws without empowering the Panchayats. Crores are spent on central and state welfare schemes, without allowing the Panchayats and municipalities to function as the means for people to voice their needs.

The result is that central and state bureaucracies have a vice-like grip on all policy-making and defining and carrying out ‘development’.

Undemocratic policy making has given a free run to vested interests to decide how the Market will be regulated or not regulated, leaving the poor more vulnerable.

Making the State work better

Inclusive governance is an ambitious agenda of administrative, electoral, and political reforms. India needs to empower its local governments to allow for more citizen participation in the political process and shaping of public policy.

The State and the Market are not alternatives to each other; we need both to achieve inclusiveness.

The UN Commission on Legal Empowerment of the Poor calls upon governments to provide the poor with (a) property rights and tenure security (b) rights to livelihood and entrepreneurship (c) labour rights, and (d) rule of law and access to justice.

If the State could only provide the poor with these entitlements, the Market will take care of the rest.



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