Book Review: Political Economy of Poverty Eradication in India and Essays in Fiscal Reform

Political Economy of Poverty Eradication In India And Essays on Fiscal Reform Raja J. Chelliah. New Delhi: SAGE Publications India Pvt. Ltd, 2010. Pp. - 173 ISBN: 9788132104001

"He’ll be remembered for conceptualizing and implementing India’s tax reforms, even as his early books on fiscal policy are still widely referred to" - Govinda Marapalli Rao

This book covers three broad themes, providing useful insights and a roadmap for action on the entire gamut of significant issues spanning poverty eradication, tax policy, and intergovernmental relations. It highlights the iniquitous state-level growth where the policy seems to be failed in creating an equitable society to lower poverty and deviation from universally accepted goals of social development. Planning and policies so far lack in achieving the objective of inclusive growth, balanced regional development, or respectable levels of social welfare. This is most critical in case of what he terms as Low Growth States (LGS) that are characterized by poor performance in terms of per capita income literacy rate, and poverty ratio, infant mortality rate, HDI, and population growth rate as compared to other counterparts.

Emphasizing the need to push reforms for poverty alleviation and enhanced federal structure he points out four key modernization's to be experienced by the country. First, achieving the goal of universal education which would ensure an enlightened electorate and qualified workforce. Secondly, the development of a scientific outlook which will lead to a digression from superstitions and a rise in technical progress and hence serving as a prerequisite for the rise in per capita income. Third, modernization in Political transformation ensuring laws on ethical principles, individual freedom, and changing attitude by assisting the protection of weak and helpless. Fourth, the ethical transformation of social conscience is a key aspect of modernization where the accretion of strength to lower strata and women due to strong economic growth and rise in per capita income should be credited with persuading strong to evolve a law-based society. These four modernization augments each other and as a whole society witnesses transformation towards a political democracy with law, justice, and compassion as underlying features.

In terms of strategy taking Bihar state as a piece of evidence, he points out the central government should undertake more initiatives via direct investment in certain crucial areas of development in LGS like through Special Purpose Vehicles (SPVs). Also, flood control, large scale irrigation, and infrastructure need a push because LGS does not have nor they can channelize required resources to undertake these large scale investments. Instead of higher aggregate growth, the government should give more weight to the growth of LGS to speedily lift masses from squalor and misery in which they are mired. Constitution of ‘Bihar Flood Control and Irrigation Authority’ and ‘Uttar Pradesh Flood Control and Irrigation Commission’ was recommended in terms of strategy and plans for development. Other key policy changes required were put forward in terms of parameters of evaluation used by the central government while determining the share of grants. For example, efficiency was given very low weight and there was no incentive for states performing better. For addressing these issues Australia and Canada had a more robust methodology according to him and on similar lines, India can work it out. On sate effort in low growth states, the author suggests, political leaders, be urged in LGS to carry out land reforms and redistribute surplus. Also, tenancy and tenure reforms can be carried out on a sufficiently large scale. For agriculture to grow, land reforms are the prerequisite and also in bringing about better law and order. Assistance to States particularly by analyzing the share of grants as an issue has been explored in detail. The final theme of the book deals with key issues and reforms to enhance efficiency, maintain fiscal discipline, and have a robust taxation structure in place. This book will be an invaluable complement for the students and scholars of development economics, political economy, public finance, public administration, and economics.

Especially with books like “The Political Economy of Good Governance” by Sisay Asefa and Wei-Chiao Huang, it would further the insights in the discipline. As far as the qualification of the author is concerned about justifying the themes discussed, Raja J Chelliah (Padma Vibhushan in 2007) was one of the most celebrated economists of India. He was a specialist in public finance and an institutional builder, he founded the National Institute of Public Finance and Policy in 1976 and built it up into a full-fledged research institution in fiscal matters. He also founded the Madras School of Economics and was Professor Emeritus there. Dr. Chelliah served as a Planning Commission member (1987–89) and on the Ninth Finance Commission. He also held the post of Fiscal Advisor in the Union Ministry of Finance (1993–95). The most appropriate criteria to judge the book would be to observe the recent policy initiatives taken by the government in terms of rationalizing the tax structure and addressing agricultural distress with poverty and allied issues. The recent macroeconomic outlook for LDS shows improvement with scope for further reforms.

Overall the book serves as a means to ponder over various daunting issues underlining the Indian economy, especially on the fiscal front, and have in-depth insights related to it.