Tuesday, December 14, 2010

Inclusive growth and its corollary “Inclusive Loot”

I have always been suspicious of this whole idea of “inclusive growth”. In fact, one of my essays is titled “The fallacy of inclusive growth” where I make the point that you only have a choice between fast growth and slow growth and that in practice inclusive growth can only imply slower growth as compared to your potential. Recent events in India have added a new dimension to this debate; we now have to seriously consider whether “inclusive growth” is just a façade for “inclusive loot”.

Now that the evidence is out, the logical link that binds the two together is not hard to fathom. Inclusive growth is all about spending huge amounts of public money, ostensibly with the aim of doing good to the poor of the country. In reality, the greater the outlay on such schemes, the greater will be the pilferage and the money lost to “leakages”. In other words, the more the budgeted expenditure, the more the money that gets siphoned off.

However, this is not all. A little bit of thought would suggest that when you double the expenditure, the scope for pilferage would more than double, simply because the level of supervision and control that can be exercised over the money spent cannot be simultaneously doubled.

What this means is that when government spending on any particular scheme is doubled (and in these days of the Sonia raj, there is so much of doubling and tripling all around) it cannot be accompanied by a doubling of the monitoring mechanism or the systems and procedures in place to check corruption. Therefore, where an efficient set-up restricts pilferage to 10 percent out of a budget spend of, say, Rs.10 lacs, the same set-up would see a 15 percent siphoning off when the expenditure doubles to Rs.20 lacs. In this example, in the journey from a Rs.10 lakh spend to a Rs.20 lakh spend, the “outflow” increases more than proportionately from one to three lakhs.

Incidentally, I believe I may have framed a new law of corruption in government circles, call it Ranjan’s law of corruption in public spending.

Expressed in the form of a simple scientific forumula it says: Inclusive growth = Inclusive loot (with a minor time lapse)

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