I have always wanted to help improve the status of the poor in India, and therefore, on joining the Civil service in 1982, I bought the IRDP ideology and spent considerable time and effort at least till 1992, in studying and then implementing IRDP and other poverty alleviation programs at the district level and finally at the state level. My experience of about ten years left me with a clear conviction that something was drastically wrong with the design of these programs since they always failed (or almost always), no matter how good the intentions of the officers trying to implement these programs. This led to the search for basic economic principles.

Today, with this essential understanding of economic logic, my thesis is that a market economy has no place in it for programs of the IRDP type, whereas most programs of the JRY type might be supported. But when institutional analysis is added to basic economic analysis, we find even programs of the JRY type being unlikely candidates for success due to opportunism in the implementation of these programs, and the high monitoring costs. More details later.

On the other hand, there is a lot of sense in the promotion of cooperatives like the one at Anand, or agriculture, like the one in Panjab. We need to be able to feed our people. That does not mean, however, that over half our population has to go about producing this required foodgrain at great effort. Instead, it is quite possible to produce the required food with one tenth of the number of people, by use of modern machinery. Of course, this does not mean that we have to introduce the modern machinery at once, but in a phased manner, as we are able to absorb the rural population in the urban areas in more productive jobs. Everything has to be done in a phased manner, to avoid upsetting the social equilibrium in a drastic way, since the costs of social disequilibrium are higher than the problem they seek to remedy.

Having (at least briefly) critiqued the existing programs for rural development, what then is the solution for the rural poor? How do I propose to absorb them in urban areas? The typical administrator and politician in India will say to me, "Get real. How do you think we can bring out these hundreds of lakhs of people from villages into urban areas? We are different. We are a rural country. Even Gandhiji said so." Well, with due humility, I would say to them that I am not asking this to be done in one day, nor to be done through excessive government intervention. Nobody is to be forced to go to cities, nobody is to be prevented from tilling the land. What we need to do is to provide the following package of economic policies and incentives which, carried out over a reasonably long period of time, will motivate people to move to urban areas:

1. Stop wasting precious funds in IRDP and JRY type programs. Convert this fund purely to a road fund, whereby the entire country is inter-connected by pucca, paved roads, of a high standard. No mud-work should be encouraged, except in rare cases of productive investments (such as small dams).

2. Close down all unprofitable rural bank branches. These are a drain not only on our national exchequer, but violate the basic principles of economics by attempting to give cheap credit to rural areas where monitoring costs are enormous. If they were to give these loans at higher than urban rates, incorporating these higher transaction costs, then it would make economic sense. However, for political reasons, this suggestion might not quite work. Nobody wants to go about increasing the interest rate p aid by the rural poor. That is one clear disadvantage of our democracy: it promotes many violations of good economic policy, due to the need to be populist. As mentioned earlier, it makes little sense to promote an economic policy which does not take political reality into account. Therefore, I would not quite advocate an immediate closure of unprofitable bank branches in rural areas, but instead, promote a policy of squeezing the neck of these branches, by asking them to start becoming profitable in a phased manner, over ten years, say. Those that are severely unprofitable can then be closed down in a steady manner, until the relatively more profitable remain. The objective is to prevent the loss of valuable resources in maintaining a guaranteed loss-making investment. It is much more useful to promote urban development policies vigorously and to shift people to smaller or large urban areas where banks can generally be run more profitably than to continue to subsidize rural bank branches.

3. Start pumping in huge investments - both private and public - into existing urban areas, including the outskirts of metropolitan cities. There is theoretically no upper limit to the size of any agglomeration or city. Hence, with a bit of proper planning, places like the NCR (national capital region around Delhi) can become huge cities of the future. These investments would be basically in export-oriented industries, and other domestic, competitive industries. This would start absorbing the educated surplus that we have today in the nation. At the same time, liberalize the economy in every sense of the word so that private initiative is the only one that justifies the establishment of any industry (going back to Adam Smith). Governmental direction ca n be there, but of a minimal nature, like in Japan or, initially, as in South Korea.

4. Promote compulsory primary education for all children, not through coercion, but through motivation. People are not fools, it is we (the policy makers) who are fools if we think that we need to coerce people. If we show the people the advantages of education, then there is no body in the world who can prevent people from educating their children. The only way that people will be convinced about education is through employment, i.e., better employment for the educated children. And the only way to p rove that better educated children get better employment is to get these educated children employed. And the only place, generally, where the educated have a comparative advantage over the uneducated, is in the urban areas where industrialization is going on, as well as growth in the service sector, requiring educated people. Therefore government must hit at the root of all motivation: employment in urban areas. No other form of motivation will show long term effects.

5. Provide continuous, un-interrupted, high quality electric power, to the larger villages. The existence of such power will motivate the educated to go for self-employment in small scale industries, or even tiny industries (as distinguished from village industries). The primary reasons for the failure of these industries in India are three-fold. Two of these are the usual reasons for failure of industry anywhere in the world: (a) managerial incompetence and (b) poor competitiveness in terms of costly technology or inferior product. But the third, rather important reason, is that we have been unable to provide continuous supply of power even in the major cities, not to talk of big villages. We are expecting our entrepreneurs to compete with large, protected industries while providing them with negative support. Therefore, more important than the provision of education - at this stage (when there is so much unemployment of the educated) - is to provide power to big villages.

6. Create more Kuriens. We can do a lot for the poor by organizing them into cooperatives and preventing the Registrar of Cooperative societies from dissolving these cooperatives unless severe malpractices are proved. We must make cooperatives as independent as corporations. They must be legal entities which cannot be interfered with by petty officials of the cooperative department.

7. Permit people to grow cash trees just as they are allowed to grow cash crops. The scarcity of timber can be immediately alleviated by permitting the plantation and reaping of trees just as any other crop. Totally scrap the role of the Forest department in giving "permission" to tree owners to cut down and sell their own trees. This authority to "permit" is the source of perhaps the most chronic corruption and harassment found in rural areas. The entire logic of these permits is perverted. Trees are good for the environment. Trees are good for the economy. And if I own a plot of land, I need to be able to decide which use of my land gives me the maximum returns, keeping in view the condition of my soil, the climatic conditions of my village, and the market rates of various agricultural crops. If I do decide to grow trees that must be the optimal crop for that situation, in other words the most efficient, privately. It is also clearly the most efficient, socially, since it yields positive externalities to the rest of the society as well as the world, by providing oxygen and reducing the green house effect. To prevent me from taking the most optimal decision is perverse, to say the least.

8. Promote tubewell irrigation (small irrigation) to a much larger extent than surface irrigation. Surface irrigation requires the creation of large dams which have often been shown to be harmful to the environment. The management of large command area s, because it is a public good, is full of opportunistic behavior and moral hazard problems. Engineers will cheat and be corrupt because of the opportunities to be corrupt. But if I own a personal tubewell, I will maintain it with great care. That was the true secret behind the success of Punjab, and that can be transplanted with some thinking to all parts of the country where there is some ground water. It might very well happen, though, that improved agriculture will not provide increased incomes to the farmers, due to income inelasticity of agricultural goods consumption. However, it will perhaps boost the income of some farmers to some extent, and by increasing the wage demand at the margin, at least the seasonal demand at the time of harvesting, will help alleviate poverty at the margin.