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LATEST NEWS UPDATES | It’s not the nuclear deal -Bhaskar Dutta

It’s not the nuclear deal -Bhaskar Dutta

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published Published on Apr 18, 2014   modified Modified on Apr 18, 2014
-The Indian Express

 

The UPA has done well to bring rights-based social welfare schemes to the forefront.

All opinion polls suggest that the UPA has only a few weeks left in office. After 10 years as prime minister - this gives him the third position in terms of longevity as head of government after Jawaharlal Nehru and Indira Gandhi - what is going through Manmohan Singh's mind as he contemplates retirement from public life? What legacy will he look back on with a sense of achievement? Perhaps more importantly, what will history rate as his government's biggest accomplishments?

Singh himself is supposed to have said that he counts the Indo-US nuclear deal as one of his finest achievements. This was one of the few occasions when he dug in his heels and refused to cow down, despite strong opposition from both within the party and outside. However, while the nuclear deal was a bitterly controversial issue during the early days of the first UPA government, it is debatable whether this will occupy more than a footnote in history books.

 

There is little doubt that the distinguishing feature of the UPA's 10-year rule has been the initiation of legislation incorporating rights-based social welfare measures. The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was the flagship programme of the first UPA government. The act provided every rural household the right to 100 days of employment at the prevailing minimum wage in any financial year.
 
Subsequently, the MGNREGA wage has been revised upwards. The strategy of reducing rural poverty through employment generation and simultaneously creating durable assets has had a long history in India. What was different about the MGNREGA was that it guaranteed employment as a legal right.

 

The food security law, passed in September 2013, provides 75 per cent of the rural population and 50 per cent of the urban population the legal right to stipulated quantities of foodgrains at subsidised prices. Several state as well as successive Central governments have been providing subsidised food through the public distribution system (PDS) for several decades. So, like MGNREGA, the novel feature of the law was that it endowed the target beneficiaries with a legal right. The flip side of the coin was that this put pressure on the government to deliver the promised quantities of food.

The two acts have been amongst the most important pieces of legislation in several decades. Not surprisingly, they generated a great deal of heated debate. Detractors have labelled them acts of sheer folly and blatantly populist. They claim that the "huge" expenditure required to fulfil the government's commitments under the two acts will eventually spell doom for the Central and state governments. They emphasise the leakages associated with such schemes. Some also allege that, quite apart from the drain on public resources, the MGNREGA has impeded growth by pushing up rural wages - the rural poor are no longer willing to work except at significantly higher wages. Their economic philosophy is simple (and simplistic?) - the only way to eradicate poverty is to press full steam ahead with policies that promote growth.

Since MGNREGA was enacted several years ago, many researchers have conducted analyses and some reports are available in the public domain. No one can question the fact that contractors and some government officials siphon off large chunks of funds allocated to the programme. However, the extent of leakage is not uniform across states. Some states perform significantly better than others, suggesting that diversion of funds is not endemic to the programme.

There is also little truth to the allegation that MGNREGA has pushed up rural wages. Given the relatively small size of the programme, this would be tantamount to the tail wagging the dog. Rural wages have indeed gone up - but that is surely due to the fast rate of growth.

The amount of additional resources required to finance the food security act has also been exaggerated by some critics, with one estimate putting it at 3 per cent of GDP. The government estimate puts it at Rs 1,25,000 crore at prices prevailing in 2013. This figure is misleading since it also includes expenditure on a couple of related schemes, such as the Integrated Child Development Services. Since the food subsidy bill before the right to food was passed was around Rs 60,000 crore, the additional expenditure due to the new law would be roughly Rs 25,000 crore.

 

This is a minuscule sum compared to the overall size of the Central government's budget. Moreover, if subsidies have to be reduced, prime candidates must surely be subsidies on items consumed by middle and upper income groups, a leading example being LPG cylinders.
 
The proponents of rights-based social welfare schemes point out that relying solely on the trickle-down process has seldom worked. Even China, which has grown at astronomical rates for several decades, has a more extensive system of safety nets than India. The phenomenal pace of growth in China also suggests that the existence of safety nets does not in itself place any constraint on growth. In fact, the debate on growth versus redistribution, which in recent times has been cast in the media as the "Bhagwati versus Sen" debate, is rather sterile. One can argue about the relative weights that governments should put on growth-oriented and redistribution-oriented policies. But, only an extremist would advocate exclusive reliance on one at the cost of the other. For instance, Jagdish Bhagwati himself rightly points out that governments need money to finance redistributive schemes and only a growing economy generates more tax revenues.

 

It is debatable whether the UPA government could have afforded the costs of these two laws if the economy did not grow at a fast pace. Fortunately, despite the slowdown of the economy after 2008, the Indian economy has witnessed the fastest rate of growth in per capita income during the last decade. This has provided the Centre with additional revenue, and hence the financial cushion required to bear the cost of the bills.

The differential performance of states in implementing MGNREGA as well as the PDS emphasises both the need to streamline delivery systems as well as the possibility of doing so. What are the best practices? Should redistribution be in the form of cash or kind? These are the issues that should be debated, not whether there should be any redistribution at all. Perhaps the UPA needs to be thanked for bringing these issues to the forefront.

 

The writer is professor, Department of Economics, University of Warwick, UK

 

The Indian Express, 17 April, 2014, http://indianexpress.com/article/opinion/columns/its-not-the-nuclear-deal/99/


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