Using subsidised power, cooking gas and diesel, and then saying we cant afford food Bill... Why target only subsidies for the poor

Written by P. Vaidyanathan Iyer | Updated: Jul 28 2013, 05:58am hrs
In this Idea Exchange, economist and Nobel laureate Amartya Sen speaks about the controversy triggered by his remarks on Narendra Modi and why it is wrong to brand him anti-growth or pro-government. The session was moderated by P Vaidyanathan Iyer of The Indian Express

P VAIDYANATHAN IYER: The launch of your book coincided with the new poverty numbers, which show that the poverty level sharply dropped in the seven years till 2010-11. Do you think increased spending on education, employment schemes and healthcare contributed to this

My answer is yes. While I think we have largely neglected these sectors, some of the bump for poverty reduction reflects that at long last school education has been expanding, and we are getting some results because that makes it participatory. Here, I believe, even the much-maligned MNREGA makes a contribution. But the second point is it is not only a cash fault with education, there is also the problem of organisation. The term quality control has become a bad word in India now and people are increasingly asking for promotions without exam. While there may be a case for promotion, there is absolutely no case for not having monitoring mechanisms.

The issue of irresponsibility of teachers is (also) a very big problem. The need for private tuitions indicates that there is something not happening in schools... and private tuition is not affordable for poor people. Schools have to understand that many people coming into the educational ladder have no other educated family member to teach them...

We have to be very conscious of quality and I think that the latest moves are very negative. We are going in the exact opposite direction from what we need in quality control of school education.

The credit for poverty reduction as per the all-India figure goes to a great extent to the successful states and you have to see what they have been doing in education and healthcare etc, and you know quite a lot of the bump is connected with that and you know they are not just the very successful ones, Kerala, Tamil Nadu etc, but in a smaller way there are many other states that have done well too.

So while my short answer is yes, the long answer does not negate the yes. But there is no need for smugness at this time.

P VAIDYANATHAN IYER: Another discourse in India is one on growth versus inflation. Inflation is seen as a tax on the common man, but RBIs efforts to rein in inflation have really hurt growth.

Im not an expert on this. But I think it is a serious worry, definitely. I think India has become a subsidy-driven economy. The food security Bill furnishes the subsidy issue and fiscal responsibility invariably (comes up) when the benefits go to the poor.

Sitting in a room consuming subsidised power, eating food made with subsidised cooking gas and travelling in car with subsidised diesel, and then saying we cannot afford food Bill because it does so much to our fiscal deficit, it is not an easy argument. While we do need to cut subsidies, the idea that it is only for the poor that the subsidies need to be cut is not something that I support.

Instead of making investments in the power sector, we give it away to the rich, who have air conditioners, and the two-thirds of Indians who have power connections. Yet one third of the population still doesnt have power. We have to do more investments in power production, transmission, and connections for everyone, but we are still subsidising and so we sell it at lower than the production cost and continue to make losses.

SUNIL JAIN: You have been saying you are pro-growth and you are not anti-market, but then you talked about the quality of teachers being a big problem. So basically, what you are saying is that the system of public provision of goods is full of holes. Now the problem with the food subsidy Bill is that the poor will not get more than about 20-25% of what the government promises. So why arent you in favour of cash transfers My next point is that even government data says that MNREGA provides just 1% of all jobs in India. So why are we wasting our time with something like that

First of all, if the subsidy Bill as it is conceived of and proposed is full of mistakes, then it is full of mistakes. Undernourishment is not just about calories, it also requires much greater attention to the nutritional balance of food. However, if I am asked on the whole if doing it is a better job than not doing it, then my view is do it because the extent of undernourishment in India is so abysmal. Could there be a much better devised way of dealing with undernourishment There very well could be and we should discuss that.

One of the reasons I was upset was that there was no parliamentary debate, because exactly the kind of point you are making could have come up and I am on record in the media against many things but my saying that it is a great pity the Bill came in as an ordinance (did not get on record). It is not only because I believe in parliamentary democracy but also because Parliament allows a debate...

Now MNREGA is a complicated story and we do have many pages on that in (my) book. The administration is uneven but I would say it has achieved many things, including giving wages an upward push. You might think thats a terrible thing because the farmers are paid high wages, but... one reason why the Chinese growth is more inclusive is because their wages have been growing at 7% while our agricultural wages have been stagnating except in those areas where MNREGA is active.

SUNIL JAIN: If MNREGA is perfectly administered, the government promises to give you R10,000 a yearR100 a day, 100 days a year. On the other hand, there is the textile sector, which actually accounts for around 8 to 10% of the Indian labour force. The textile industry has been begging the government saying can we do a double MNREGA by giving 200 days of work at R200 per day.

These are not exactly comparable because MNREGA goes to the backward villages, and mostly, even in Bangladesh, the textile workers dont tend to come from there. They tend to come from more urbanised sectors. You have to look at exactly who the beneficiaries are. As long as you go on comparing only MNREGA as opposed to textiles and dont think of textile versus 2% of the GDP that goes into implicit subsidies for electricity, diesel subsidy, fertiliser subsidy and not having taxes on gold import, I dont think you would have addressed the question adequately. So if textile and MNREGA were the only choices, the answer to that may be what you suggest. But if there are other choices that impede on the lives of the poor very little and enormously on the lives of the people who are very vocal and powerful, you will find that you ought to do the things that textile is suggesting. However, there may be a better way of financing it rather than the one you have so far considered, mainly MNREGA cutting...

My projection is slightly different from that. There would be some areas where you have to sell things below cost such as education and healthcare. Every country, including the United States, does that. Similarly, there are many other areas where you cant get away from having to pay for that. So it is a question of asking who are the beneficiaries... rather than taking a position that we are against subsidies everywhere, against selling anything below cost, that we will cut out education and healthcare.

SUBHOMOY BHATTACHARJEE: In countries such as Japan and China, the governments concentrated on a very few range of achievables and pushed massively. The Indian government in the last few decades has tried probably every sort of intervention. Dont you think that it is probably better to restrict the focus to a few things, as you said school and healthcare, and leave the rest to movement of the market forces

I do believe market forces are very important. In this case, the biggest influence on my thinking is Adam Smith. In one of the sentences that I quoted in my book, Adam Smith discusses that you have to get the benefit of the market economy, but at the same time you have to do the thing that the state can do best. The statement wasWe want a good political economy, and fast expansion of the economy, firstly because it increases individual income, giving them more freedom to do those things that they value doing, and secondly because it puts more money in the hands of the government and the commonwealth so that they can do those things that the state can do best. What you are saying what Japan did is very much in line with what Adam Smith is recommendingconcentration on those things that are central. It is not only easier to do... it is also more important. Nothing is more important than an educated, healthy labour force.

SHUBHANGI KHAPRE: Your remarks on Narendra Modi have made a lot of news. Indian economists and captains of the industry have adopted the Gujarat model. Is your opposition to Modi based on his politics What do you think about the economic model adopted by Gujarat

What I said was not a statement about the BJP. It may not be the party I vote for. I made a very simple point that the prime minister of a country, which is secular and democratic, has to be someone who does not generate fear, justified or unjustified, in a proportion of the population. That makes him not so fit to be PM. My Bharat Ratna, as a matter of fact, was given to me by Atal Behari Vajpayee. Did I have difficulty accepting it from him No. I would say I have had long good conversations with Advani, with Jaswant Sinha, and I have benefited from the discussions. I may benefit from discussions with Narendra Modi as well.

India has neglected social as well as physical infrastructure. Modi has a lot of lessons to offer there. On the other hand, Gujarat is behind particularly on the social sidelower educational base, lower life expectancy, greater gender inequality, a busted healthcare system. What has been rather efficient in business has not been so efficient in giving exactly that thing where we are trying to concentrate in India, mainly to have an educated healthy labour force. On Smithian reasons, would I regard this model to be a great success No. Is there something to learn from it Definitely.

I dont know why the hype is so much anyway because while Gujarats growth rate is 8.2%, Maharashtras is 8.1%.

MANASI PHADKE: While data shows a faster pace in reduction of poverty, does it really mean much at the grassroots To reduce the poverty numbers, the government has to push people just a little above the poverty line, which itself is low. Having said that, how has the implementation of the UPA spending on social sectors in the past four years been

The poverty cut-off line is very low. My critique of Indian society will remain the same even if the poverty numbers were much lesser than that, but a quarter of the population on one side was illiterate and children with four years of schooling could not divide 20 by 5. The fact is that social administration in India has not been bad, but been very uneven. It has been dreadful in some areas and pretty good in others. Forty years ago, Kerala was full of problems too. But despite that, they got something through the Adam Smithian notion mainly through skill formation, productivity increase, education and healthcare. Initially when they didnt have the domestic arrangement sorted out, a lot of Keralites would use their skills to earn abroad. But when it became possible for them to use it within Kerala, they had to go pro-market. When they were more pro-market, combined with skill formation based on education and healthcare, they had a high growth rate.

At that time I was told that Kerala could not sustain it because the model is that you first become rich and then you do education and healthcare. I dont know of a single country in the world which has gone that way. I know lots of countries who have gone the other way, including Europe, all of it, Japan, Korea, Taiwan, Singapore, and to some extent Thailand and China. Kerala and Himachal Pradesh have become one of the richest countries. That wouldnt have been possible if their social administration had been dreadful because that was the main thing working for them, along with their changing view on using the market economy.

RAVISH TIWARI: Even if we agree with your broader argument of the Asian model of combining efficient markets with efficient institutional structures, I want to bring you specifics. For example, the Bihar mid-day meal tragedy. Had there been good hospitals in Chapra, more childrens lives could have been saved. So the choice we have to make is whether we want to spend R2 crore in Chapra district for MNREGA or for building good hospitals. What is your prescription for social policy choices between MNREGA and healthcare

What I noticed is that you dont want to talk about power subsidy, fertiliser subsidy, cooking gas subsidy, why is it that you only want to cut MNREGA Only those subsidies that benefit the relatively poor seem to be on the chop for comparison, never the subsidies that benefit people like you and me. If your argument is that MNREGA will be easier to withdraw because voters dont care, I think you are mistaken. There is a battle and you have to decide which battle to engage in: the battle to persuade those who get their little employment from MNREGA that this is not a good way of doing it, that there is a better way of making money, rather than taking on those who will be benefiting from fertiliser subsidy, power subsidy, diesel subsidy, absence of import duty on many commodities, which are clearly a drain too.

I think then you are choosing your politics in a partial way, that you are choosing to discipline the poor because it is easier to hit them in one go while the rich are impossible to discipline because it is such a country of the rich... One of the reasons why I dont want the terminology of capitalism and so on that indicates this is really a capitalist country... This is not true. We are a mixed economy and we can take on the rich and the poor. We can take on people with argument of Would you like to have this rather than that My objection isnt the answer to your question given that choice, but I am asking you why is it that you confine your question only to that choiceto only withdraw the benefits that hit the poor than the ones that hit the rich like you and me.

(Transcribed by Alison Saldanha & Manasi Phadke)