Why are we always anti-poor

Written by Madan Sabnavis | Updated: May 30 2013, 07:40am hrs
Food Security Bill and MGNREGA should be restructured to target the right sections

Today it is sexy to criticise two programmes of the government, the proposed Food Security Bill and the MGNREGA. While they may be laced with political overtones, they are necessary and have helped in moving towards the goal of inclusive growth. The arguments here favour the continuation of them with certain improvements.

The tenets of public economics argue that governments should address distributive justice and taxes mobilised should be redistributed to the needy. However, over the years, the focus has changed and public opinion is moulded by the elitist view. Therefore, investors are more important than savers, lower taxes are more desirable for productive sectors than for the middle class, and government spending is acceptable only in case it is productive and so on. We do get overtly critical of the why and how of anti-poor programmes.

Almost everybody will agree that we need to have inclusive growth and that the current model is unable to bring a large number of people out of poverty, and malnutrition still exists. Also, we talk so boldly of demographic dividend when we have a large working age group which has no serious employment, and given that public education is pathetic, those using this medium practically stand little chance in this competitive world. Therefore, direct action is needed to alleviate suffering.

The official poverty estimate in India is around 30% where the definition is based on those who are on the verge of starvation and is, hence, very rudimentary. Therefore, when food security talks of covering around 70% of the population, which is about the same number going by the World Bank definition of $2 a day, it is certainly not bizarre. Also, the current PDS deals with around 55-58 million tonnes of foodgrains, while food security talks of around 63-65 million tonnes, which is not incrementally unmanageable with large stocks (about 77 million tonnes as of May 1) lying with the FCI.

It is ironical that a country which talks a lot about inclusive growth is against such a programme that offers sustenance to a large number of households. Surely, there are leakages, but the answer is to plug them rather than abandon or truncate the programme. In 2007-08, leakages were estimated to be as high as 40%, which has come down to 10-15% according to the government. Curiously, the Budget talks of tax foregone by the government for FY13 on account of customs, excise and corporate tax being around R5.25 lakh crore. If we are not willing to question whether or not these cuts have led to increase in efficiency or output, is our judgement clouded when we talk of a food subsidy bill of R90,000 crore overshooting by around R25,000 crore One set of breaks helps growth, while the other helps prevent starvationboth of which are responsibilities of governments.

Some of the well known examples of progress are the empowerment of women in Bihar where cycles have been distributed free to girls. In Tamil Nadu, sewing machines and television sets have been distributed to provide access to the poor to these amenities. In Andhra Pradesh and Tamil Nadu, supply of rice free or at a low price has kept people out of hunger. Direct transfers certainly help and the only improvement required is targeting the right group.

The other issue is the MGNREGA where households are assured 100 days of work for a minimum wage. Started in 2005, this scheme has been a game-changer as it has elevated the levels of living of the rural folk. The government allocates around R30,000 crore every year which helps farmers between the two seasons and ensures that there is a flow of income.

There are four complaints here. First, the scheme does not create capital. Second, there is adverse selection. Third, it has increased the level of wages across the country by raising the benchmark. Last, MGNREGA has added more money in their hands, which has increased demand for protein-based food contributing hence to food inflation.

The average wage paid for MGNREGA has increased from R60 a day to around R120 in FY14. Therefore, we are talking of doubling of wages in 7 years, which is an average growth of 10.4%. In this period, the CPI inflation rate for agricultural labourers averaged 9.7%. Therefore, the increase in wages just about takes care of the inflation that these families faced. The argument is that when employee compensation is being increased in the organised sector by 10-15% every year in the private sector and by inflation indexed amount in the public sector, is there anything amiss in paying a higher wage to these labourers The issue really is that this increase in wages has affected certain industries such as construction, small industry and services where higher wages have to be paid, which, in turn, affects the profit margins of entities. Our mindsets need to change.

Further, no system should blame a certain section of people for fuelling inflation through higher consumption as having higher levels of income cannot be the prerogative of the higher income groups only. Economies have to strive towards higher production and such expenditure has played a Keynesian role in increasing demand and growth. Most certainly, the MGNREGA programme should be redesigned to move from being one of digging up holes to fill them up, to something that creates capital so that it is more productive. But, the current state of the scheme has been very useful for empowering the poor notwithstanding the leakageswhich can be addressed by UID.

The hallmark of capitalism is when all policies, performance parameters and critiques pivot around pure growth numbers. As long as this is achieved, everything is acceptable, which is what Max Webers Protestant Ethic was all about. It is not surprising that we do make role models of those who have excelled in enterprise. This obsession for growth narrows our vision and every policy action is geared towards increasing this number. But we should not ignore the needs of the poor. While there could be political motivations for rushing through with food security, it should not matter as long as there is something good which is happening as someone is benefiting irrespective of the leakages. Our focus should instead be on restructuring these programmes and targeting the right sections. That would be a prudent and humane approach.

author is chief economist, CARE Ratings. Views are personal