Government welfare schemes, whether or not they rob Peter, often can?t find the right Paul to pay. Design flaws result in adverse?that?s the jargon; in plain English, perverse is the word?selection of beneficiaries. Look at the Budget?s headline-grabber: the Rs 60,000-crore farm loan waiver. If the two-hectare cutoff limit for selecting small farmers is applied uniformly?as of now, there?s no official word that locally applicable different criteria will be used?it would mean a farmer owning irrigated land in, say, Punjab will be treated similarly to his counterpart in arid Rajasthan. That?s somewhat like an urban welfare scheme that lumps together owners of two-room apartments in an upscale Mumbai area and a dusty locality of Meerut. Indeed, in many government subsidy schemes, this perverse selection already operates: risibly low government college fees are available to children of both the rich and poor. So, unless some devilishly smart finetuning of the criterion for loan waivers is worked out, even the basic minimum political agenda of the policy may be threatened. If rules for the waiver allow local variations, one has to guard against local manipulation, which is another way the right Paul could be left out.
Look also at the selection process from the other beneficiaries? point of view: banks. Which banks will benefit most? Cooperative banks have around Rs 37,000 crore of the Rs 60,000 crore bad farm loans; scheduled commercial banks have just over Rs 10,000 crore of such loans in their books. So, over half the cash infusion from the government?it seems likely it will be all cash and not a combination of cash and bonds, as speculated earlier?will be to a group of banks that is arguably the worst-managed in the Indian financial system. Even the normally sedate Reserve Bank of India gets into a flap when reviewing the business record of cop-op banks. The cash for co-op banks plan seems even more perverse when one considers the plain fact that these institutions are in many cases political mom-and-pop enterprises rather than proper institutions. Therefore, quite some political friends and associates will benefit from a no-strings-attached recapitalisation. What an odd coincidence?banks run by powerful local netas get a balancesheet boost in what could be an election year.
