Poor economics PDF Print E-mail
Thursday, 22 May 2014 02:41
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Tweaking UPA welfare schemes won’t do the trick

Somewhere during his election campaign, Narendra Modi explained how he planned to change things with respect to the money the Centre gave to the states for various schemes. If the government earmarks R10,000 crore for spending on rural roads, but Maharashtra, say, has no need for roads, it loses out on its share—what I will do, Modi said, is give the state its share of the money and let it, if need be, spend that money on drinking water, or strengthening rural electricity grids for that matter. This is precisely the same strategy that he needs to follow while dealing with various UPA schemes, increased over the years in the name of the poor.

Modi is right when he said, in his address to the NDA’s newly-elected MPs, that the government has to work for the poor, that it is the poor that have the first right on India’s treasury. What will set him apart from the UPA, however, is how he plans to give the poor that right. Tweaking, or better administration of UPA schemes, will not do the trick. Take the R1 lakh crore that is spent on fertiliser subsidies. Since this is not specifically earmarked for poor farmers, there is little leakage in the strict sense. The leakage, if you will, lies in the fact that poor farmers don’t get the subsidy. And the reason for that is that fertiliser is used in irrigated farms, typically those owned by the better off. The solution is to keep the spending at R1 lakh crore, but to use half of this, say, to create more irrigation facilities that will benefit the poorer farmers. Similarly, spending R40,000 crore a year on MGNREGA is of little help—it makes a marginal difference to the jobs created—to anyone. So, keep the spending the same, but use this money to create, say, rural roads. Instead of FCI spending R1 lakh crore on income-support for rich farmers, use a part of this to give per acre subsidies to farmers in poor states like Bihar and West Bengal. That way, poorer farmers will get to grow crops they would normally not have grown and India’s overall productivity will also rise—the extra irrigation/roads built will also add to this. Smart economics versus poor economics.


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