Rework budget to help the poor PDF Print E-mail
Monday, 08 January 2018 03:56
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Strong case for govt to move towards a combination of health/education coupons, pensions & insurance, even UBI


Development economist Jean Dreze makes a valid point when he says the government must at least double old age pensions for the destitute. And cardiologist Devi Shetty is right in saying that, for as low as Rs 30 a month, rural Indians can get a medical cover for most surgeries—the successful operation of his Yeshasvini scheme in Karnataka is evidence of this; indeed, he adds that once this is done, this will automatically better the business case for the private sector to set up tertiary facilities in rural areas as there will now be paying clients available. In other words, reorienting government expenditure can deliver a much bigger bang for the buck.

The government, in any case, already has schemes along somewhat similar lines—the Pradhan Mantri Jeevan Jyoti Bima Yojana (life insurance), which costs Rs 330 per year, has been purchased by 3.5 crore persons and the accident cover (Rs 12 per person) has been bought by 1.1 crore persons. And while it is true the farm insurance, where 3.8 crore farmers are enrolled, is only linked to weather-related losses right now, it is easy enough to rework this to link it to guaranteed output prices in the manner done by, for instance, the US government. Madhya Pradesh has already started such a “deficiency payment” guarantee where farmers are compensated in prices fall below a certain level, though this is not linked to any form of insurance.

None of this is going to be cheap. If the government is, to use an example, contribute `10,000 per year to a pension fund for a family, this means an annual expenditure of a whopping Rs 250,000 crore. Though, if the fund yields even a 10% annual return, that will result in a corpus of over Rs 18 lakh after 30 years, enough to give the family a comfortable pension for life. Issues like the ones raised by Dreze—raising pensions for the poor from Rs 200 per month to at least Rs 500—will then cease to be relevant. If the government pays `30 per month for health insurance for those in rural India, that will cost it around Rs 35,000 crore.

While that is a lot of money, this is where the last Economic Survey and its recommendations for a Universal Basic Income (UBI) come in. According to the Survey, there are about 950 central sector and centrally sponsored sub-schemes in India on which the total expenditure totals more than 5% of GDP (see graphic). If some of these schemes are eliminated in favour of a pension scheme, for instance, the government will not be out of pocket. The Survey calculates that a UBI of Rs 5,117 per capita per year, for instance, will lower poverty levels to just 2.5% and will cost 4.3% of GDP.

There are various other combinations and, indeed, instead of just UBI to eliminate poverty, pension or insurance contributions are other possibilities. Unemployment insurance, for example, was proposed as a part of a labour reforms package some years ago, to get labour unions to support it—the scheme, though, died a natural death since the government didn’t have the appetite for reform. In the future, should the government want, it can be revived in some form to push reforms.

If the central and state governments spend Rs 14,000-15,000 per student per year in primary/elementary schools and the results are as poor as they are, surely the budget needs to be re-prioritised and this money can be given directly to parents in the form of education vouchers which can be given to private schools where, by and large, the quality of teaching is superior. Similarly, apart from the demand created by government health insurance of the Yeshasvini type, the government could look at what it actually costs it to build and operate health centres and hospitals and look at either giving this money to private service providers or as viability gap funding where the costs for each procedure are laid out or some service conditions are pre-specified.

In the agriculture sector, apart from farm insurance, agriculture economist Ashok Gulati points to the need to eliminate FCI-type procurements and substitute this by greater use of futures markets and per-acre cash subsidies to farmers; a corollary is a Rs 35,000-40,000 crore annual savings if, instead of physical rations, the government moved to direct cash transfers at ration shops.

It is difficult to expect the government to radically change the way it operates, especially in what is its last pre-election budget, and more so in a year that is so full of uncertainty thanks to GST. But, it is a good idea to start planning the shift since this will result in more sharply focused interventions which have a better chance of success. Certainly, if the government is voted back to power next year, its budgets have to be dramatically different from those in the past in order to have a more meaningful success in delivering


Last Updated ( Monday, 08 January 2018 05:24 )

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