Teach them to fish PDF Print E-mail
Thursday, 19 May 2011 00:00
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On her first day in the new job, Tamil Nadu chief minister J Jayalalithaa has dramatically raised the bar on subsidies—she plans to give 35 kg of free rice per month to around 19 lakh Antodaya Anna Yojana Scheme beneficiaries and 20 kg of free rice to 1.83 crore ration card holders. In addition, there’s a doubling of the monthly assistance for senior citizens, persons with disabilities and destitute women from R500 to R1,000 per month, an entitlement of four grams of gold and R50,000 as marriage assistance for poor women with graduate degrees or diplomas and some other minor assistance to other deprived communities like the fisher folk. Just the bill for the food subsidies will add up to around R8,000 crore, some part of which will be paid for by the Centre. This is on top of the R7,000 crore of loan waivers of cooperative loans done by the DMK. Hardly surprising then that the state which had a revenue surplus of 1.1% of GSDP in 2005-06 had a revenue deficit of 0.8% by 2010-11—the fiscal deficit slipped from 1.2% to 3.7% in the same period. So, with a lot less with the government to spend on investment, despite the hike in private investment levels resulting from the DMK’s industry-friendly policies, the state’s GDP growth fell sharply, from 13.3% (at 2004-05 prices) to 9% in the same period.

Whether Tamil Nadu’s fiscal position gets worse under Jayalalithaa depends on how GDP growth and tax collections fare, but there’s a larger point to be made about subsidies, and not just those of the states. According to a World Bank study released yesterday, the central government spends around 1% of GDP on PDS (that’s R80,000 crore this year) for around a fourth of all households (5 crore roughly)—that’s around R16,000 per family per year. It’s R3,500 per family if you go by the number of ration cards—the World Bank, it would appear, takes into account the number of families who actually benefit from PDS supplies. Tamil Nadu spends around R2,000 per family on food subsidies. Compare all these subsidies—R5,500 if you use the lower estimate of food subsidies and R18,000 if you use the one based on the World Bank numbers—with what it costs to make these poor households employable. And we’re not even taking into account the R10,000 the central government spends per family per year in its NREGA employment.

According to the newly-created National Skills Development Corporation, it costs roughly R6,000 to skill one person so she can get a job for R3,000 per month in urban areas—that’s roughly what a family of five needs to rise above the poverty line in urban India. Skilling will cost more in rural areas, but the rough payback is 2-4 months in all cases. Teach a man to fish and he’s never hungry, give him a fish and that just takes care of one meal. It’s useful to keep that in mind during any discussion on subsidies and the poor.

Last Updated ( Friday, 25 November 2011 12:03 )

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