Can’t help the poor when GDP slowing PDF Print E-mail
Monday, 09 March 2020 04:18
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A sluggish eeconomy hits jobs and also lowers govt ability to spend more on pro-poor schemes


If all goes to plan and the government is able to stick to its commitment to spend on pro-poor schemes like MGNREGA and PM Kisan, the growth in such expenditures in FY21, at 10.9%, will be around a fourth of that in the previous year; in FY20, the Rs 230,810 crore spent on pro-poor schemes grew by 38.9%. If, however, there is any slippage in tax collections—in FY20, the fact that economic growth was significantly over-projected also caused collections to fall short—even this target will have to be lowered. The initial estimates of pro-poor expenditure in FY20 were Rs 250,274 crore, a 50.6% growth over FY19. Indeed, to the extent the government cuts its capex spending in the event of revenues falling short, this too hits the poor as expenditure on, say, roads also helps alleviate poverty in the long run. And, this is apart from the fact that a higher economic growth is the biggest antidote to poverty since the poor gain much more from this than through any kind of dole. The National Food Security Act, which gives the poor and non-poor a 90% subsidy on 5 kg of wheat or rice per family member per month, is a good example. Assuming the subsidy works out to Rs 25 per kg of wheat or rice, this means each family of five gets a Rs 625 monthly subsidy on this account. Depending on the wage rate in different parts of the country, that is a subsidy equal to just 3-4 days of work.


Also, it is not just tax revenues falling short that is the problem; thanks to years of very poor policymaking, telecom revenues have all but been killed as a buoyant source on non-tax revenue—for the next several years at least. In other words, it is important that the government husband its resources carefully. Giving cash subsidies for 5 kg of wheat and rice per family per month instead of physical rations, for instance, can help the government save Rs 50,000 crore per year; not only is FCI’s procurement system very costly, massive over-procurement at the MSP also adds to its costs in a big way. Indeed, since the government is already scaling up PM Kisan, it can easily plan on phasing out MSP-based procurement—apart from saving money, the destruction of the soil that MSP causes, will also lessen.

Right now, farmers in Punjab and Haryana, for instance, grow the wrong crops to take advantage of MSP, but this is both lowering the water table, as well as increasing soil salinity. The reason why the government recently rejigged the norms for farm insurance—and also made it voluntary for farmers to enroll—was that the scheme was getting more costly, and the government was running against a tight budget. Once the MSP and other agriculture distortions go away, the need for agriculture insurance will also reduce. Eventually, even higher pro-poor expenditure is no substitute for getting policy right since the poor benefit much more from high growth.


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