The ‘Universal Basic Income’ Proposal

Editorial from Economic and Potitical Weekly

Imagine a world in which everyone is unconditionally given a subsistence-level income by the state. This, combined with access to well-functioning public services would be, to quote Jean Dreze, “a fool-proof way of safeguarding the right to dignified living.” The chapter on “Universal Basic Income (UBI): A Conversation With and Within the Mahatma” in the Economic Survey 2016–17 (ES) begins with this. But unfortunately, given self-imposed “fiscal prudence,” the proposed UBI, which is neither “universal” nor “basic”, requires the dismantling of the most socially necessary welfare schemes, namely, the Public Distribution System (PDS), the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and the Mid-day Meal Scheme. The envisioned UBI turns out to be no more than a small compensatory transfer (or income top-up) to a part of the population, and that too, one that will require the government to prune or do away with in-kind transfers of food, guaranteed minimum days of wage work, and other public social security measures.  

The desire is to stick to budget neutrality even as its conception is the most illogical part of the UBI vision. In the face of the monstrous economic inequality that plagues the country, surely a proper UBI can be financed from income and wealth taxation of the very rich, as also, from indirect taxation of socially less desirable economic activities. Given that India has one of the lowest tax to gross domestic product ratios in the world, more so with respect to direct taxes (that include wealth and corporate taxes), it is inconceivable why the policymakers of this country cannot envisage a UBI that builds on higher tax revenue collections to expand the fiscal space.

Instead, a UBI as seen in the ES is anchored on minimising fiscal cost and pruning the government’s social-welfare administrative machinery. The chapter argues that the current social security system in India is bulky, inefficient, and in large part misallocates resources, and that these “realities” necessitate a serious thinking-through of better ways of spending public money for social welfare. It emphasises the gross misallocation of resources under six welfare schemes, in two simplistic maps which show that the shares of welfare spending in the poorer districts are less than the shares of poor persons in these districts. The UBI, the authors of the ES claim, is a way of rectifying this imbalance. However, any such rectification would assume a targeted cash transfer, not a UBI.

Further, it must not be overlooked that each of these welfare schemes has underlying mechanisms that ensure a safety net against market uncertainties. The PDS entails the state’s interventions in agricultural commodity markets that have historically resulted in more stable prices and a semblance of income security for farmers. The political currency of the public procurement system and minimum support prices is but an indication of the significance of such market interventions. The Mid-day Meal Scheme has shown that cooked meals in schools encourage school enrolment, apart from providing timely nutrition. The MGNREGS not only promises minimum days of wage work, but also creates and helps maintain locally planned public infrastructure, protects against seasonality of work, and provides some bargaining power to workers in rural labour-market wage setting. In fact the ES does make a passing reference—“replacing the PDS will increase market prices of cereals the poor face. Similarly, phasing down MGNREGS might reduce market wages for rural casual labour”—but goes on to make a case against these interventions.

Between 2004–05 and 2011–12, the offtake from the Food Corporation of India (FCI) grew by 71%; and household purchases through the PDS grew by 117%, indicating greater, more efficient coverage, while leakages in the PDS have come down from 54% to 35%. The ES extrapolates the leakage figures up to 2016, which points to a further reduction to 20.8%, without accounting for improvements in technology and expansion of coverage that must have occurred in the last five years. There has been a rise in rural wages, which in part is attributable to MGNREGS. Undeniably, rural infrastructure and more recently, farm assets are being created substantially under this scheme.

What is important today is that provisioning of social security services and goods has become a matter of political importance even in India’s northern states, as it has been for decades in the southern ones. In fact, in a few of these states, corruption and leakages have been reduced in the PDS and the MGNREGS even as they cover a greater proportion of the targeted population. This needs to be emulated in other states. To say that “the time is ripe for serious discussion” around a UBI that would entail dismantling existing hard-won social welfare measures, does not seek to build on past gains or social experience. The past decade has shown that the implementation of social welfare programmes can be improved by the participation of beneficiaries, ensuring greater transparency and accountability, the involvement of concerned non-governmental organisations, a degree of political will, and a proactive local administration.

Editorial from EPW,  Vol. 52, Issue No. 6, 11 Feb, 2017

The hidden agenda of Universal Basic Income

G. Sampath

The idea of a universal basic income (UBI) has been gaining ground globally. While Switzerland held a referendum on it last year (it was voted down), Finland introduced it earlier this month. Media reports suggest that the government of India’s flagship Economic Survey this year is likely to endorse the UBI, setting the stage for its introduction.

 
On the face of it, an unconditional basic income for everyone seems a great idea. In the West, the UBI is being discussed as a solution to two problems: unemployment due to automation; and growing social unrest caused by extreme inequality and precarity. It is expected to solve the unemployment problem by decoupling subsistence from jobs, freeing human beings to realise their true potential, preferably through entrepreneurship. It would address the second by supplying monetary resources to access the necessities of life. This, in a nutshell, is the popular understanding of the UBI. The reality, however, is not so rosy.

The UBI debate in India has been a narrow one — restricted, for the most part, to financial viability. Its advocates argue that it is a more efficient way of delivering welfare, while its opponents hold that the fiscal burden would be too much. What hasn’t received adequate attention is the politics behind the UBI: who is pushing the idea? To what end? And why?

The UBI evangelists
The most eloquent advocates of UBI today are free-market enthusiasts — the same lot branded as neo-liberals for their advocacy of deregulation, privatisation, and cuts in welfare spending. Their guru, Milton Friedman, was an early advocate of basic income. Outside the academic realm, the biggest champion of UBI is the global tech sector. Silicon Valley billionaires such as Elon Musk, the founder of Tesla Motors, and Facebook co-founder Chris Hughes have publicly backed the idea.

Could it be possible that the global financial elite have finally sprouted a conscience? The reports of the UBI pilot projects conducted so far offer a clue. Invariably, they all present the same conclusion: giving cash to the poor is better than traditional welfare.

Of course, it would be wonderful if the problem of inequality and poverty were solved for us by a sudden moral awakening of the rich. Unfortunately, the current enthusiasm for the UBI is not the product of such a momentous development.


Not an add-on benefit
The biggest myth about the UBI, partly responsible for sections of the Left endorsing it, is that it is a redistributive policy that would reduce inequality. It is indeed possible to have a redistributive UBI. But it would need to fulfil two conditions: it must be funded by taxing the wealthy; and the existing entitlements to the poor must not be taken away. Such a UBI would actually be a socialist measure that would increase the bargaining power of the working classes by giving them an income cushion.

But neither of these conditions is met by any of the UBI designs being promoted today, either globally or in India. The much-touted Finnish experiment is restricted to the unemployed. It does not cover all working individuals. And it only replaces the already existing basic unemployment allowance and labour market subsidy — it is not an add-on benefit.

In India, too, the UBI is not an add-on. On the contrary, it is about giving in a different form (cash), and under one umbrella, what is already being given (in-kind and cash benefits) via different channels.

Back in 2008, in an influential paper in the Economic and Political Weekly titled ‘The case for direct cash transfers to the poor’, Arvind Subramanian, the present Chief Economic Adviser of the government, along with economists Devesh Kapur and Partha Mukhopadhyay, argued that the ₹1,80,000 crore spent annually on centrally sponsored schemes and assorted subsidies should instead be distributed as cash directly to 70 million households below the poverty line. Put simply, the UBI in India is nothing but the old wine of direct cash transfer in a fancy new bottle.

Its objective remains the same: to eliminate the public distribution system (PDS) and with it, the food, fuel, and fertiliser subsidies. The same old arguments for replacing the PDS with cash transfers are now being trotted out in favour of the UBI. The addition of the word ‘universal’ signals greater ambition but alters neither the substance nor the motive.

But let us take the arguments in favour at face value. What constitutes a basic income? Common sense dictates that it should be whatever is required to take care of basic life needs. A logical equivalent for this figure would be the minimum wage. The central government’s move last year to raise the minimum wage for non-skilled, non-agricultural workers to ₹9,100 per month was set aside following opposition from industry. Perhaps ₹9,100 per month is too luxurious an income to qualify as ‘basic’. The actual minimum wage in India is around ₹4,800 per month. Could we then expect at least this amount from our UBI?

While different numbers have been bandied about, there seems to be a broad consensus around the Tendulkar committee poverty line of ₹33 a day. This works out to a basic income of ₹1,000-₹1,250 a month or ₹12,000-₹15,000 a year. But even this modest figure is estimated to cost 11-12% of the GDP. In contrast, all the government’s subsidies put together account for only 4-4.5% of the GDP. This presents three options: one, the government makes up the deficit through additional tax revenue; two, it limits the fiscal burden by shrinking the UBI coverage from ‘universal’ to those below the poverty line; and three, it further shrinks the amount being doled out.

Given India’s narrow tax base, and a policy mindset hostile to the idea of extracting more tax revenue from the wealthy, we can rule out option one. So the UBI we get, if we get one, would be derived from a combination of the second and third options, which means both ‘U’ and ‘B’ are out of UBI, leaving us effectively with what we already have: cash transfers.

Most critically, one aspect is taken for granted by all the three options: the UBI will be funded primarily by the money allocated for CSS and subsidies. In other words, a basic income, however paltry, would help strengthen the case for the elimination or a significant roll-back of programmes such as the PDS, midday meal schemes, and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).


Why a UBI now?
There is no point reprising here the case against direct cash transfers, which economists such as Jean Dreze have made convincingly. It is nonetheless fascinating to see the emerging contours of a distinctive political project.

The Jan-Dhan Yojana set out to make every Indian accessible to global finance. The Aadhaar card set out to make every Indian identifiable and enumerable as data — the currency of global tech. The high mobile penetration has connected every Indian to the global digital network. An element that was missing was consumer behaviour, which the recent demonetisation sought to address, by force-feeding ‘cashless’ to a cash-dependent population. The UBI fits perfectly in this scheme of things, as it seeks to compress the whole gamut of welfare benefits into one, and mount it on a singular JAM (Jan-Dhan, Aadhaar, Mobile) platform.

But why a UBI now? One explanation could be the immense pressure on India in secretive free trade negotiations. The developed nations have for long wanted India to wind up its food security-related provisions — both state procurement of foodgrains, and their subsidised distribution via PDS. A UBI would pave the way for the elimination of these measures, dealing a death blow to food security and deepening farm distress.

Another is that the Indian state is stuck with welfare commitments it cannot renege on without political and legal consequences. The efficiency/inefficiency argument for scraping PDS and MGNREGS never acknowledges that these are rights-based social entitlements with specified outcomes — and that is not accidental. Shifting the welfare paradigm to UBI would loosen the bonds of legal and social accountability. Under the PDS, for instance, the state must provide a specified quantity of foodgrains to the poor no matter what. With UBI, it has the option letting the payout slide behind inflation, as has already happened with the old age and widow pensions.

In the final analysis, we need to answer a simple question: is the UBI about reducing inequality and poverty? If the answer is yes, then there are many things the state could do at a fraction of what the UBI would cost — from enforcing the minimum wage law, to releasing funds on time for MGNREGS. But if a dispensation hostile to these tried and tested anti-poverty measures develops a sudden zeal to eliminate poverty through UBI, a measure of scepticism is in order.

On the mythology of social policy : Jean Dreze

Jean Dreze

Few people today remember the letter written on August 7, 2013 by Mr. Narendra Modi, then Chief Minister of Gujarat, to Prime Minister Manmohan Singh. In this letter, available on the Bharatiya Janata Party (BJP) website, Mr. Modi criticised the National Food Security Act (more precisely, the Ordinance) for providing too little. He felt “pained to note that the food security ordinance does not assure an individual of having two meals a day,” and pointed out that “[the] proposed entitlement of 5 kg per month per person … is hardly 20 per cent of his [sic] daily calorie requirements.” Similar sentiments were expressed in Parliament on August 27, 2013, during the Lok Sabha debate on food security, when one BJP speaker after another criticised the Act for being measly and restrictive — “half baked” as Ms. Sushma Swaraj put it. 

Facts and fiction

One reason why these and related facts tend to be forgotten is that they are at odds with the mythology of social policy cultivated by some sections of the media. This mythology involves a number of fallacies. First, India is in danger of becoming a nanny state, with lavish and unsustainable levels of social spending. Second, social spending is largely a waste — unproductive “handouts” that don’t even reach the poor due to corruption and inefficiency. Third, this wasteful extravaganza is the work of a bunch of old-fashioned Nehruvian socialists and assorted jholawalas who led the country down the garden path during the United Progressive Alliance (UPA) years. Fourth, the electorate has rejected this entire approach — people want growth, not entitlements. Fifth, the BJP-led government is all set to reverse these follies and rollback the welfare state.

These five claims have acquired an aura of plausibility by sheer repetition, yet they have no factual basis. Let us examine them one by one.

The idea that social spending in India is too high would be amusing if it were not so harmful. According to the latest World Development Indicators (WDI) data, public spending on health and education is just 4.7 per cent of GDP in India, compared with 7 per cent in sub-Saharan Africa, 7.2 per cent in East Asia, 8.5 per cent in Latin America and 13.3 per cent in OECD countries. Even the corresponding figure for “least developed countries,” 6.4 per cent, is much higher than India’s. The WDI database does not include social security spending, but the recent Asia Development Bank report on social protection in Asia suggests that India is also an outlier in that respect, with only 1.7 per cent of GDP being spent on social support compared with an average of 3.4 per cent for Asia’s lower-middle income countries, 5.4 per cent in China, 10.2 per cent in Asia’s high-income countries and a cool 19.2 per cent in Japan. If anything, India is among the world champions of social underspending. The view that social spending is a waste has no factual basis either. The critical importance of mass education for economic development and the quality of life is one of the most robust findings of economic research. From Kerala to Bangladesh, simple public health interventions have brought down mortality and fertility rates. India’s midday meal programme has well-documented effects on school attendance, child nutrition and even pupil achievements. Social security pensions, meagre as they are, bring some relief in the harsh lives of millions of widowed, elderly or disabled persons. The Public Distribution System has become an invaluable source of economic security for poor households, not just in showcase States like Tamil Nadu but even in States like Bihar and Jharkhand where it used to be non-functional. Of course, there is some waste in the social sector, just as there is much waste in (say) universities. In both cases, the lesson is not to dismantle the system but to improve it — there is plenty of evidence that this can be done. 

UPA’s ‘handouts’
The expansion of public services and social support in India, such as it is, has little to do with any nostalgia of Nehruvian socialism. It is a natural development in a country with a modicum of democracy. A similar expansion, on a much larger scale, happened during the 20th century in all industrialised democracies (with the partial exception of the United States). It also happened in communist countries, for different reasons. Many developing countries, especially in Latin America and East Asia, have gone through a similar transition in recent decades. So have Indian States where the underprivileged have some sort of political voice, such as Kerala and Tamil Nadu. Many other States, including Gujarat, are now learning from these experiences at varying speed.

Did the UPA lose the recent election because voters were fed up with “handouts”? This is an odd idea in many ways, starting with the fact that there were few handouts to be fed up with. The UPA did launch the National Rural Employment Guarantee Act (NREGA is not exactly a “handout”), but that was in 2005, and if anything, it helped rather than hindered the UPA in the 2009 election. After that, there were no major social policy initiatives on the part of the UPA, except for the National Food Security Act which is yet to be implemented. By 2014, the UPA-II government had little to claim credit for, and plenty to be blamed for — scams, ineptitude, food inflation, the “direct benefit transfer” fiasco and more. Meanwhile, the BJP had the three things that really matter in an election (money, organisation and rhetoric) — is it a surprise that three voters out of 10 decided to give it a chance?

Coming to the fifth claim, there is little evidence that a rollback of social programmes is part of the BJP’s core agenda. As mentioned earlier, many BJP leaders (including Mr. Modi as well as the new Finance Minister, Mr. Arun Jaitley) have vociferously demanded a more ambitious National Food Security Act. Some of this is posturing of course, but the BJP’s willingness to support food security initiatives is already well demonstrated in Chhattisgarh. Nothing prevents it from doing the same at the national level. Similar remarks apply to the National Employment Guarantee Act: some BJP-led State governments did a relatively good job of implementing it, and the late Gopinath Munde clearly expressed his support for the Act as soon as he was appointed Minister for Rural Development. 

Possible backlash
Having said this, there are also ominous signs of a possible backlash against these and other social programmes. Some overenthusiastic advisers of the new government have already put forward explicit proposals to wind up the Employment Guarantee Act and the Food Security Act within 10 years, along with accelerated privatisation of health and education services. As if on cue, Rajasthan Chief Minister Vasundhara Raje recently sent a letter to the Prime Minister questioning the need for an Employment Guarantee Act. The corporate sector also tends to be hostile to social spending, if only because it means higher taxes, or higher interest rates, or fewer handouts (“incentives” as they are called) for business. Corporate lobbies, already influential under the UPA government (remember the person who said that the Congress was his dukaan?) are all the more gung-ho now that their man, Mr. Modi, is at the helm. Even a casual reading of recent editorials in the business media suggests that they have high expectations of devastating “reforms” in the social sector. That is what the mythology of social policy is really about.

This is not to deny the need for constructive reform in health, education and social security. If one thing has been learnt in the last 10 years, it is the possibility of improving public services, whether by expanding the right to information, or introducing eggs in school meals, or computerising the Public Distribution System, or ensuring a reliable supply of free drugs at primary health centres. But these small steps always begin with an appreciation of the fundamental importance of social support in poor people’s lives.

The forthcoming budget is an opportunity for the new government to clarify its stand on these issues. Without enlightened social policies, growth mania is unlikely to deliver more under the new government than it did under the previous one.

(Jean Dreze is visiting professor at the Department of Economics, Ranchi University.)

Should India go the Kerala or the Gujarat way?

A. Srinivas

The recently released book ‘An Uncertain Glory: India and its Contradictions’, by Jean Drèze and Amartya Sen, has kicked off a lively, if not acrimonious, debate on whether economic growth should be an overriding policy objective. Should India go the Kerala or the Gujarat way – in other words, should social sector goals be front-loaded over economic growth? In separate e-mail interviews, Drèze and Sen share their views on this subject, while also discussing the Food Security Bill, fiscal deficit management, NREGA and other issues. 

 

The ‘Kerala model’ has come in for some criticism, while the ‘Gujarat model’ is much talked about these days. Your comments.

Sen: It is a mistake to take any State as a “model,” since they all have defects in different ways. And that applies to Kerala too, despite the fact that India has a lot to learn from the example of success in Kerala.

Kerala may not have been unique in the world in going for early public investment in free education and basic health care (Japan, China, South Korea and many other countries did something similar), but it had a lesson to offer to the rest of India on how to enhance human well-being and at the same time build a base for sustained economic growth.

When Kerala went that way, it was one of the poorer states in India, but the basic policy of human capability formation through public efforts facilitated economic growth in Kerala, and so eventually it became one of the richer Indian States.

Those who had criticised Kerala for going for so much public expenditure so early – claiming then that the policy would be “unsustainable” — now try to square the circle by saying Kerala can afford a lot of public spending because it is richer — forgetting how exactly it became richer. The same policy of focusing on human capability formation has also allowed Tamil Nadu and Himachal Pradesh not only to serve the objectives of human well-being better, but also to have faster economic growth.

Gujarat has had a different kind of history, but also with a fast rate of economic growth, based on the enterprise of its businessmen.

Under the present Modi government it has also added to its facilities by giving priority to the expansion of its physical infrastructure, particularly roads, and by offering a comparatively efficient bureaucracy for business purposes (though not for the delivery social services, in which Gujarat’s record is not particularly good).

Based on its pro-business policies, Gujarat’s growth performance has been laudable, even though its GDP growth is only just a fraction higher than that of neighbouring Maharashtra.

Nevertheless, Gujarat does have lessons to offer on physical infrastructure development. In social administration, Gujarat has not been a leading state (indeed far from it), and its relative backwardness in social infrastructure – including education and health care and gender equity – would need to be addressed sooner or later. 

How would you respond to the contention that malnutrition in India is a genetic problem?

Drèze: I don’t think that anyone is seriously asserting that. What some people are arguing is that Indian children have a genetic predisposition to low height, for which an allowance needs to be made when we use international norms such as the World Health Organisation’s height and weight standards. This argument is a kind of default explanation coming from people who simply don’t believe the stunting figures associated with international standards.

But even if one were to accept that there is a genetic factor, and make a reasonable allowance for it, child under nutrition levels in India would still look very high. There can be no doubt that under nutrition is a very serious problem in India, not just for children but also for adults, and that there is an urgent need for action in this field. 

You have countered critics of the Food Security Bill by referring to lopsided priorities in public finance – where subsidies for fertiliser and fuel seem to draw less criticism.

Sen: Food security subsidies are aimed to benefit mostly the poor, whereas the benefits from subsidised fertiliser, electricity, diesel or cooking gas go mostly to the comparatively better off who have electricity connections already (one third of Indians do not have such connections), and who have equipment that can use diesel or cooking gas, or who can use fertilisers in their large farms.

Those who are more affluent, comparatively speaking, tend to have larger and louder voice in the world of the media. There is no great surprise in the fact that the issue of “fiscal irresponsibility” is raised more strongly and noisily against subsidies from which the powerful and the vocal gain rather little.

The poor, in contrast, typically lack the voice and the opportunity to raise questions about irresponsibility in criticising subsidies on diesel, electricity, fertilisers or cooking gas cylinders, even when those subsidies eat up a much larger amount of public funds than food subsidies.

This class-based contrast cannot be overlooked, even though there are some other issues also involved. An appropriate approach to the question of fiscal responsibility – and it is an important question – is to examine each subsidy in terms of their respective costs and benefits, taking into account the benefits that the poor and the rich receive from the different subsidies. In general, India has become too much of a “subsidy economy” and there is need for hard-headed calculation of costs and benefits in each and every case. 

Should the fiscal deficit be addressed more from the revenue than expenditure side, given our human development levels?

Drèze: I think that there scope for adjustment on both sides. I would certainly approve of an increase in the tax-GDP ratio, which has been stagnating at a low level for a long time.

Many expert committees have made useful recommendations to broaden the tax base, remove arbitrary exemptions and reduce tax evasion. Implementing them, however, requires confronting some powerful lobbies. Similarly, on the expenditure side, a lot of money could be saved by slashing regressive subsidies, but again, there is likely to be much resistance. 

Should the government take a more relaxed view of the fiscal deficit -- forget about FRBM Act?

Sen: It is in general a mistake to “forget” any limits that have been proposed, since there is typically some reasoning behind the proposal. Rather, the rational course must be to take note of the likely costs of violating a proposed limit and balance it against other objectives that can be met through crossing that limit. By trying to impose an inflexible – and to a great extent arbitrary – limit to fiscal deficit, the policy makers in Euro Zone have tied themselves in knots, and the objectives of their strategy – economic stabilisation and deficit management – have not been well fulfilled at all. Indian policy makers have been more intelligent in not trying to impose unreasonably narrow limits – at least not strictly.

How much deficit a country can afford and benefit from must depend on economic reasoning, rather than on fidelity to some arbitrarily chosen numbers or percentages. 

One of the arguments cited by you in favour of the Food Bill is the scope for PDS reform. Could you elaborate on the distinction between the ‘new’ and ‘old’ PDS?

Drèze: The old PDS is leaky, ineffective, and essentially under the control of corrupt middlemen and their political masters.

The new PDS is functional, inclusive, relatively corruption-free, and run for the benefit of the recipients.

Different states are at different stages of the transition from the former to the latter, but Bihar and Chhattisgarh are fairly good examples of the old-style and new-style PDS, respectively.

The transition is first and foremost a political decision – we now enough by now about PDS reforms to make the transition possible anywhere, provided that there is a strong commitment to it at the top. 

You have said that NREGA has run into a sense of fatigue. Should the programme be modified?

Drèze: NREGA urgently needs to be revived and that the best way to do this is to ensure that workers receive the minimum wage and are paid on time.

The government should also make it as easy as possible for them to apply for work, and even open works pro-actively without waiting for anyone to apply.

All this will create a strong demand for NREGA, which is very important for the success of the programme. Today, workers are losing interest because of low wages and long delays in payments. This apathy makes it much easier for vested interests to deactivate the programme. 

There is a tussle in government between two economic policy camps: one which favours welfare measures and the other that puts growth over all else. Has the second group now gained the upper hand?

Sen: This way of seeing the “tussle” – as you call it – seems very confused, even though you are absolutely right that this is the way the dividing lines are often drawn in political debates in India today.

When Jamshetji Tata arrived at what is now called Jamshedpur, he reasoned – as his biographer F.R. Harris records – that he, Jamshetji, will not only have to build a factory, but also “assume the role of a municipality,” offering decent schooling, free health care, good sanitation, safe water.

He proceeded to provide just those things. Was Jamshetji selling the demands of economic efficiency and ultimately economic growth down the drain for the sake of unilateral pursuit of human well-being, or was he also taking an enlightened view of what efficiency and growth demand? Welfare, as you call it, does of course have value of its own, but it would be very short sighted not to recognise the economic importance of having a healthy and educated labour force.

Neither Japan, nor China, nor South Korea ignored the constructive role of health and education for the success of an economy in the way India has, despite the visionary insights of the pioneers of Indian industrialisation. 

What is an acceptable level of food subsidy as a percentage of GDP, given our nutritional inadequacies?

Sen: The case for food subsidy arises only when many people’s incomes fall below levels at which they can afford to have enough food, at market prices, to avoid under nourishment and nutritional deprivation.

As and when people’s income rises, and similarly as and when food becomes cheaper, the need for food subsidy must decline, and may even completely disappear.

The question of acceptable levels of food subsidy must be answered in the overall economic context of the society. This will also determine how long such spending would be needed, placing the objective of good nourishment in the larger context of the priorities of the democratic society. 

You have not touched upon the ‘development debate’. China, for instance, is an ecologically ravaged place. Doesn’t that impact human development?

Drèze: It certainly does. And India is rapidly becoming an ecologically ravaged place too. One reason for this, among others, is the tendency not to tolerate anything that is perceived to slow down economic growth, like greater respect for the environment.

But this is a very myopic attitude, since environmental plunder jeopardises the country’s future economic and human development, and not in the very distant future.

This attitude is also based on flawed economics, focused on the growth of per-capita GDP without taking into account what the growth process does to the stock of wealth, including natural wealth.

The main victims of environmental destruction are poor people, who often depend more than others on natural resources. So we would certainly support more responsible environmental policies in India, even if it means some slowing down of economic growth in the short run.

Chhatisgarh, with its well-functioning PDS, is also known for Salwa Judum. How do we reconcile these two aspects? Does the first legitimise the second?

Drèze: There are many cases of authoritarian regimes that are doing good work in some specific fields. The latter does not justify the former. But the former should not prevent us from learning about the good work.

There is no doubt that the reform of the public distribution system in Chhattisgarh is a major achievement, from which there is much to learn. That does not detract in any way from the need to expose and oppose the Chhattisgarh government’s appalling record in other fields, including all the atrocities that have been committed by the state-sponsored Salwa Judum. 

You have praised Tamil Nadu’s and Kerala’s welfare systems. Is governance better only in regions with a history of anti-caste and social reform movements?

Drèze: This is a strong statement and we are sure that there are counter-examples. But there is no doubt that anti-caste and social reform movements can play a very important role in transforming living conditions and standards of governance.

That has certainly been the case in Kerala and Tamil Nadu, which started with appalling social inequalities not so long ago.

The inequalities have not disappeared by any means, especially in Tamil Nadu, but nevertheless there has been some significant empowerment of Dalits and other disadvantaged groups. This contributes to better living conditions and more effective governance in many different ways.

Misgovernance is largely a form of exploitation, whereby unscrupulous bureaucrats and functionaries exercise and misuse arbitrary power over people, especially marginalised groups.

When people are more educated, more confident, more demanding, and better organised, it is much easier for them to resist that exploitation.

Aruna Roy's fight for Minimum need

Aruna Roy’s decision to terminate her relationship with the Sonia Gandhi-led National Advisory Council has returned the spotlight to the ideological divide within the ruling establishment on welfare spending. As the civil rights activist noted in her letter to the Congress president, the rupture came over the Manmohan Singh government’s refusal to pay statutory minimum wages to workers under the Mahatma Gandhi National Rural Employment Guarantee Act — admittedly the largest rights-based safety net programme anywhere in the world. One of the first things the UPA government did upon earning a second term in 2009 was to acknowledge its debt to the aam aadmi by renaming the NREGA after Mahatma Gandhi. Yet in a monumental affront to the father of the nation, it declined to pay minimum wages to MGNREGA workers, arguing that the scheme was designed more as social security for the desperately poor than as regular employment requiring payment of floor-level wages. The government’s intransigence expectedly placed it in direct conflict with its own advisory body, with the battle being led by none other than Ms Gandhi.

Perhaps taking a cue from the Congress chief, some Congress State governments too have made bold to oppose the Centre’s line, indicating a deep government-party divide on the issue. However, more damagingly for the UPA government, at least two High Courts have held payment of minimum wages to be mandatory, which situation has not altered in view of the Supreme Court’s refusal to stay the Karnataka High Court’s decision. As Ms Gandhi pointed out in her letter to the Prime Minister, the apex court had itself in an earlier judgment equated non-payment of minimum wages with “forced labour,” which was violative of an important Fundamental Right. A part of the problem stems from deficiencies within the job guarantee Act. Section 6(1) of the Act empowers the Central government to notify the wage rate independent of the Minimum Wages Act, 1948. And yet, legal opinion in this country is near unanimous in defining minimum wage, not as a ‘fair and living’ wage but as the minimum required for bare subsistence. So when the government nitpicks on giving out even the minimum, it places itself in opposition to the poor and needy, who ironically form the Congress’s core constituency. MGNREGA has not just been life-giving, it has generated employment, halted distress migration and bonded labour and raised wage levels in the private sector where exploitation of workers is rampant. The government should look beyond the immediate to long-term economic benefits from going robustly ahead with the landmark programme.

MGNREGA -Way to Inclusive growth and reduced Inequality

Biswa Swarup Misra

After 2000, the Government has tried to make the growth process more inclusive and participatory through various policy initiatives. At the policy level six game-changing interventions have been made in the spheres of livelihood, governance, education, infrastructure and delivery mechanisms for public services.

These will have far-reaching welfare and political economy consequences. The policy initiatives are: MGNREGA (rural job guarantee scheme), Right to Information, Right to Education, Bharat Nirman and the UIDAI. MGNREGA, of all the initiatives, can have the most immediate and direct implications for the welfare of the poor.

Why NREGA?

India does not have a social security system. In an attempt to improve livelihood conditions in rural India, Parliament enacted the National Rural Employment Guarantee Act (NREGA) in August 2005.

The NREGA guarantees at least one hundred days of wage employment in unskilled manual work every financial year to every rural household. The idea is to provide gainful employment during the lean season of agriculture.

The Central government launched NREGA in 200 select districts in February 2006 and later extended the scheme to all of rural India in April 2008.

As a mark of respect to the father of the nation, NREGA was renamed the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) on October 2, 2009. The wages under the NREGA are decided by the Central Government and have also been indexed to inflation since January 2011. A novel feature of this job guarantee scheme is that it is demand-driven and works as an unemployment allowance on the failure of administration to provide employment within 15 days of expression of interest.

The unemployment allowance is a quarter of the wage rate for the first 30 days and half of the wage rate for the rest of the financial year.

Roughly 42 days of employment were provided under MGNREGA in the first five years of its operation.

The Central Government spent Rs 31,000 crore on MGNREGA-related expenses in 2011-12, providing employment to more than 4.4 crore households.

As for misgivings on the huge expenses incurred to operationalise the scheme, it may be worth mentioning that the Government spends around Rs 3 lakh crore on subsidies.

Income Inequality

States are placed at different positions across the income spectrum. An effective MGNREGA should have a sobering impact on income inequality across States. This is because more people from the poorer States should have been opting for MNREGA jobs; besides, wages under MGNREGA have increased significantly in the past five years.

If we compare the Gini coefficient, which is a summary measure of income inequality across States before and after the introduction of MGNREGA, we get some idea in this respect.

The Gini coefficient for income has fallen marginally for the 17 general category States, from 0.279 in 2007 to 0.275 in 2012.

Benefits from MNREGA have not accrued as much to the poorer States as to their richer counterparts. For instance, employment generated in terms of average person days per household was marginally higher for the six poorest States, compared with the richer States in 2009-10.

The average poverty ratio for Bihar, Chhattisgarh, Jharkhand, Uttar Pradesh, Orissa and Madhya Pradesh, at 42 per cent, went hand in hand with the average person days of employment generated at 48.

This is in contrast to the other 11 States, where the poverty ratio, on an average, was 20 per cent and the average person days of employment generated was 46. This brings out the ineffective implementation of MNREGA in the poorest States.

The only consolation is that inequality has been maintained at around the same level, even after a fall in growth following the global financial crisis.

Implementation is key

MGNREGA, if implemented successfully, can create a virtuous cycle of higher consumption and higher growth. However, it can as well lead to a vicious cycle of high inflation and lower growth in the absence of an adequate supply response.

Persistently high inflation has been the major driver of economic distress in the past three years.

The MNREGA is often blamed for this high inflation, as the money spent on the programme has not led to the necessary asset creation.

There is one school of thought which argues that the introduction of MNREGA has put pressure on the rural labour market and made agriculture an unprofitable occupation.

This school argues that it might be a better idea to just dole out the funds without keeping people engaged in unproductive work, as that will release some additional labour which can help ease the pressure on rural wages.

Another school of thought argues for enrolling the potential beneficiaries in different skill development training programmes by paying a stipend, which otherwise would have been disbursed as wages. Learning skills would enable the poor to gain access to a sustainable livelihood.

The introduction of MNREGA was a game-changing initiative to promote welfare. Many studies have revealed corruption associated with implementation of MNREGA. Whatever its design, implementation in the true spirit can work as a great boost for Indian society and economy.

The poor implementation of MNREGA puts serious question marks on the competence of the administration. MGNREGA and UID are progressive and gigantic initiatives, which will test the competence of the bureaucracy.

(The author is Associate Dean, Xavier Institute of Management, Bhubaneswar.)

Rural job scheme sows misery to farm sector ?

Narayanamoorthy

A total amount of Rs 1.3 lakh crore has been spent,about eight crore rural people have benefited and, for the first time, women are getting wages equal to their male counterparts under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). This is what Prime Minister said at the MGNREGS celebration in New Delhi. But the the flagship Rural Job scheme of UPA has another side story in Indian rural farming sector.

Farmers argue that this scheme is actually driving agriculture into an epic crisis by tightening the rural labour market. Besides pushing up labour costs substantially, this scheme has increased labour scarcity, spoilt the work culture of labour and reduced farmers’ incentives to invest in farms. How far are these issues true?

MGNREGS, the massive state-sponsored rural jobs scheme, was initially introduced with the avowed objective of providing 100 days of employment to the unskilled work force during the lean season of agricultural activity. It was never envisaged that the farming sector should be deprived of labour when it needed it, especially during sowing and harvesting periods.

However, in recent years, unintended situations have developed wherein labour shortage is felt in the agriculturally advanced States of Punjab, Tamil Nadu, Andhra Pradesh, Haryana, Kerala etc. Farmers in these States concede that the labour market was tight even before the launch of MGNREGS, but lament that the scheme has exacerbated the shortage, thereby forcing them to shift to non-labour-intensive horticulture crops or leave the field fallow.

Won’t this move of farmers have a devastating impact on foodgrains production? What is the underlying reason behind drying up of the agricultural labour market? Why is the labour tap, which was overflowing earlier in these premier bread basket States, now down to a trickle?

TAKING AWAY LABOUR

The scheme holds the promise to transform the rural economy by essentially increasing the labour market access for marginalised groups. But the farmers have been making a hue and cry over skyrocketing wages. Some economists recently commented that such an increase in wages has come after a long period of stagnation and is bound to make the poorest of the poor better off.

There is no denying the fact that the wages should be increased to improve the living condition of the labourers. But the increase in wage rate should not hurt farmers who are already facing a severe crisis due to poor remuneration from crop cultivation.

MGNREGS works in the richly irrigated areas often come in the way of ‘crop work’ and upset the agricultural wage market. Male labour is already scarce in rural areas owing to the boom in construction sector, mainly in urban areas. Most labourers available now in rural areas are women, who are also inclined towards the rural employment scheme where wage is assured for carrying out no tangible work, which is not possible in farm work.

This creates artificial scarcity of labour which, in turn, increases the wage rate. Getting accustomed to such wage for no work, will a labourer prefer to toil in farms?

Although the MGNREGS Sameeksha Report (2012) of the Ministry of Rural Development failed to reveal its impact on agriculture, officials of the Ministry of Agriculture hint that this scheme caused a substantial increase in the cost of agricultural labour.

Ashok Gulati, Chairman of the Commission for Agricultural Costs and Prices (CACP) pointed out that between 2008 and 2011, labour cost increased by about 74 per cent at the all-India level, 88 per cent in Andhra Pradesh and 94 per cent in Tamil Nadu.

Similarly, the cost of cultivation data on different crops published by CACP clearly show that the wage cost paid for casual labour has increased at a faster rate after the introduction of the rural jobs scheme as compared with the earlier period (see Table).

This has escalated the cost of production of crops and reduced the profit margin substantially. In fact, farmers from the fertile region of Andhra Pradesh even declared a ‘paddy crop holiday’ during 2011 kharif season, citing wage cost escalation as one of the reasons.

LAZY WORKFORCE’ EFFECT ?

The MGNREGS Sameeksha Report seems to indicate that this rural jobs scheme has provided employment for the impoverished and the most marginalised community at an increased wage rate. The irony to this assertion of the report is that the scheme, instead of creating additional primary occupations for the rural poor, has created far greater than expected absenteeism from regular employment.

In fact, the rising demand for labour is in no way helping the landless to improve their livelihood; instead, it is forcing farmers to abandon their venture. Instead of toiling for additional hours, enhancing their incomes and climbing the aspirational ladder, the rural recipients seem to have given up their regular occupation, choosing to be satisfied with their current levels of income and consumption.

The work schematics are inflated in order to employ more number of people for more number of days for lesser amount of work, to satisfy all. The scheme, in fact, seems to be a travesty of sorts — those who did not have jobs still do not have jobs. But they have got money to buy food while not needing to work! It appears that the rural workforce is falling into the deadly trap of laziness. Can the state incentivise laziness?

MAKE SCHEME CONSTRUCTIVE

The farming sector has begun to feel the pinch. Various farm organisations have apprehended that farming as a profession will slowly vanish, if labour wage and scarcity of labour issues are not addressed at the earliest.

It is reported that farmers across different regions of the country have already switched to less labour-intensive options such as horticulture and tree crops. If these farmers resort to such a cropping pattern, then the central pool of wheat and paddy will definitely witness a historic deficit, which will, in fact, harm the labour community. Since more than 40 per cent of farmers already want to quit agriculture because of poor profitability, agriculture cannot be allowed to suffer any more.

As suggested by CIFA and other farmers’ organisations, the state should come forward to link MGNREGS with agricultural activities to bring down the investment required for crop cultivation, as has been done by Maharashtra in its employment guarantee scheme.

CIFA has also come out with a sensible suggestion that the scheme must be confined strictly to the lean season agriculture, which will be a ‘win-win’ situation for both the farmers and labourers.

Farmers will get their labourers when they need them the most, and labourers can remain employed for a longer period in a year. As rightly suggested by the Agriculture Minister, declaring an ‘MGNREGS holiday’ during the agriculture season would be the right way to tide over the crisis.

(Narayanamoorthy is Professor, Department of Economics, VIT)

MGNREGA : Putting Kerala to work

Reetika Khera

Literacy has helped people in the State maximize the benefits of the rural employment guarantee scheme

Kerala’s achievements have long been celebrated by development economists — high literacy rates, including among girls, low infant mortality rates and so on. There has also been a spate of writings highlighting the ills of Kerala society. Critics have pointed to the high rates of suicides and feminists have also raised difficult questions. While there might be some truth in these critical perspectives, when one compares Kerala with other Indian States, there is no doubt that it has got something right. The contrast between the north Indian States of Chhattisgarh, Jharkhand and Uttar Pradesh and the southern States (Andhra Pradesh, Kerala and Tamil Nadu) always strikes me while doing fieldwork.

Positive aspects

Last December, a trip to Kerala to visit districts that had been nominated for the Central government’s annual NREGA award (for the effective implementation of the Mahatma Gandhi National Rural Employment Guarantee Act) brought home that contrast once again. I visited a few MGNREGA worksites in two districts — Alappuzha and Thrissur — and had discussions with workers with the help of MGNREGA officials. Without suggesting that the implementation of MGNREGA in Kerala is faultless, this article highlights some of the positive aspects of Kerala’s experience.

The first thing that struck me was the large-scale participation of women in MGNREGA. According to MGNREGA records, the share of women in MGNREGA employment is higher in Kerala than in any other State — about 90 per cent. I also saw something that one does not learn about from official data: assistant engineers, overseers, data entry operators, panchayat presidents, mates, BDOs — there are plenty of women in almost every conceivable post. Further, a “skill ladder” already exists in some ways. For instance, in Alappuzha, I met a MGNREGA worker who had been elected a block panchayat member.

The second heartening observation was that in Kerala, one sees gram panchayats playing a real role in the planning and implementation of MGNREGA. The employment guarantee act has provisions for grassroots planning and implementation. In many north Indian States, Panchayati Raj Institutions (PRIs) are involved in implementation, but rarely play an active role in the planning process. In Kerala, by contrast, PRIs are strong, with impressive physical infrastructure — a gram panchayat office in Kerala resembles a block office of some of the northern States. I was told that “everything” goes through gram panchayats. PRIs, it seems, prepare annual plans for each panchayat and follow the prioritisation decided in the gram sabha. Block panchayats have standing committees on different subjects. The block offices we visited were bustling with activity and, often, block panchayat members were present. And no, this was not just window dressing for a gullible visitor from Delhi — my presence was often ignored at the block offices.

Third, I was excited to see the range of MGNREGA works and the quality of assets being created. This is a truly remarkable feature of MGNREGA in Kerala. In Thrissur, canal maintenance and sluice gate maintenance were the big NREGA works. Desilting of canals enables them to function for irrigation purposes, and also raises the water level in surrounding wells. Another case of good work was the cleaning — desilting and de-weeding — of ponds in Alappuzha. In Thrissur, the cattle breeding farm under the Veterinary University offers its land to MGNREGA labourers, to grow fodder for the cattle. Soil conservation works and water harvesting works are undertaken with some scientific inputs. For soil conservation works, thought is being given to enhancing nitrogen content by adding certain leaves. Mud compacting is also done to enhance soil quality. Vettiver (“magic” grass) is planted along desilted and de-weeded ponds in Alappuzha. Apparently, vettiver reduces the pollution in ground water (including ridding it of pollutants from a brewery in the vicinity) and prevents soil erosion (I was told it can only be removed using JCB machines!).

With Kudumbashree groups (a State government “initiative for poverty eradication through networking of women's groups”) taking a keen interest in MGNREGA, every possible kind of convergence is taking place. Kudumbashree groups are learning how to farm for the first time. They lease in private land and use MGNREGA labour for some of the agricultural operations. Quite a lot of land development work is undertaken on private and public lands. In Alappuzha, Kudumbashree groups grow vegetables, possibly paddy also. Produce is sold locally or Kudumbashree groups are linked with the “vegetable board” for sale in larger markets. The involvement of Kudumbashree groups and the availability of adequate technical staff (agricultural scientists, engineers, etc.) have allowed such creativity to flourish.

Workers’ testimonies about what MGNREGA meant to their lives were the most satisfying part of this brief visit. Here is one small example. I held a short group discussion in Pariyaram Gram Panchayat (Chalakudy Block, Thrissur) with a group of about 15 workers. The worksite supervisor (“mate”) was a woman. As we went around the circle, this is what I learnt: Omana Hamsa (who worked 40 days last financial year) bought sand to renovate her house; Jayathi (48 days) undertook house repairs; Shaila Sadanan (35 days) bought gold for her children; Shirley Sunderesan uses it towards repayment of a bank loan of Rs. 50,000 for her house; Kamalam Revi and Sheela Balu who had bought a cow on a Kudumbashree loan are repaying it with their MGNREGA earnings; Anitha Sajinan uses her wages for her daughter’s college education and the mate, Jancy Balan, uses hers to pay her son’s computer course fee. There were two male workers as well: Vinayan said he used his MGNREGA earnings to repay a house loan his mother took four years ago, and Kuttan bought himself a gold ring!

Grey areas

The districts I visited were probably the best, since they had been nominated for the national award. Even in the best districts, there were grey areas in the implementation of MGNREGA in Kerala: for instance, “convergence” of MGNREGA sometimes seems to boil down to subsidising labour for private farmers, without additional employment generation. The participation of men is low primarily because of the “low” MGNREGA wage (compared with the market wage). So they prefer other work. The labour market seems to be segregated along gender lines. Delays in wage payments plague the programme even here, though not to the same extent as in the northern States. District officials candidly admitted that payments are made in 20-25 days — well over the mandatory limit of 15 days.

During this visit to Kerala I experienced, first-hand, how near-universal literacy can reduce social distance thereby altering social dynamics and enhancing accountability. Two small incidents illustrate the point. As I introduced myself to the workers at Pariyaram Gram Panchayat through the BDO, I said I wanted to learn about what they did with their MGNREGA earnings. In an attempt to break the ice, I looked at the two male workers and said, “They must have used their wages to buy alcohol” (a comment I hear often elsewhere). The BDO, also a woman, did not find my comment amusing and put me in my place — “it’s not like that, madam,” she said. In the north, BDOs usually distance themselves from the workers and align themselves with visitors. My comment would not have been challenged by a BDO in many other places. The BDO and my roles were reversed here, with the BDO standing up for the labourers. In another incident, after an onlooker corrected my spelling of the name of a village, I felt I was being more conscious while making notes. This suggested to me how similar pressures must be at work for the local administrators too — not just for the implementation of MGNREGA but in all public spheres. For me, this was the most important insight from my Kerala visit.

(Reetika Khera teaches economics at the Indian Institute of Technology, Delhi.)