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Wednesday, May 12, 2021

Philosophy of poverty

Forget SP’s mess,take the three main manifestos,and the overlap is frightening

Written by Bibek Debroy |
April 14, 2009 12:13:51 am

Blessed are the poor in spirit: for theirs is the kingdom of heaven.” With apologies to Matthew,India’s poor are destined to inherit the Indian economy. These general elections reflect glorious uncertainty. However,there is certainty that one of three coalitions — primary,secondary,tertiary — will shape the Centre’s economic policies for the next few years. There is also certainty that the core of these three coalitions will be the Congress,BJP or CPM. Thus,manifestos of these three merit attention. Not only can these three manifestos be contrasted,one can also contrast 2009 manifestos with 2004 vintages.

In the 2004 versus 2009 face-off,the CPM is consistent and let’s not forget Oscar Wilde,“Consistency is the last refuge of the unimaginative.” However,both the Congress and BJP have moved to the left in five years. Indeed,there is a blurring of differences across the three 2009 manifestos in economic content. Therefore,this sinister development augurs our future. Sinister is the word to use,because it actually means on the left,not baleful or malign. True,there are differences between manifestos,such as in the case of the demographic dividend. The Congress thinks 70 per cent of the population is under 35,the BJP thinks two-thirds. Both are right. 69.8 per cent is for 2001,while 67.5 per cent is for 2006 (latest data). It is interesting that the Congress has chosen figures from an NDA era and the BJP has chosen from an UPA era. Or if generalised,perhaps it is simply the case that the BJP has more up-to-date data.

However,these are minor differences. In substance,all three manifestos have similar positions,demonstration of India’s version of Gresham’s Law — bad policies drive good policies out of circulation. Take the question of subsidising the poor,that’s a good policy. The Congress 2009 states,“This will require that all subsidies reach only the truly needy and poor sections of our society. The Indian National Congress will continue its efforts to create and implement a national consensus on this issue.” Excellent and there will be medical insurance for unorganised sector BPL (below the poverty line),old age pensions for BPL elder citizens,subsidised food-grains for BPL families and health insurance for BPL. And what kind of national consensus has the UPA worked out on identifying BPL in five years? If we haven’t been able to do it in five,what is the guarantee we will be able to do it in another five?

The consensus implicit in the manifesto is NREGS (self-identification),single-woman headed households,disabled and elderly,urban homeless,released bonded workers or collective (SCs,STs,OBCs,minorities). There is no quarrel with self-identification,single-woman headed households,disabled and elderly. But for the rest,we have no consensus at all. Both BJP 2004 and 2009 mention BPL,but less than Congress. In 2009,we have subsidised food-grains for BPL (with the good idea of food coupons and private outlets thrown in),subsidised pensions and interest rates for aged,bank accounts for BPL women,subsidised bicycles for BPL girls,and subsidised school education for girls from “disadvantaged families”. As with the Congress,we haven’t licked the problem of identifying BPL. BJP 2009 also has a curious figure. But before that,BJP 2004 said,“In the past six years,the number of Indians living below the poverty line has diminished significantly.” Absolutely right and this is NSS data for 1999-2000 to 2004-05,two points when we had large samples. The next large sample data won’t be available till 2011. So we don’t quite know what has happened to poverty since 2004-05.

Last year,a World Bank report did talk about 130 million people having been pushed above the poverty line because of food and fuel crises and this may have been compounded by a financial crisis. However,we don’t know. BJP 2009 states,“It is a telling comment on the UPA’s performance that a whopping 55 million people have been pushed below the poverty line over the past five years. This is according to a study by the Indian Statistical Institute.” Since reading this,I have been trying to track down the ISI study,which must perforce be based on an NSS thin-sample.

Moving on to the CPM,it doesn’t believe in BPL. In both 2004 and 2009,it wants universal PDS (public distribution system),no targeting. And stated it more strongly in 2004 — “BPL cards should be available for all those who are not income-tax payers.” It is thus a bad idea to pay income taxes,rich farmers included. Since policies are always based on the lowest common multiple of bad ideas,we can arrive at only one conclusion. India is a poor country and everyone in India must be poor. Everyone must be entitled to subsidies. Before mentioning the issue of resources,let’s flag another odd development.

Ask any economist what India’s interest rate should be and there will be no answer. However,economists rarely have answers. Politicians have answers,even if those are cooked up by defunct economists. For instance,CPM 2009 wants credit at 4 per cent for agriculture and self-help groups (SHGs). The manifesto doesn’t specify whether this is a real or nominal rate of interest. But it must be nominal,party manifestos really talk about real matters. Since the manifesto also questions government figures about an inflation rate of 4 per cent,the CPM clearly wants a negative real rate of interest,something that will make even defunct economists scratch their heads over. Congress 2009 doesn’t mention a specific figure. However,small and marginal farmers must have credit at “lower rates” and all farmers will be waived interest if they repay bank loans. Since those who don’t (or can’t) repay will also be waived interest and principal,we have 0 per cent interest for farmers,something bank managers will scratch their heads over. The BJP also wants 4 per cent for agriculture,educational loans,spliced with higher interest rates on deposits by elder citizens. Let’s not forget the CPM’s insistence on EPF rate of more than 8.5 per cent,something other two parties don’t mention,but won’t contest.

With small savings and government borrowing thrown in,banks will borrow at 8 per cent and more and lend at 4 per cent and less. Now we know why PSU banks can’t be privatised and why loss-making private banks must be nationalised.

The CPM is most honest in demanding the FRBM Act and fiscal restraint be scrapped. There is an African proverb,“When a poor man goes to the market,often he comes home with only tears,” a proverb likely to be quoted several times in present global environment. However,given our legacy of government intervention,the Indian version is — when a poor man goes to the state,or even to vote,often he comes home with only fears.

The writer is a Delhi-based economist

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