A central focus of India’s economic policy is to achieve inclusive growth. However, while India’s success in growth over the last two decades has been universally praised, much remains to be done on the inclusion front. Accordingly, the government is committed to making this a central tenet of policy. In doing so, it is worthwhile to be self-critical and analyse why India has not done better on this dimension despite so much energy and rhetoric directed to it. Some recent papers that analysed this, by focusing on the distribution of food, shed useful light.
It is a maintainable ethical principle that in any nation that is in principle able to provide food to all, basic food should not be treated as an option or a luxury, but as a right. The Indian government’s new food security bill is rooted in this fundamental ethical precept and is, as such, highly desirable. An implication of this bill is that all the poor and vulnerable must be empowered by the state to be able to get their basic food requirements.
Before commenting on this it is worth clarifying that when economists measure poverty there can be two very different motivating factors. One is to see how the level of poverty is changing over time and the other is to identify the poor in order to direct benefits. When tracking the level of poverty over time we have to hold the poverty line constant (subject to corrections for the changing value of the rupee). This is for the same reason that we use the same standard over time to see if there is global warming occurring. To change the standard would make inter-temporal comparison quite meaningless.
However, to decide on whom to direct subsidies, we have reason to use different standards for measuring poverty. We could think of measures which change as society becomes better off and is able to service the poor better. One criterion in this spirit is the quintile income measure, which assesses society in terms of how its poorest 20 per cent population or the bottom quintile fares. We of course know that they do not fare well. But what is more dismaying is that they do not even adequately get the benefits they are supposed to get. A study by Dutta and Ramaswami showed using 1993-4 NSS data that the bottom quintile of rural population in Maharashtra and Andhra Pradesh got 10 per cent and 20 per cent, respectively, of the foodgrain that they were supposed to get. In general, several studies confirm that our track record of delivering to the vulnerable remains highly flawed. One of the most comprehensive recent studies of this, by Swedberg , suggests that a key secret lies in giving the benefit to the poor directly. Swedberg estimates that to transfer Rs 1 to a poor household by the current method of giving cheap food first to PDS stores and then having them transfer it to the poor, the Government of India incurs a budgetary expenditure of Rs 9. At this rate a large food programme would be fiscally unviable.
Fortunately, with Aadhaar coming up, it is possible to make a cash transfer to the poor directly, which, especially if given to the female head of the household, can empower the poor and the women and sharply cut down leakages and the costs of the programme. This in turn means that we can greatly increase the coverage of the population that gets the subsidy. Success stories with cash transfer programmes from Mexico’s Oportunidades and Brazil’s Bolsa Familia bolster this argument. Of course, we have to be aware that in many regions of India private markets hardly exist and so we will in these regions have to, for now, rely on actual food being delivered through the PDS system. On the other hand, it is important to recognize that one reason private markets do not exist in these areas is because the people do not have enough buying power. Once we make cash transfers to them, private markets will develop even in these areas. This is what is meant by the enabling role of government. It should create a setting where it is in the interest of private agents to deliver on what needs to be delivered.
It is a maintainable ethical principle that in any nation that is in principle able to provide food to all, basic food should not be treated as an option or a luxury, but as a right. The Indian government’s new food security bill is rooted in this fundamental ethical precept and is, as such, highly desirable. An implication of this bill is that all the poor and vulnerable must be empowered by the state to be able to get their basic food requirements.
Before commenting on this it is worth clarifying that when economists measure poverty there can be two very different motivating factors. One is to see how the level of poverty is changing over time and the other is to identify the poor in order to direct benefits. When tracking the level of poverty over time we have to hold the poverty line constant (subject to corrections for the changing value of the rupee). This is for the same reason that we use the same standard over time to see if there is global warming occurring. To change the standard would make inter-temporal comparison quite meaningless.
However, to decide on whom to direct subsidies, we have reason to use different standards for measuring poverty. We could think of measures which change as society becomes better off and is able to service the poor better. One criterion in this spirit is the quintile income measure, which assesses society in terms of how its poorest 20 per cent population or the bottom quintile fares. We of course know that they do not fare well. But what is more dismaying is that they do not even adequately get the benefits they are supposed to get. A study by Dutta and Ramaswami showed using 1993-4 NSS data that the bottom quintile of rural population in Maharashtra and Andhra Pradesh got 10 per cent and 20 per cent, respectively, of the foodgrain that they were supposed to get. In general, several studies confirm that our track record of delivering to the vulnerable remains highly flawed. One of the most comprehensive recent studies of this, by Swedberg , suggests that a key secret lies in giving the benefit to the poor directly. Swedberg estimates that to transfer Rs 1 to a poor household by the current method of giving cheap food first to PDS stores and then having them transfer it to the poor, the Government of India incurs a budgetary expenditure of Rs 9. At this rate a large food programme would be fiscally unviable.
Fortunately, with Aadhaar coming up, it is possible to make a cash transfer to the poor directly, which, especially if given to the female head of the household, can empower the poor and the women and sharply cut down leakages and the costs of the programme. This in turn means that we can greatly increase the coverage of the population that gets the subsidy. Success stories with cash transfer programmes from Mexico’s Oportunidades and Brazil’s Bolsa Familia bolster this argument. Of course, we have to be aware that in many regions of India private markets hardly exist and so we will in these regions have to, for now, rely on actual food being delivered through the PDS system. On the other hand, it is important to recognize that one reason private markets do not exist in these areas is because the people do not have enough buying power. Once we make cash transfers to them, private markets will develop even in these areas. This is what is meant by the enabling role of government. It should create a setting where it is in the interest of private agents to deliver on what needs to be delivered.
Source: Economic Survey
