Situating Welfare Within Mixed-Market Economy

As the government takes a “self-help for poor, nanny state for rich” approach to its economic policy, a socio-economist suggests ways to improve our economic health, especially in the post-corona world

LILA: Let us begin this conversation with the economic context in the country today. While most economists have raised flags about the need for immediate government intervention to revive economic activity, the government continues to claim that fundamentals of the economy are reasonably strong and visible green shoots would result in the revival of economic growth. In the context of such varied opinions, what is your assessment of the country’s economic health?

Reetika Khera: I believe that a lot of the public debate in India around our ‘economic health’ is somewhat misguided because it focuses primarily on growth of GDP [Gross Domestic Product], without fully comprehending what GDP growth means. For instance, the sectoral growth rates are important, because they give some information about the distribution of the gains from growth and inequality. For example, the consequences of a slowdown in the construction sector are going to be very different from those of a slowdown in financial services. The importance of development indicators such as health and education in economic health is under-appreciated.

As far as assessing the situation is concerned, it is difficult to say anything sensible because of the questionable behaviour of the government around macroeconomic data (GDP growth rates, unemployment rates, etc.). It has become hard to have a sensible debate on the economic situation in the country (e.g., when you comment on a possible slowdown, a minister points to the good opening enjoyed by a film or two; or, the blame is shifted to the gig economy).

I think the biggest threat right now is the fallout of the ham-handed lockdown in response to the COVID-19 epidemic. While essential services include food and vegetables, mandis (wholesale markets) have closed down in some places. The cancellation of many trains has left migrant workers stranded without money to fend for themselves, and without work to earn money. Dealing with the health emergency will require proper planning of the economic emergency. The government needs to reassure people, and follow that through with actions – there are already reports of the police beating up people who are out for medical care or delivery. 

LILA: The general consensus on tackling the current slowdown is increasing expenditure on infrastructure and industry-promoting projects. Do you agree with this approach?

RK: I’m not so sure about who the “general” here refers to: the circles I move in, the general consensus is in favour of enhanced welfare spending – especially health. If this general consensus had been heeded, we would have had many more nurses, doctors, lab technicians in the country than we currently do. They would not only have contributed to greater GDP, but also helped in dealing with the epidemic.

The GDP includes many things: physical infrastructure (roads, dams, hospitals), essential services (education, health), financial services (banks, mutual funds), consumer goods (shoes, clothes, phones), polluting industries (thermal power, automobiles), military equipment (weapons). Investments in any of these can boost GDP growth. Framed like this, I believe, it is not hard to see where the public interest is best served.

LILA: How would you situate the economic status of India within the context of comparable economies in the world? With uncertainties in the global economy being made worse by the COVID-19 pandemic, there are fears of a global recession spreading across markets. How do you see the developments in the global economy affecting India?

RK: If, by ‘comparable economies’, you mean economies that are of a similar aggregate size, I think the one big problem here is the woefully poor performance on education and health. We have a huge reserve army of labour: with good education and health, this could have been a great asset to the country; people (“human resources”, if you like) should have the first claim on investments by the government.

If the coronavirus is not contained, the consequences of under-investing in universal healthcare will be evident to all of us, too late, with a very high price to pay. As it is, even without a pandemic such as COVID-19, Indians pay a high price for such under-investments (in terms of high infant mortality rates, disease burden, high out of pocket expenditure, etc.). What is worrying is that in spite of this, in terms of policy response, there is no discussion even of the right to health.

To the extent that the economic fallout of the coronavirus has been discussed – the crash in the stock market – the rupee:USD value received disproportionate attention in the initial days; it is only now the people are realising that the informal sector, comprising 90% of the workforce, is going to be hit badly, and that it will face its third major hit in the past six years (after demonetisation and GST).

The health emergency related to the coronavirus is getting more attention (not necessarily action) than the economic emergency, even though the number of those who will be affected by the latter are far greater, because the health emergency is likely to hit the well-heeled, whereas the economic emergency will affect mainly the poor.

LILA: The COVID-19 outbreak is testing the capabilities of the global healthcare infrastructure. The response to tackling the economic fallout has involved everything from central banks reducing interest rates to the 1.7 lakh crore rupee relief package announced for the poor. Are these measures sufficient to remove any temporary gaps in income?

RK: I agree that we need to do much more than reducing interest rates. Also, by the way, the relief package is not Rs. 1.7 lakh crores because it is padded, and is in fact, it is only 0.5% of the GDP.

A combination of food and cash transfers is important. Universal transfers are not a viable option, yet, many believe that cash transfers would be the quickest, easiest, ‘targeted’ solution to the situation today. Seemingly simple questions, such as whom to give the cash to and how much, don’t have easy answers. Of the various schemes, I think NREGA [National Rural Employment Guarantee Act] households are the best choice at the moment. Given the risk of community transmission from crowding at banks to withdraw money and the hassle for people to get this money out – both in terms of transaction costs as well as the mess in the banking system (alluded to earlier) precipitated by the Aadhaar Payment Bridge System and National Payments Corporation of India, thinking about the mode of payment is also important.

I’m not saying no need for cash transfers: NREGA workers could be provided an unemployment assistance till worksites are deemed safe from the point of view of community transmission. Remember, the government has appealed to the private sector to not lay off workers; then, how can it ignore NREGA labourers? The government was right to target social security pensions (those given to the elderly, single women, persons with disabilities, etc.), but the amount was too small (Rs. 1000 extra over three months).

My main concern with a cash-transfer-only strategy is hoarding and inflation. These measures have to go along with providing special tide over allocations through the Public Distribution System for those who have ration cards already, as well as those who are out of the safety net of the PDS (Rajasthan has made an announcement, but details are awaited). Similarly, it is important to reach children who get mid-day meals through schools and anganwadis by doing what Kerala initiated (home delivery of dry rations in this period) and expanding the range of goods here as well (e.g., giving eggs as ‘take home rations’ like Odisha does).

Within the PDS there are several options: there are surplus grain stock with the government at the moment, that can be used to double entitlements for a few months (this was announced as part of the relief package), but there is also a need to expand the reach of the PDS beyond the statutory two-thirds coverage assured by the National Food Security Act. Ration can be provided free, along with supply of dal and oil at a controlled price. But the central government needs to do much more because states have limited resources.

LILA: Government spending in the next financial year on MGNREGA is expected to be lower than the sum spent this year. What has been your observation of the implementation of such welfare schemes on the ground, in light of the debate around long-term and short-term gains from welfare policies? Is the lower allocation indicative of the government’s view on welfare schemes?

RK: The National Democratic Alliance government has been hostile to welfare spending from the beginning, and especially to MGNREGA. In the first budget speech by the Prime Minister, he called NREGA a monument of the failures of previous governments. Before that there was an aborted attempt to restrict it to the poorest districts. Since then, the outward hostility is not on display, but the programme has suffered in various ways. First, as the demand for work has far exceeded the budgetary allocations, each financial year ends with pending wages running into thousands of crores of rupees. So, when fresh allocations are made in the budget, a lot of it goes towards clearing arrears from the previous financial year. This situation is exacerbated (for labourers) by long delays in payments, misdirected payments, rejected payments, etc.

As if the stagnation in budgetary allocations in real terms was not bad enough, this year has seen a decline in the nominal budget also. The approach of the government is more and more ‘self-help for the poor and nanny state for the rich’.

In fact, the programme can now provide an important cushion against the economic hit that will result from the COVID-19 (along with the PDS): for instance, the government could have announced that it will provide the equivalent of 10 days of wages per month, as a cash transfer for the period that it is not safe to keep NREGA worksites open, and in lieu of work, thereafter. Unfortunately, the relief package had nothing for NREGA workers.

LILA: What is your view on the current level of public stakeholdership in the policy making process? Is there a methodology you can propose to improve the possibility of this stakeholdership, if that is felt as a need?

RK: I’ve always wondered about who sits at the “high table” in the policy making process. In my limited interactions with government, I’ve often felt that the most important stakeholders are missing: e.g., in discussions on the NREGA, I rarely remember a NREGA worker participating, let alone speaking. Similarly, when discussions are held on the Integrated Child Development Services or Mid-Day Meals, you will not encounter cooks, teachers, helpers, supervisors, etc. Recently NITI Aayog hosted a consultation co-organised by a renowned research organisation, where the agenda was to discuss how to “pursue research that speaks to the needs of Indian policymakers” (emphasis added), not of Indian people.

Another (more recent) problem is the pervasiveness of entities that cannot be held accountable through existing (though weak) accountability mechanisms: e.g., philanthrocapitalists, private consultants, international donors etc. Such entities come with their own agendas, though often framed as win-win propositions, which may often be in conflict with the public interest.

It is because the high table has mainly elites, that policy making is out of touch with ground realities. For instance, years ago a top economic advisor once told us that he felt “connected” because he regularly talked to his domestic help and driver about cash transfers. This is one reason why cash transfers are perceived as the only or easiest option in response to the current crisis, even though the problems (inflation as well as the mess in the banking system) with them are well-documented.

This also explains why bailouts and relief measures (e.g., Non-Performing Asset, corporate tax relief) are far easier for the corporate sector than for the less privileged (any demand made for additional funds for NREGA or pension faces a fiscal constraint).

LILA: A corollary to this is also the dynamic between the Centre and the States in designing and implementing welfare schemes. There seems to be a move towards increasing centralisation of such programmes over the last few years. How does the Centre-State relationship affect welfare schemes, and what is your view on such developments?

RK: Yes, I think centralisation is a serious concern – from the point of view of the Constitution as well as from the point of view of regular functioning of government. The federal structure is not just a matter of legal principle, but has pragmatic roots as well (for instance, given the vast diversity on so many dimensions across states). One example of this is the recent controversy around the Goods and Services Tax refunds due to the state: Value Added Tax was an important tax accruing directly to the states; with the move to GST, states not only lost control over these important revenue sources, but now they find that their refunds are not being made on time.

Centralisation manifests itself in implementation too. It is enabled by technology. An impulsive reaction of technocrats in various ministries, frustrated by implementation failures at the local level, is to centralise control. That sometimes solves one problem, but creates new ones as well. For instance, delays in wage payments in NREGA were blamed on engineers at the Block level, and that process was digitised so that they could be tracked. Digitisation enabled tracking, but the system is now held to ransom by centralised technical support. For instance, at one point, lack of bandwidth to deal with the volume meant that Block-level functionaries were wasting hours trying to upload documents, sometimes at midnight because they felt others would be asleep.

Even in response to the coronavirus, the best approach would be for the central government to make allocations to the states, so that each one can come up with an appropriate relief response. Decentralisation is a better strategy.

LILA: The increasing dependence of welfare schemes and their delivery on technology for transparency reasons has raised many concerns about privacy. How do you situate the privacy versus transparency debate in such a scenario?

RK: When technology is discussed in the context of welfare, it is automatically assumed that technology will bring transparency, and that will enhance accountability. But there is enough evidence to suggest that technology can be (and is) used to obfuscate, and can thus reduce transparency. For example, when PDS ration cardholders go to authenticate themselves to get their monthly supplies of ration, the dealer may tell them that authentication has failed (either due to biometrics or connectivity), when in fact, the authentication was successful.

On the other hand, as you say, unchecked use of certain technologies has raised privacy concerns. Cheap and easy options for cloning fingerprints allow our data to be forever compromised. With the Aadhaar number being fed into every possible database in the country, the possibility of profiling by linking up these databases is very real.

Some people – wrongly – view the right to privacy as militating against the right to transparency. The case of the sexual harassment against Ranjan Gogoi (former Chief Justice of India) helps understand the complementarity between the two rights. These two questions illustrate that both are necessary: would you like the in-house committee’s report to be accessible under the right to information act? If so, then would you like your own identity to be revealed as the person seeking the information? If you answer yes to the first, you are endorsing the right to information, and if you answer no to the second, you want the right to privacy. These two rights reinforce each other.

LILA: You recently mentioned at a talk that the Aadhar and the NRC are “joint at the hip.” Could you elaborate on this statement?

RK: The link between the National Population Register (NPR) and the National Register of Citizens (NRC) is something most people understand by now. The NPR is the first step towards creating the NRC.

Perhaps what is not very well understood is the link between Aadhaar and the NPR. The UIDAI (in charge of Aadhaar) and the Census office (which undertakes the NPR) were locked in a turf battle for most of the UPA-2 period. Since 2014, the tension between the two (UIDAI and Census office) over demarcating enrolment states and collection and sharing of biometric data has simmered. Over time, the UIDAI took over more and more of the functions of the NPR.

LILA: In that sense, would the NPR be a repetition, or cross-reference for the UIDAI database? In a world that is increasingly being built on big data, is it possible anymore for us to avoid the big brother?

RK: I believe that we all have agency, and that we must use it. The inevitability narrative (‘is it possible to avoid big brother’) is part of the propaganda whose purpose is to make us question our confidence in what exercise of our agency can achieve. The recent anti-CAA protests have helped to correct that sense of hopelessness and helplessness against state power. So, to what extent we allow big data to turn into a big brother situation is in our hands. The state will use every opportunity to justify and normalise surveillance – we see that happening with the corona virus. We must remain vigilant, and question such attempts.

And yes, I believe that the NPR would be a waste of money and other resources as well.

LILA: Is there a future where social and economic justice and equality are finally achieved through the welfare projects of the State? What do you think is, or should be, the location of welfare in an increasingly capitalist world? 

RK: We know that capitalism is not the way to achieve social and economic justice and equality – that isn’t even a stated aim of capitalism. Social democracies (such as Sweden, Finland, etc.) have shown us that capitalism can co-exist with social and economic justice, so long as welfare is given its due in budgets and other ways. This requires people to recognise their social, economic and political rights and to assert them. The only way ahead is through public action.

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