Earth to Mr Jaitley: socialism is not pro-poor, markets are not anti-poor

http://firstbiz.firstpost.com/budget/earth-to-mr-jaitley-socialism-is-not-pro-poor-markets-are-not-anti-poor-90604.html

So why did the Narendra Modi government, whose high-pitched pre-election rhetoric promised a decisive rightward shift in the management of the economy, debut with a budget that would have done the Congress proud? This is something both Congress president Sonia Gandhi and former finance minister P. Chidambaram have smugly pointed out.
This piece by M. K. Venu argues that the maiden budget was `socialist’ because Modi wanted to be seen as pro-poor. Venu quotes finance minister Arun Jaitley telling him in an interview done for Rajya Sabha TV that in a country with so many poor people, any economic philosophy which is totally market based will not work. Listen to the interview here.
That is the problem – the assumption that socialist policies are pro-poor and market-friendly policies are not.  This fairly widely-held assumption is itself based on two wrong assumptions, one about socialist policies and the other about pro-market policies.
That socialist policies are pro-poor flies in the face of evidence from India itself. India’s economic policies were overwhelmingly socialist before 1991. Indira Gandhi’s socialist agenda got an emotional anchor, as it were, with the Garibi Hatao slogan. Apart from the plethora of anti-poverty schemes, all economic policies supposedly had a pro-poor focus. And yet the pace of poverty reduction has been faster post-1991, once India embarked on pro-market policies!
All manner of subsidies have been rolled out in the name of the poor; any withdrawal is slammed as a move to abandon the poor to the vagaries of the market forces. But, barring a few, these subsidies really go to the better off. The poor are anyway left to the market forces. Take Delhi, where highly subsidised water and electricity supplied by the government go to the middle classes while the poor, who live in slums and unauthorised colonies, pay several times more for the same facilities supplied by the market. Yes, the rates are exploitative but the so-called pro-poor state is just not present in these areas peopled by the poor. Yes, the issue is that of governance, and that precisely is the point. Good governance is not about socialism or capitalism; it is about how efficiently the state goes about fulfilling its responsibilities.
Now for the other bogey that Jaitley seems to be mindlessly parroting – that a pro-markets approach necessarily neglects the poor. This stems from the trenchant criticism by the critics of socialism of the dole-centric approach to helping the poor, especially the rights-based entitlements legislations that the Congress initiated (and the BJP supported). But the question whether doles are more effective in helping the poor needs to be examined. This question came up last year when poverty figures released by the Planning Commission showed a sharp decline in poverty levels between 2009-10 and 2011-12 and also a decline in the absolute number of poor. The Congress party was quick to claim credit – not for the years of highest ever economic growth during UPA 1 (which they otherwise kept boasting about), but for welfare measures during its rule, especially the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). 
But economist Surjit Bhalla questioned this claim in this article. Using NSSO data, he pointed out that MGNREGA accounted for only 1 percentage point of the 13.1 percentage points decline in poverty between 2009-10 and 2011-12. In this second article, he gives a more direct link between growth and poverty reduction.
Now to the wrong impression about pro-market policies.
Venu’s article argues that Modi’s statements that government coffers are meant for the poor is `very socialist in its tenor and intent’. This reinforces the completely fallacious image of pro-markets ideologues as unfeeling cads who want the government to work for the well-off and the rich. Not even free market fundamentalists (except those in the loony fringe) argue against measures to help the poor. There will, they admit, always be disadvantaged people who will need the helping hand of the state. The point of divergence between socialist policies and pro-market policies is not about helping the poor; it is about how to help them.
The socialist approach is through price-distorting doles and welfare programmes (no matter how leaky and inefficient they are). The pro-markets approach is to get the state to stop meddling in, and micro-management of, the markets and to concentrate on providing public goods, thus ensuring high growth which will bring more people above the poverty line (no matter how high or low it is set).
Venu cites two new schemes in Jaitley’s budget - Deendayal Upadhyay Gram Jyoti Yojana and  Shyama Prasad Mukherjee Rurban Mission – as examples of BJP social sector schemes and calls this BJP’s own brand of socialism. But these are not welfarist schemes; these are schemes to provide physical infrastructure - clearly the role of the state even in a market economy – that will spur economic activity and growth. Socialist policies do not bring high growth; pro-market policies do. We have seen that in India.
High growth will not only help address the problem of poverty, it will, far more importantly, provide the resources for targeted interventions to help the poor and the needy. If there is no money in government coffers, even socialist states cannot help the poor. Such interventions should ideally be through income support and cash handout measures than inefficient welfare programmes that are liable to corruption and cornering by the better off, leaving the poor where they are. Even Amartya Sen has not argued against excessive state intervention in the markets; he too believes growth is necessary for poverty reduction. It is another matter that he prefers inefficient welfarism over more efficient income support measures.
The problem with the discourse on political economy in India is that words like socialism, pro-poor and market friendly are bandied about, especially by politicians, without adequate understanding of what they mean. Jaitley’s statements prove this.

Sure, poverty fell, but no thanks to UPA’s NREGA

First published in Firstpost.com: http://www.firstpost.com/economy/sure-poverty-fell-but-no-thanks-to-upas-nrega-981421.html
As the country heads closer and closer to elections, there will be a slow and steady release of facts, figures and sundry survey reports showing 10 years of United Progressive Alliance (UPA) rule in good light. In end-June, the National Sample Survey Organisation’s Employment and Unemployment in India, 2011-12 indicated an uptick on the employment front between 2009-10 (when the last survey was done) and 2011-12 (though a lot of questions remained unanswered, as this story in Forbes India shows). And now the latest poverty estimates released by the Planning Commission yesterday show that poverty decline between 2004-05 and 2010-11 has been faster than between 1993-94 and 2004-05.
Critics – especially political opponents – would be quick to pick holes in this. First, they would probably latch on to this interview that former member of the National Statistical Commission, Amitabh Kundu, gave to The Indian Express. In this, Kundu has argued that if the survey had covered 2012-13, the poverty estimates would not have been that satisfying. So it looks as if the 2011-12 survey was done only to show the UPA in good light. 

This question was raised in the case of the employment figures as well and the current and former chief statisticians refuted the conspiracy theory of statistical skulduggery. Large sample surveys are done by the NSSO every five years. After the 61st round in 2004-05, there was a 66th round in 2009-10. But since that was a bad economic and agricultural year, it was decided that the results would not be comparable with 2004-05 and so it was decided to conduct another survey in 2011-12, after just two years (when the next survey would actually have been due in 2015). This decision was taken even before the results of the 2009-10 survey were out. 

Next, the sceptics will mock the poverty reduction achievements on the grounds that the estimates follow the Suresh Tendulkar poverty line, which is laughably low. But this too deserves to be junked. When the Tendulkar poverty line was adopted in 2009, it actually showed a higher incidence of rural poverty than the earlier Lakdawala formula did. Secondly, when the controversy over the Tendulkar formula first broke in 2010 – and critics (notably from the anti-growth and anti-reforms brigade) insisted the formula was flawed, an exercise was done to show poverty estimates using both formulas. The rate of poverty reduction between 1993-94 and 2004-05 was shown to be slightly higher under the Lakdawala formula (0.77 percentage points) than the Tendulkar formula (0.73 percentage points). So clearly, the Tendulkar formula does not underestimate poverty. 

If the left and the BJP really want to get after the UPA government on poverty, it should be on how this reduction was achieved. The Congress and the intellectual gurus of its welfarist approach will no doubt crow that this is the result of the so-called inclusive growth agenda followed by the UPA since 2004. Specifically, they are going to credit the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) with the achievement. But as economist Surjit Bhalla points out in his column in The Indian Express today, this cannot be true. Using the NSSO data, Bhalla points out that MNREGA accounts for a small share of casual employment. Casual work as a percentage of total rural employment, he shows, was only 1.6 percent in 2009-10 and 2.1 percent in 2011-12. And within casual work, MGNREGA accounted for just 36.4 percent and 37.1 percent in 2009-10 and 2011-12 respectively. So MGNREGA, he argues, accounts for just 0.65 percent of total rural employment. 

He also debunks the theory that MGNREGA has helped increase rural wages. MGNREGA wages, he shows, rose by only 25 percent between 2009-10 and 2011-12, while non-MGNREGA casual work wages rose by 39 percent. 

And then comes Bhalla’s most damning indictment. The decline in poverty between 2009-10 and 2011-12 was by 13.1 percentage points; MGNREGA accounted for only 1 percentage point of this reduction. The left will not take up this line of argument because it would not like to junk a welfarist scheme, not matter how bad an idea it is. The BJP too is not averse to supporting bad economic ideas (witness its lack of opposition to the food security bill). 

But the real arraignment of the UPA’s so-called dole-oriented approach to inclusiveness is in these figures, not in junking the Tendulkar line.

Why Congress can’t tell opponents not to politicise Food Security Ordinance

First published in Firstpost.com: http://www.firstpost.com/politics/why-congress-cant-tell-opponents-not-to-politicise-food-security-ordinance-960089.html

Critics of the National Food Security Ordinance (NFSO) have been rapped on the knuckles twice in two days by prominent Congress leaders. 

Yesterday, Digvijaya Singh told Congress bete noire, Narendra Modi, to stop playing politics over the food security law. In response to Modi’s barbs about the ordinance being a meaningless piece of paper, Singh said the main purpose of the ordinance was to ensure that food reached the poor and “it would be good if Modi did not politicise it”. 

Today, Finance Minister P. Chidambaram, while addressing a press conference on the state of the economy, called the ordinance “the most important legislative measure of UPA-2”. With a piously stern expression on his face, he said, “I know that there are people who mock at the ordinance. I feel sorry for them. Nothing is more important than food security.”

Singh’s advice to Modi is not entirely misplaced. After all, the BJP’s opposition to the food security law is not a principled one, centred on the rejection of an inherently flawed rights-based entitlements approach. Political parties are united in championing bad laws and the food security law was no different. The BJP knew the vote-pulling power of this law and simply wanted to deny Congress the credit for legislating it. Even as the party stalled Parliament during the last session, BJP leaders were constantly making public statements that they wanted the National Food Security Bill passed.
But the Congress asking people not to politicise the NFSO is amusing at best and galling at the worst. The right to food legislation has been about nothing but politics from the start. Riding high on the so-called success of the National Rural Employment Guarantee Act (NREGA), the UPA-1 had promised a right to food in the 2009 election campaign and got set to work on this soon after it came to power. (This much one will have to concede to the Congress – it doesn’t make entirely empty poll promises.) 

Is ramming through an economically unsound law not playing politics? That too, with issues as serious as poverty and hunger? It is no one’s case that people in India are not going hungry, though the government surveys have themselves shown that the number is declining. But if people don’t have access to food it is not because there is no food – India has far more than its needs for its buffer stocks – but because people don’t have purchasing power. Legislating a right to food does not address this problem, which is at the root of food insecurity. There has been enough evidence that the food security law is going to play havoc with government finances. The deleterious domino effect this will have on the economy, which already appears to be in free-fall mode, has been pointed out time and again. Economist Surjit Bhalla has pointed out that the Bill will cost 3 per cent of GDP in the first year alone. Bhalla will no doubt be dismissed as a free market fundamentalist, but equally alarmist caution has been voiced from economists who are part of the government establishment. But the Congress leadership has not paid heed. Is that not playing politics? 

Chairman of the Commission on Agricultural Costs and Prices, Ashok Gulati, has pointed out the deleterious effect of the food security law on agriculture and the entire food economy in a paper, National Food Security Bill: Challenges and Options, (co-authored with Jyoti Gujral and T. Nandakumar). Those concerns too have been ignored. Is that not playing politics? 

And yet all these critics of the food security bill – the majority of whom are economic right-wingers, but social and political centrists – are dismissed with just one damning indictment: they are not pro-poor. Never mind that they have far more sound suggestions to pull people out of poverty and ensure food security. 

The target of Chidambaram’s admonishment was Modi, but it could well have been directed at all these critics of the food security law. Because in the binary world that the Congress seeks to push public discourse into, if you are a trenchant critic of the party, then you are a rank majoritarian communalist enamoured of Modi. And if you are not an ardent supporter of the food security ordinance, then you are an unfeeling soul who wants the millions of the poor to starve to death.