Putting out this shockingly anti poor view of some American Indian in the Economic Times of July 17, 2013 currently being feted by National Council of Applied Economic Research (NCAER) and Brookings Institution: What this Arvind Panagriya or whoever he be is saying is exactly what Modi is saying and what Arvind Kejriwal, Anna Hazare and Kiran Bedi were saying earlier whereby they drew huge middle class crowd at Ramlila Grounds two years ago. Sure enough our man, a pucca Sanghi, is plugging for Modi, against Food Security Bill and NREGA and what has been happily deleted, OBC and Dalit reservations, because that is what this rising urban upper caste middle class aspires for and that is why they all love Narendra Modi. Including this so called Economics professor, they are all seething with anger over what he described “squandering resources” which should instead have been used to unleash the market forces. That is what the insensitive rising classes believe, that is what Anna, Kiran Bedi, Arvind Kejriwal advocated and that is what in pure economic terms Narendra Modi is rooting for that is why all the Hasmukhbhais and Manubhais of Charni Road and Marine Lines love him and are shouting hoarse for him:
Q: The case for the Food Security Ordinance has been couched in moral terms. How dangerous is it for a government to mix moral concerns with economic policymaking?
A: It is fine for moral concerns to guide policy but the overarching moral concern of any government ought to be to achieve the highest social benefit for its people for each tax rupee it spends. And the ordinance comes out rather short in fulfilling that moral obligation. Cash transfers would yield a lot higher social benefit for each rupee spent.
Q: How important is the Food Security Ordinance for solving India’s nutritional problems?
A: If the objective is to boost cereal consumption, the ordinance will utterly fail in delivering it. The proponents of the ordinance say that it will accomplish for India what the highly effective public distribution system (PDS) has done in Chhattisgarh. But these proponents have obviously not checked the effect the supposedly effective PDS of Chhattisgarh has had on cereal consumption. Cereal consumption in the state by each of the bottom 30 per cent, the middle 40 per cent and the top 30 per cent of the population according to per-capita expenditure was lower in 2009-10 than in 2004-05. So there is no prima facie evidence that the Chhattisgarh public distribution system has boosted cereal consumption of any of the three groups. Even when the highly subsidised PDS grain is delivered without much leakage, it substitutes the open-market purchases kilogram for kilogram with no net gain in cereal consumption.
Q: What are major disadvantages of this ordinance?
A: It is an ordinance that will cause major disruption in the grain market, lead to multiplication of wastage and leakages and do precious little for nutrition since the real diet deficiency is not in carbohydrate consumption that the bill tries to push. Instead, the diet deficiency is in protein and other micronutrients for which we need increased consumption of milk, eggs, meat, fruits and vegetables.
Q: India is already spending more than Rs 67,000 crore on food subsidies. Many people argue that the Food Security Ordinance will only raise this by Rs 30,000 crore, just 4 per cent of the corporate taxes that are being booked as revenues foregone. Are we being harsh on the poor?
A: No, it is the squandering of the scarce revenues on the existing PDS as well as its proposed expansion that should offend our sense of morality. We should rapidly scale back the PDS instead of doing the reverse and transfer the revenues so saved to the poor in cash. That will eliminate the vast leakages in the current system, empower the poor and allow them to buy what they need most and from the most efficient seller. PDS shops will then have to compete with private sellers to earn their living and therefore shape up or ship out.
Q: Why do you hold the view that welfare measures such as MNREGA make people unproductive and that instead the country must spend on skill development? Is anyone listening in India’s corridors of power? Are you disappointed?
A: With rare exceptions, public works as currently implemented under MNREGA, fail to create meaningful assets, require the beneficiaries to perform wholly unskilled tasks and, with no competitive pressure of any sort, require minimal effort on the part of the workers. The good news, however, is that having tasted the fruits of growth, people’s aspirations have now been aroused and come elections they will simply throw the non-performers out of power.
Q: Have you read the book, An Uncertain Glory, authored by Jean Dreze and Amartya Sen? It argues that the “feasibility of high economic growth is threatened by the underdevelopment of social and physical infrastructure and the neglect of human capabilities, in contrast with the Asian approach of simultaneous pursuit of economic growth and human development, as pioneered by Japan, South Korea, and China”. How do you respond to this view?
A: To begin with, social expenditures followed rather than led growth in the Asian countries you mention just as in India. Where is the evidence that enhanced social expenditures either triggered or sustained the rapid growth in these countries? Much of the evidence points to trade liberalisation, flexible labour markets, macroeconomic stability and rising savings rates as the key factors behind these miracles. Even the formation of basic skills such as maintaining the discipline of arriving for work on time and staying on the assigned tasks, coordinating these tasks with other workers and maintaining a fixed work schedule initially came from working in the factories. Sure, once rapid growth had materialised, revenues became available for building up both economic and social infrastructure including roads, education, vocational training and health. The story Dreze and Sen are trying to claim puts the cart before the horse.
Q: Recently, Modi blamed the Centre for not spending enough on education. His grouse: China spends much more on education compared with India as a percentage of the GDP. Do you agree with him?
A: We certainly need to spend more on education and health but there are three issues we need to address when doing so. First, good education and social outcomes are not merely a matter of spending more public moneys. One has to spend such moneys judiciously. This is why we discuss at length the Track II reforms in our book (India’s Tryst With Destiny) that aim to make public expenditures on social goals more effective. Second, given that our incomes are still relatively low, we will not get the required expenditure increases by simply raising the percentage of expenditures devoted to education.
Q: Are you happy about projecting Modi for Prime minister? Are you impressed with his style of campaigning? What do you think of the controversial “puppy” remark?
A: That Modi, with his enormous success in bringing prosperity to the people of Gujarat, will be projected as the PM candidate is inevitable. Modi is also forcing a debate on the importance of growth to economic and social development, which I greatly welcome.