Saturday, October 15, 2011

The positive side of "Rs. 32"

The Planning Commission of India finds itself in a spot after submitting before the Supreme Court that the poor are those who, per day, spend less than Rs. 25 and Rs. 32 in rural and urban areas, respectively. While it’s always debatable whether the right methodology has been adopted or how valid these numbers are, but this "Rs. 32 debate" does have some positive significance as far as our macro policies are concerned. Let’s discuss the two major ones. 

India is extremely poor and even our policy makers acknowledge this now: The poverty line has been a contentious issue in India for some time now.   According to a 2005 World Bank estimate, 41.6% of the total Indian population falls below the international poverty line of US$ 1.25 a day. The Tendulkar Committee report says that 37% of people in India live below the poverty line. The Arjun Sengupta Report states that 77% of Indians live on less than $0.40 per day. The N.C. Saxena Committee report states that 50% of Indians live below the poverty line. While the debate on percentage of poor in India is far from settled but the discussion does seem to be moving away from “Rs. 32 or Rs. 25” towards “why Rs. 32”? For a healthy debate, we needed a starting point where we accepted that many Indians live in abject poverty and problem identification has been as much of a failure as its solution. 

Our Macro-level policies won’t make us the next Europe i.e. debt ridden: The significance of poverty line is that it aims at identifying the section of the population that needs the maximum support whether in the form of resource allocation or in the form of special attention. The government can use it for determining entitlements or launching schemes to suit their needs (The Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, said that the Tendulkar poverty line will stay but only as a reference point to measure the impact of the economic growth and not for determining entitlements). Though some might say that given the social structure of India and the issues related to implementation, most of the social benefits have been hijacked by the upper class or the dabanng section of the societies thereby leaving the poor high and dry. But even in this backdrop, universal system whereby freebies are doled out to one and all, is not sustainable as resources are limited and doesn’t do anything to address the leakages in the system. Add to this, it will dis-incentivize the producers especially the farmers as major part of their produce would be rotting in the FCI godowns that buys at Minimum Support Price (MSP) rather than finding its way to export destinations where commodity prices are heading north. 

Thank God, we are debating: India has failed its poor, be it in the form of flawed policies or in the form of shoddy execution. After all, isn’t it surprising that a scheme like NREGS, which is more of money doling-out scheme without any sustainable infrastructure development, had Proposed Financial Outlay of 3982.20 lakhs for the year 2009-2010 whereas schemes for health (NRHM) and education (SSA) had a combined Proposed Financial Outlay of only 3587.06 lakhs for the year 2009-2010. Thus "Rs. 32", the figure that has caught the fancy of the educated Indians coupled with observations like the one mentioned above, has the potential to question the inefficient and populist decision making of the government of India as well (Mr Montek Singh Ahluwalia believes "Rs. 32" has been  used by critics to deliberately dramatize the scenario). 

So, let’s channelize our resources to “where the Indians need” rather “where the politicians want”. Only the honest debaters can bring about this change else what else do you expect from the government that blames the court (as it has ordered arrest of corrupt corporates) for bleak investment scenario in India?  

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