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Notebook

The Welfare War

The Welfare War
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Turning private goods into public goods

NO ONE REALLY minds kite-flying. The idea of looking at something that flies upward even as the control string remains firmly in one’s hands comes close to pure joy. Reading manifestos of political parties released on the eve of elections, too, gives one a somewhat similar feeling. Depending on one’s perspective, one can call it idealism at the hands of those who practice ruthlessly realistic politics or a flight of fancy.

The manifestos of the Indian National Congress (INC) and the Bharatiya Janata Party (BJP) have been analysed to death in the days and weeks since their release. As feel-good documents, one can have no objections to them. It is the details that are devilish.

Consider the Congress’ document. The one thing that is striking is the persistence of the party’s faith in entitlement or rights-based approaches. The party has now promised a right to housing for the urban poor and protection from arbitrary eviction. It has also promised a right to homestead law ‘to provide a homestead for every household that does not own a home or own a land on which a house may be built’. These are extraordinary suggestions that have been made without elaborating how these promises will be met. For example, where will the land for homesteads come from? The number of homeless people in India—both urban and rural—is gigantic. The task of acquiring and creating a land bank for the purpose of giving shape to such a promise will be gargantuan and can fundamentally alter land markets, most likely for the worse. There are only two known ways to do this: either the government purchases land at market rates, something that is clearly beyond the financial means of any government given the numbers; or land is taken away for a ‘public purpose’. That will be extraordinarily anti-democratic or it will be to give a very different meaning to the expression ‘public purpose’.

There is something that is almost unique about such ideas. In economics, the distinction between private and public goods is very clear and fundamental. Private goods, as the name suggests, are goods that one buys for personal consumption. Public goods are those that are available for all without any diminished or reduced consumption for anyone. Classical examples include bread, which is a private good, and security and law and order, public goods that are available to all. Public goods are always funded from tax revenues. When one talks of a ‘right’ to a particular good, for example a house in an urban area or a homestead anywhere, it changes the nature of these goods. Ordinarily, if one wants to build a house, it is for oneself or for one’s family. In other words, it is essentially a private good. One may, of course, avail subsidised financing from banks or specialised financial institutions but that does not change the fact that one has to pay for the house, whether one is poor or rich.

What the Congress as well as the BJP manifestos show is that this distinction has been blurred to the point of being unclear in India. The BJP’s farmers’ income support scheme (PM-Kisan), which the party promises to extend to all farmers in the country along with Congress’ NYAY scheme, are examples of using tax revenues for providing a part of farmers’ income. This is the closest one can get on turning private goods into public goods. From houses, guaranteed employment and now even incomes, everything is taking a public goods character.

The BJP’s farmers’ income support scheme, which the party promises to extend to all farmers in the country along with Congress’ NYAY scheme, are examples of using tax revenues for providing a part of farmers’ income. This is the closest one can get on turning private goods into public goods

The trouble with all this is that there is no discussion in these documents about the costs involved in this economic revolution of sorts. The Congress landed in a controversy when one of its key intellectual figures suggested the middle class should be “generous” and be prepared to shell out more as taxes to fund these ambitious schemes. This claim was suitably amended later when the party brass said there would be no increase in income tax. But that does not answer the question where will the money come from?

The same problem of the gap between what is promised and what can be done feasibly plagues the BJP document too. One of the promises is an investment of Rs 100 lakh crore in infrastructure by 2024. Another Rs 25 lakh crore have been promised for the agriculture sector. These are astounding figures. For comparison, in 2019-20 the Union Government’s revenue is estimated to be just a tad short of Rs 20 lakh crore. The sum promised for infrastructure investment is five times that figure. Of course, all that money cannot come from the government budget. Some of it will come from banks and bond markets. But even that is rather rosy: such is the bond market’s fear of being crowded out that even a slippage of 0.2-0.3 percentage points in the fiscal deficit target sends shockwaves. Here the sums involved are considerably larger.

This gap between what has been promised and what can be done is not restricted to welfare. Even on issues of national security—where the BJP document is forthright—the gap is hard to bridge. Take the issue of equipping armed forces with new weapon systems. Both parties promise speeding up of procurements but neither goes into the ‘how’ of it. Not only is the system broken at the government level but today any busybody can go to court and get probes ordered into these issues. This is detrimental to India: not only is the process of acquisitions slowed down but more importantly, vendors and equipment manufacturers have ceased to take India seriously as a buyer. There is not a word in either manifesto on how this problem will be fixed.

There is, however, one matter which the BJP has done well to highlight: internal security. Here it has clearly spelled out that it is in favour of the Citizenship Amendment Bill—a vital piece of legislation, one that is important for securing Northeast India from security-threatening demographic changes. It has also reiterated some old promises: Removal of Article 370 from the Constitution (along with Article 35A). It has also promised a clear approach to combating Maoism in India. Here, the Congress has waffled and has gone back to its old idea of equilibrium between security and development. Anyone who has seen areas marred by left-wing extremism knows that is a false binary: there can be no development there without first securing far-flung areas.

But these are momentary matters to whip up ideological foam. By the time these words are printed, the first phase of the 2019 General Election will be over. The manifestos would have long been archived and opinion writers—the class that tracks these documents with near religious zeal—would have passed judgement and moved on. The truth is that India, as a country, as a people and certainly its government, does not have the means to fulfill these promises. Where the means are lacking, the will too flags down quickly. Until the next kite-flying season then.