The Welfare State is an Ill-fare State

Before I am accused of being a right of the road, capitalist pig, let me clarify that I am no unabashed advocate of the free market. I recognise that the market cannot meet the needs of groups which lack the skills and purchasing power to offer their services and buy the goods and services essential for their day to day living. I endorse the view that the state has the responsibility to arrange for the provision of public goods like quality healthcare and education, which are beyond the financial capabilities of large sections of the population. Why is it then that I harbour strong reservations about the Indian state having pushed the “welfare” envelope so strongly over most of the first sixty years of independent India?
I think the problem lies in thinking that redistribution can be pushed as a primary policy without creating the conditions for sustained growth. The Indian state has too often relied on distributing fishes to the populace without investing in teaching them how to fish for themselves. The result has been the development of an ‘entitlement’ mentality in the population, with the state being expected to deliver quality goods and services across a wide spectrum of sectors. There are two issues in such an approach – first, the state cannot mobilise the finances required to meet such a vast array of entitlements and, second, the quality of goods and services delivered rarely meets the expectations of the groups for which they are intended. The consequences are faced by the people in the form of price inflation (a corollary of large budget deficits) and crumbling public services, manifest in the most evident, wretched manner in decaying urban habitations. Lest anyone harbour the thought that these are manifestations only in an emerging economy, let me point out that the largest economy in the world, the United States of America, is beset with the same problems.
The inherent complications in the Indian tryst with the welfare approach can be best exemplified by studying its consequences in three sectors: jobs, housing and food. An over-reliance on the public sector as the engine of growth meant that jobs had to be created largely in government and public sector enterprises. Since neither of these institutions had to face the discipline of the market place, we ended up with bloated public institutions, where performance was never the criteria for keeping one’s job. Politicians vied with one another in creating sinecures for their constituents, the worst offenders being the railways and the municipal corporations. Getting a government job is still the ‘holy grail’ for large segments of the citizenry. At the same time, the over-zealous state felt it had to guard the worker from the evil designs of the private sector. So we have the Industrial Disputes Act, the Contract Labour Act, etc., which are ostensibly meant to safeguard workers’ rights, but which end up damaging the very basis for providing secure livelihood. Labour legislation in India has virtually precluded any laying off of workers even if the concerned firm is in no position to continue operations. Nor has specific provision been made for social safety nets to protect the worker’s (and his family’s) existence till he secures alternative employment and for retraining provisions to enable the worker to adjust to changes in technology and processes. Employers have, therefore, taken recourse to employing contract labour for years on end, creating a huge mass of unorganised labour. Apart from breeding unrest in workers with highly uncertain futures (Maruti is a recent example), this also lowers labour productivity. There is also the tendency to go in for capital-intensive technology, a disastrous development for a labour-rich economy like India.
Again, an overriding concern for the welfare of tenants and the state-sponsored provision of housing for economically weaker sections of society saw the emergence of laws controlling rents and restricting urban land ownership. The Rent Control Acts, designed to regulate rentals in urban areas, were introduced between the end of the First and Second World Wars and have survived for over seventy to eighty years in a number of states of India. The Urban Land Ceiling Act, enacted in 1976, served to choke the stock of urban land available for development. These two Acts, coupled with politico-bureaucratic control of the land use process in urban areas, has led to a totally arbitrary, unpredictable manner of urban development, exacerbated by the rapid inflow of migrants to cities in search of work. Government efforts at directly adding to the stock of housing have been woefully inadequate and of shoddy quality. Attempts to associate the private sector through slum redevelopment schemes have generally failed, with allegations of favouritism and large-scale corruption.
However, it is in the area of food provision that public policy has fumbled the most. The National Food Security Act seeks to provide subsidised foodgrains to a majority of the Indian population. This process is to be administered through a mechanism that is riddled with inefficiency and leakages, right from the Food Corporation of India at the central level to the civil supplies machinery at the district level. Inspite of boasting of a decades old public distribution system, the state has failed to check food inflation, with grim consequences for the poor. Inadequate attention has been paid to promoting agricultural productivity and developing farm to customer supply chain networks. Soil conservation is an area that has been talked about incessantly, without any real commitment to it: major programmes of soil conservation works funded by rural employment guarantee schemes like the MGNREGA could well have augmented groundwater levels and promoted efficient agricultural practices. Foreign direct investment in retail is another area where kneejerk reactions motivated by specific interest groups have obstructed the introduction of technologies and systems that reduce food wastage and guarantee secure incomes for farmers.
What is evident from the three examples above is the way in which misplaced welfare concerns have not only failed to achieve their intended objectives but have also inhibited the adoption of long term measures that could have laid the foundations for sustained economic growth and development. Governments come and governments go in India but the same blinkered approach to public policy persists. Even today, politicians of different hues seem to think that welfare measures, like free rice, loan waivers, consumption loans, etc. lead to poverty reduction. Such measures fail to address the root problems of inadequate purchasing power and access to credit. Not only that, the huge public financial outlays on these and other welfare measures limit the capacity of the state to invest in physical and human infrastructure, which alone can be the basis for future growth. European countries moved to a welfare state after the foundations for sustained economic growth had been laid. By trying to put the cart before the horse, the Indian state is achieving neither its welfare objectives nor its growth goals.

One response to this post.

  1. Posted by Dilip on July 1, 2014 at 3:28 pm

    It is treat to read your blogs. Views of administrator, economist and citizen of India combined and expressed beautifully.


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