The last couple of weeks brought three reports on programmes targeting the poor. The comptroller and auditor general report on the National Rural Employment Guarantee (NREG) scheme concludes that only 3% of the beneficiaries had access to the promised full 100 days of employment. Instances of leakage of funds, poor planning and coordination and sheer neglect have been highlighted.
The second report indicates that though credit to the agricultural sector has grown in the last three years, the number of farmers who availed of credit has declined. There is also evidence that the small and marginal farmers have not had access to credit, and that lending by cooperative societies has decreased.
In parallel, given that agricultural incomes have been rising far more slowly than overall credit to the sector, it is clear that the per capita incomes of those engaged in farming have been stagnant or falling in the last three years, while indebtedness per capita has risen. The finance minister has rightly asked for a report on this.
Third, the group of ministers that was to have met and taken a view on raising prices for cereals distributed to APL (above poverty line) families in the public distribution system has not been able to take a decision. At the same time, support prices for farmers have been increased. There has been no decision on raising petrol and diesel prices as well. The liabilities for subsidies are likely to be much larger than projected in the last Budget.
There have been many voices urging the government to do away with the Fiscal Responsibility and Budget Management Act, arguing that inclusive growth needs to address the requirements of the poor, and that ad hoc subsidies are not the way to do this. Off-Budget liabilities have been rising, most importantly due to distortions in energy pricing. A correction in policies, programmes, and even in thinking about the poor is due.
It is perhaps necessary to distinguish between issues over which we have some degree of control, and others over which we don’t. The raise in farmers’ support prices is a right step, one that should have happened a year ago. Farmers need more incomes, not more debt.
At the same time, it is important to recognize that global food prices are rising, both due to improved consumption demand in the face of better incomes, and stagnation in wheat and rice output. Consumer prices must rise. The poor must be taken care of through better targeting and better management, not through across-the-board subsidies. It is the programme managers that must take this forward.
Also, petrol and diesel prices need to be reset within more equitable tariff regimes. I have been arguing for reductions in excise and customs duties, as well as in artificial margins for the oil marketing companies. Refinery margins are close to $15 a barrel and the public sector refineries need to share these profits with the end-consumer. A complete overhaul of the way petroleum product pricing is structured would result in a more balanced price structure, with only a modest burden on consumers.
That would be the easy part. It’s more difficult to deal with poverty alleviation programmes. In the 1970s and the 1980s, their focus was on the rural poor. These required off-farm employment, some access to shelter and support in agriculture and allied activities. It was possible to construct programmes around livelihood patterns that would enhance incomes and lead to sustainable livelihoods. Even then, this required close monitoring, listening to feedback, and being alert against leakages.
Today, the problem of poverty is exacerbated by the urban poor, whose asset base is even lower than their rural cousins. They don’t have land for shelter, or access to common water sources or fuel that is available in rural areas. They, more than the rural poor, need the fuel and food subsidies. But programmes such as NREG can suit only the rural poor. We have thus two problems—the need to differentiate between the urban and the rural poor, and the need to implement programmes—subsidy-based or entitlement-based—more effectively.
There is considerable literature emerging in favour of direct cash transfers. We already have schemes for old age and freedom fighter pensions —can’t we have entitlement benefit schemes for the urban poor that enable them to buy cereals and fuel (kerosene) at close to market prices? With IT and ration cards and voter cards, that’s clearly possible. For the rural poor, there should be a focus on enhancing non-farm incomes, rural employment where possible, skills training as masons and plumbers in other areas, and indeed, provision of skills badly needed in the rest of the economy.
Teach them to fish rather than giving them a fish to eat.
(S. Narayan is a former finance secretary and economic adviser to the prime minister. We welcome your comments at firstname.lastname@example.org)