With electoral bells about to ring, populism is back with a vengeance. With a slew of populist schemes up its sleeve, the government is in no mood for any restraints. It is all for fiscal recklessness.
Consider the direct costs of these schemes announced and extended during the past one month. The flagship National Rural Employment Guarantee Scheme (NREGS) was allocated Rs12,000 crore this financial year for 331 districts. Now it is to be extended to 600 districts and the cost is likely to gallop to Rs21,750 crore. After expansion, the national old age pension scheme will cost Rs4,000 crore, the common man insurance scheme another Rs1,000 crore, the national health insurance scheme Rs700 crore and the proposed loan facility to minorities approximately Rs1,000 crore per year. The bill comes to Rs28,450 crore per annum.
These schemes leave a host of unanswered questions. What right does a ruling party or coalition have to spend money for outright electoral appeasement or gain? Why must citizens be taxed for funding these schemes? If welfare of citizens is at the heart of these programmes, why should bureaucrats implement them? How much money will be siphoned off from these plans?
To give a concrete example of in-built corruption and inefficiency, consider the NREGS in Orissa. A survey of 100 villages in some of the poorest districts of the country by the NGO, Centre for Environment and Food Security, found gigantic siphoning of funds and corruption in the programme. Of the Rs733 crore spent by the state in 2006-07, an estimated Rs500 crore had been pocketed by government officials.
One can continue with the details, but that sheds no light on the structure of inefficiency built into these schemes. Economists call it an “agency problem.”
In simpler words, it’s a mismatch between the incentives faced by officials who implement the scheme and those whom it is meant to benefit. The implementers have few incentives to properly spend the money provided. The elaborate vigilance mechanism set up under the NREG Act only adds layers of officials whose incentives are aligned perfectly towards colluding with primary officials. Economics has yet to discover a solution to the problem.
That, however, has not deterred a powerful coalition of politicians, economists and social scientists demanding an extension of the NREG Act and a slew of other, similar plans. What is not considered in news is the pernicious effect of these schemes on the terms of democracy in India.
With such programmes being widespread, the costs incurred on them have become a major component of maintaining democracy. They are now part and parcel of electoral costs. Earlier, the latter included only the direct costs of conducting elections and costs incurred by candidates. Now, no ruling coalition has the courage to enter the electoral arena without announcing such programmes first.
Everyone gains from this arrangement, save those for whom these plans are meant in the first place. The ruse works. First, the alleged beneficiaries are spread across the country and, secondly, the symbolic value of such actions in a democracy is very high.
The plan to provide loan facilities to persons from minorities over the next five years can be seen in this light. It has an in-built agency problem: it will be implemented by an umbrella organization, the National Minorities Development Corporation.
There is no word on how inherent conflicts of interest will be resolved, if at all. Who will tame the errant officials? Politicians? The outcome is unlikely to be different from other such programmes. Yet, it would have served political purposes well. Disadvantaged people will feel something is being done and votes would have been cast.
Do you think such schemes serve any purpose? Write to us at email@example.com