The year 2012 ended with two cautionary tales about the limits of populist spending from two different corners of the country: one from the relatively poorer state of Uttar Pradesh (UP) in the north and the other from richer Tamil Nadu in the south.
In Tamil Nadu, secondary school and college students who received free laptops from the state were found selling those away in the grey market. The ambitious scheme to give away free laptops was launched with the lofty idea of providing students with a window into a new world of knowledge, but many saw it as a window to make a quick buck. Despite markers to identify government-gifted laptops, a thriving informal market has developed in the state, and the hapless education machinery is now burdened with the task of checking whether students bring their laptops to class.
In UP, the government’s conditional cash transfer schemes aimed at girls who meet certain educational qualifications or are below an income threshold, appears to have run into trouble. Faced with allegations of arbitrariness in the selection of beneficiaries, the government removed most eligibility restrictions, and was flooded with applications to avail the cash doles. To meet its commitment, the government might now have to shell out nearly thrice the budgeted amount of Rs.1,294 crore.
The two examples are among the numerous ill-designed schemes in the country, which falter because policy makers disregard incentives of citizens in their rush to score populist brownie points. Regardless of whether a dole is in kind (as in the case of Tamil Nadu) or in cash (as in the case of UP), such schemes fail because governments can neither correctly identify the poor nor dictate the economic choices of beneficiaries. One way out of the mess is to replace India’s myriad and dysfunctional ‘welfare’ schemes with a universal direct cash transfer program that allows each person to spend according to her priorities, allowing the state to focus its energies on providing public goods.
The UPA government’s move towards direct cash transfers falls far short of that ideal, as it is merely offering piecemeal alternatives to existing cash doles. Indeed, cutting across political lines, there is a reluctance to abandon populist schemes because of the deep and abiding attachment of the political class to the politics of patronage.
The one silver lining at the start of the New Year is the rise of a restive middle class, which is unhappy with the lack of quality public goods, such as policing or infrastructure, and contemptuous of patronage-based politics. As this class grows more assertive, governments may eventually be forced to abandon populist posturing and instead focus their attention on what they are supposed to do: provide for essential public goods.