Even as the Indian government bagged a bonanza in the auction of spectrum for third-generation mobile telephony and wireless broadband, the Andhra Pradesh government had its own little success this month in a less well-reported bidding frenzy. The biannual auction for liquor shops netted the state government at least Rs6,000 crore, double what it got two years ago.
The interesting thing here is that some newspaper reports have suggested that the rising prices of the rights to sell liquor are linked to the money pumped into the rural economy by the Mahatma Gandhi National Rural Employment Scheme, the government’s flagship social security programme. Liquor sales in Andhra Pradesh have doubled in the past five years and some of the highest bids have come in for rural districts such as Mahbubnagar and Anantapur. These reports hint at the possibility that the extra money in the hands of the beneficiaries of the rural jobs scheme is driving record liquor sales.
Little is as yet known about how family behaviour has changed, thanks to the new welfare programmes of the Indian government, both those that increase income and those that reduce prices of certain goods through subsidies. Introductory microeconomics tells us that consumer behaviour is a function of real income and relative prices, other factors being equal.
There is till now a lot of conflicting evidence, some good and some bad. One narrative is about how inflation has risen faster than average in districts that have strong welfare spending. There are suggestions that the rising price of pulses is because poor families have used the extra income to buy proteins. And then there are these reports about how a large share of the money is going into buying liquor.
“The moot point is where did the welfare dividend go? Did it get spent on temptation goods like liquor or in capital investments and savings? The finding would make for a fascinating study and have important implications for public policy,” writes Gulzar Natarajan, a civil servant, economics blogger and oped writer for this newspaper.
One interesting line of investigation is to look within the family. Who has access to money and entitlements: the husband or the wife? I have in a previous column mentioned the argument put forward by a Right to Food activist who would prefer it if the government gave free food rather than cash to poor families. The reason: women control food while men control cash.
His reasoning came to my mind when I read a paper presented by Esther Duflo at the ABCDE (or Annual Bank Conference on Development Economics) hosted by the World Bank in Stockholm recently. Duflo has given a very nuanced view on the link between economic development and women’s empowerment, avoiding the two optimistic extremes on how economic development automatically empowers women and that empowered women always make the best choices when it comes to spending the family income.
There is some research that shows that women in poor families tend to take better decisions with money, spending more than men would on the health, nutrition and education of family members. Duflo herself has shown in earlier research that women with a say in public policy at the panchayat level tend to have ambiguous decisions. Women tend to invest less in schools in West Bengal and less on roads in Rajasthan.
This is complex territory and needs empirical research. That will require time. Unfortunately, the current fashion is to judge public policy choices based on good intentions rather than desirable outcomes. Have welfare programmes led to a rise in inflation? Are men using their extra cash to buy liquor rather than send children to school? Should welfare programmes be targeted at women rather than men? Will reserved seats for women really change public policy choices? Has the rural jobs scheme raised rural wages without raising rural productivity?
Questions such as these are seen as mere irritants in an alliance that is run by a Congress party that believes in grand gestures—public policy as a morality play. The new National Advisory Council, too, is packed with do-gooders in a hurry, unhindered by constitutional or budgetary constraints.
The Manmohan Singh government’s chief economic adviser, Kaushik Basu, has written a superb chapter on the microfoundations of growth in the latest Economic Survey that was released in February. The main point of this chapter is that the design of public policy should take into account the behavioural decisions of individuals. It would be good if both the government and the Congress party pay some attention to the main point of that chapter.
The record auction for the right to sell liquor in the rural areas of Andhra Pradesh could be a good reason to start some debate on what the new welfare programmes are actually doing to development possibilities on the ground.
Niranjan Rajadhyaksha is managing editor of Mint. Your comments are welcome at firstname.lastname@example.org
To read Niranjan Rajadhyaksha’s previous articles, go to www.livemint.com/cafeeconomics.htm