The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), a make-work scheme that was the pet project of Congress president Sonia Gandhi, was considered by many in the Indian Right as the epitome of wasteful populism. Indeed, there could be very little said in defence of any such government programme that promises to “empower" the poor by doling out unearned benefits. But now with a “right-wing" prime minister in office, the erstwhile critics in the Right have gone mute even as Narendra Modi launched a big bang welfare programme last week.

The financial inclusion programme, named Pradhan Mantri Jan Dhan Yojana (PMJDY), kicked off with 1.5 crore bank accounts opened on the very first day. Each account holder is covered by life insurance worth 30,000, accident insurance worth 1,00,000, provided a debit card and allowed to overdraw up to 5,000. All that without any due diligence or a single penny paid in as premium!

The Prime Minister proudly proclaimed, “Never before had insurance companies issued 15 million accident insurance policies in a single day. Never before in economic history were 15 million bank accounts opened on a single day." Indeed. It does not take much to see that insurance companies and banks do not possess the privilege of taxing productive citizens to splurge on populist measures.

Now despite the launch of such a big bang welfare programme, quite ironically, the primary belief among the mute supporters of the “financial inclusion" programme seems to be that direct benefits transfer would cut down welfare expenditure by plugging leakages from the system. Nothing could be farther from the truth. Notwithstanding the many delusions of the Indian Right, statesmen of all kinds pursue only those policies that serve the purpose of aggrandizement of their own political power and stature.

Democratic politics as a system is tuned to pander to populist interests, which leads to competition among politicians to increasingly splurge on populism. Thus, every five years the size of welfare doled out to voters rises progressively. While this may not always hold true in the short term, the trend since the early 20th century, when democracies began to spring up, points to increasing plunder of productive citizens. This has happened despite rising living standards that should have decreased welfare spending.

Some states have shown clear evidence of politicians actively competing to increase spending each term to stand a step ahead of the promises of others. This has meant not just an increase in the size of doles, but also new measures to make welfare delivery more efficient—such that benefits are actually received by the targeted groups rather than the corrupt bureaucracy that is tasked with the job. Thus, it is the desire of political parties to fully reap the political benefits of their welfare programmes by reining in leakages that has culminated in support for direct benefits transfer.

Direct benefits transfer, in other words, is a mechanism evolved to keep up with political competition in spending more on targeted groups receiving benefits. So, banking on technological advances—that were adopted not to reduce spending but to pander more effectively to populist demands—to cut down welfare expenditure would be no less than folly.

The previous government’s Aadhaar programme was supposed to prevent leakages to help the Congress keep pace in the game of competitive populism. The party was voted out of power before the scheme could be implemented on a large scale. Today, PMJDY is nothing more than Modi’s own attempt at efficient delivery of welfare to please voters. This trend of competitive populism can only mess up the state of public finance, which is already nothing to write home about.

Natural Order runs every Monday, with a libertarian take on the world of economics and finance.

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