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Overall, India needs a smarter strategy, which economizes on scarce fiscal resources, and is more effective in reducing long-term chronic poverty. Photo: AFP (AFP)
Overall, India needs a smarter strategy, which economizes on scarce fiscal resources, and is more effective in reducing long-term chronic poverty. Photo: AFP
(AFP)

Sen vs Bhagwati: Turn right or left? Or is there a middle way?

India should discourage the populist, expensive and ineffective programmes that politicians inevitably prefer

The media is agog over the recent debate between two stalwarts of Indian economics—Jagdish Bhagwati and Amartya Sen. At issue is the age-old question regarding direction of economic policy for India: pro-market or pro-state-led programmes. As is typical in such matters, the media likes to paint the respective views of these two economists in broad brush strokes with a view to exaggerating the contrast. In reality, the writings of Sen and Bhagwati on this topic are far more nuanced and need a more detailed reading that many folks may not have the time or inclination to invest. Yet, public opinions and policies will be shaped powerfully by these rival, broad perceptions. They will inevitably colour and influence positions on impending legislation such as the food security Bill. Hence, it seems worthwhile to explain where I (and many fellow economists) stand between the two polar positions.

I agree with Sen that lagging human development in India is a great shame; our priority should include measures to address this rather than pursuit of growth alone. On the other hand, I also agree with Bhagwati that growth itself is a significant means of reducing poverty. However, the extent to which it does so depends on societal inequality and on the kind of anti-poverty safety net that the government creates. To Sen’s point, India’s record is abysmal in the latter respects compared even with other low- and middle-income countries. So we do need to devote attention to state-led measures to reduce inequality and poverty.

The real debate concerns the means to achieve this. In my opinion, the rights approach used to justify one gigantic entitlement programme after another is not the most effective way of achieving success in long-term poverty reduction. We need to prioritize different kinds of rights, figure out the costs of each and decide what we can afford. We need to understand the dynamics of poverty and take a long-run view on steps that will reduce chronic poverty rather than short-term palliatives. To elaborate:

(a) There are so many different kinds of rights, justifying some state-led action that one could make a case for, yet we do not have the means to achieve them all. We do not have the fiscal means or the institutional capacity to enforce them effectively. So we need to prioritize entitlements and attack the most urgent ones that we can hope to succeed with. The right to drinking water has been argued by some to be more primary than the right to food, as the former is related to the right to life itself. Sanitation and public health are public goods that only the government can ensure; and in this respect the Indian government has a particularly appalling record.

(b) Feeding someone today is fine but as long as we do nothing to attack the primary causes of poverty, that person is going to be hungry again tomorrow. We have to focus on creating capabilities (to use Sen’s own terminology) so households that are poor today will no longer be poor in the future. Access to food and nutrition has long-term consequences, especially for lactating mothers and very young children. Equally important is access to clean drinking water and sanitation. Reducing long-term poverty and equalising economic opportunity should be the primary goal. We need to create a welfare system that does not breed dependence of the poor on that system. Instead, we need to induce them to invest in their children’s skills and provide them with the means to do so.

(c) The cost of trying to feed the entire nation through an extension of the current public distribution system (PDS) is prohibitive. The country is reeling from the costs of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which is one of the primary reasons for the current macroeconomic crisis. Once created, these large public programmes are very hard to dismantle and replace by smarter and more efficient systems for combating poverty.

(d) Entitlement programmes such as MNREGA and PDS are wasteful and corrupt. The impending food security Bill has the potential to increase the scope of corruption and undermine public faith in the government. It could induce another round of scandals and scams that will further paralyse bureaucratic decision-making.

(e) The huge resource costs and macroeconomic drag of the food security Bill will reduce resources and deflect attention from investments in infrastructure and higher education. This will reduce productive jobs created for the poor in rural areas and restrict rural-urban migration, a key channel of growth and poverty reduction, as seen in China and other East-Asian societies. More generally, we need focus on a combination of policies related to infrastructure, skill development, deregulation and enhancement of market access for the poor, which will simultaneously boost growth and reduce long-term poverty. In this regard, I agree with Bhagwati.

Overall, we need a smarter strategy, which economizes on scarce fiscal resources, and is more effective in reducing long-term chronic poverty. It will require selective investment in drinking water, sanitation, early childhood nutrition, health and education. It will make pragmatic use of whichever means is found to be most beneficial—direct public provision using smart cards to identify beneficiaries, cash payments conditioned on the use of health and education services, or vouchers for the same. Most important, we ought to rally together to discourage the sort of populist, expensive and ineffective programmes that politicians inevitably prefer.

Dilip Mookherjee is a professor of economics at Boston University.

This column has been reprinted with permission from Ideas for India www.ideasforindia.in

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