When rights are wrong
Welfarism, entitlement and subsidy are the three brahmastras of social engineering. The State must use them judiciously. Ashok Malik writes.india Updated: Dec 16, 2012 21:48 IST
What is welfarism? Is it providing support to sections of people for temporary periods till they gain the capacity to fend for themselves - or is it an institutionalised intervention in the equation between demand and supply and the artificial fixing of prices? That question is important, especially at a time when public spending on welfare programmes has risen so quickly and so much in India that important voices wonder if we are at the cusp of becoming an entitlement society.
Between 2003 and 2011, India's GDP grew at an average of 8.5% a year. In the same period, the Union government's subsidy bill rose from Rs. 40,000 crore to Rs. 160,000 crore. Like it or not, this is the UPA government's legacy and at the root of its inability to adhere to any promised fiscal deficit target.
Governments tend to use subsidies - and the power they have to simply print notes - not to build capacities of hard-pressed individuals but to fix prices. To a politician, this is tempting and convenient. It gives him or her power to override economic laws and reach out to interest groups and key constituencies, be it farmers in Iowa or kerosene users in Itanagar.
In the Soviet Union, the system of property rights, tenures and rentals was horribly complicated. It was famously pointed out that even in the 1980s, Moscow tenants were in some cases paying rentals frozen at 1930s rates. Maintenance and utilities charges were often so ridiculously low that apartment users paid 10% of the real cost. The State paid the rest. At some point, the money ran out. Long before that Moscow's urban planning and housing squalor had become a joke. There was always a shortage of apartments because the process of building new ones and giving them to end users was not sustainable.
Rent control is an old form of price fixing. It has been tried in several cities in India, and contributes substantially to the mess in older parts of Mumbai, Kolkata and New Delhi (including the famed Connaught Place area). In the former USSR, rent control amounted to State subsidy. In India, the burden was transferred to private property owners. The net result was the same: the collapse of cities, and the loss of economic opportunity.
Subsidy, welfarism and entitlement are the brahmastras of social engineering. They need to be used judiciously. If they overstay their welcome they begin to prove counter-productive. In seeking to fix access to or prices of one narrow aspect of an economic ecosystem, they could make the larger matrix itself unfeasible.
Take the Right to Education (RTE) Act. The entire focus of politicians and bureaucrats - and even of a lengthy court battle - has been imposing the 25% quota on private schools, even schools that have not taken a penny in any form from the State. The Delhi government has now announced a plan to create a 15% quota for the economically underprivileged not just at the entry level but in every class till Class 12.
So much effort is being put in this direction; no doubt it is tempting for the politician to proclaim, like Robin Hood, that privilege is being grabbed from the rich and handed to the poor. Nobody is talking, however, of enhancing supply and building and strengthening State-run schools. Setting up a new school in Delhi of reasonable size and facilities is impossible because all possible land permitted to be allocated for a school has been taken over by a land mafia. This is too difficult to fight and too difficult to explain. As such let's keep the quota issue in the headlines.
Take healthcare. Every Indian deserves access to a doctor, a hospital (if necessary), a preventive health regimen, modern diagnostics and medicines. This is a huge task. It entails everything from walkable cities to more medical colleges, especially at the post-graduate level, to health insurance that covers, for example, not just in-patient costs but also out-patient costs.
This is too complicated. It is easier to argue that India will become healthy because the government will tackle just one leg of the 12-leg table and ensure cheap medicines. As such, there is a plan to provide non-branded generic medicines free of cost to patients at government-run facilities. Further, price control has been extended to 650 essential medicines, with the price ceiling being the average price of all medicines in a category with at least 1% market share.
The patent office has been increasingly unwilling to validate claims of incremental innovation by big drug companies and so let them preserve a monopoly on a molecule by tweaking it. Compulsory licensing is being used to fight high prices imposed by MNCs, though admittedly for drugs that have a small market and affect very few people in India. Finally, price control of patented medicines is now part of the discussion.
Not all of this may seem unwelcome. Multinational drug companies are often accused of profiteering, and not just in India. Other systems and countries have also sought to rein them in. Even so, a broader point remains: is ensuring ultra-cheap medicines the only thing you need to do to build a healthy society? You would agree if you also felt RTE quotas could build a knowledge society - or rent control could build cities.
Ashok Malik is a Delhi-based political analyst
The views expressed by the author are personal