A bit more to go around

In this decade, we could well move from the politics of poverty to the politics of wealth.

Two decades after economic reforms were launched, the Congress has discovered their sales pitch. By hyphenating ‘inclusive’ with ‘growth’, it has managed to widen the constituency for reforms. The discretionary income redistribution inherent in this compact, however, can be self-limiting as expectations ramp up. A rules-based mechanism to deliver social security is a far more stable construct available in much of the developed world. Over the next ten years the Indian economy should, hopefully, have acquired the maturity to demand of its politicians that they — having put in place a system that can work on autopilot — disintermediate themselves from resource mobilisation and allocation.

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Some signs of it are already coming into view. India is in the process of acquiring tax codes that have built-in safeguards against discretionary changes. This owes itself to the experience that a formulaic approach to taxation generates growth, and tax revenue, much in excess of a system riddled with inconsistencies. Exemptions cost ultimately in the higher rates that are needed to neutralise revenue loss. This logic applies equally on the other side of the ledger. Piecemeal income transfers are not only inefficient because a regulated pipeline does not exist to the intended beneficiaries, the handouts face the moral hazard of encouraging unreasonable expectations.

We shall, of course, be sending much more money down individual leaky pipes before the holes can be plugged. The recurrent theme over the next decade will be on the accountability of government expenditure. Here, however, much work needs to be done to create a security net that renders discretion—political and bureaucratic—redundant. Information technology offers an easy learning curve and the unique identification number a good starting point to get a fix of how big the issues of poverty and illiteracy actually are. Critically though, India’s transition to a semblance of a welfare state requires the will of a political class that stands to lose its clout in a formula-based regime. For a community addicted to regulatory capture, this is tantamount to hara-kiri. Yet, the next stage of reforms the country needs has more to do with the delivery of governance than any specific section of the economy. This can be the decade when we switch from the politics of poverty to the politics of wealth.