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A survey with a conscience

The State’s inclusive agenda would be better served by direct income transfers to the poor.

india Updated: Feb 25, 2011 23:16 IST

The official assessment of the state of the economy is cautiously optimistic. The Economic Survey sees gross domestic product growing by 9% next year, and speeding up over the medium term, but flags inflation as the predominant concern today. There are also calls for reforms to improve farm and factory output, fiscal management, financial inclusion, foreign investment, export competitiveness, and infrastructure building. Most of these are long-standing demands that have been given the business-asusual treatment by successive governments, but Kaushik Basu, the finance ministry’s economic guru and author of the Survey, feels they acquire an immediacy now because “the next two decades should see the Indian economy growing faster than it has done at any time in the past”. Each of the worry areas has the potential to apply the brakes.

Indians’ legendary thrift is the reason for Mr Basu’s optimism — they are saving a third of their income, a tad less than the 36.5% that is being invested. It takes R4 to generate every additional rupee of income, so the Survey sees 9% GDP growth as hardly a stretch. Unless, of course, external and internal shocks poop the party. A global rise in food prices that has been felt acutely at home over the previous year gets elaborate academic treatment by the former Cornell University professor. Indian policymakers will for the foreseeable future have to balance the growth momentum with price stability.

The Survey makes the case that an inclusive agenda would be better served by direct income transfers from the haves to the have-nots without tinkering too much with the price mechanism. The upshot would be to do away with rations and give money to the poor to buy food in the market, at market rates. This would be a radical departure from the enormous, and horribly inept, food procurement machinery India has erected over decades. The approach deserves serious consideration from a government on the verge of making food a universal entitlement and should influence the State’s welfare ambitions overall, which currently rest on a raft of subsidies from fuel to fertilisers. Mr Basu’s work on poverty and inequality is seminal. When he delves into — in a dry official document — social behaviour that transcends markets, a proto-welfare State should listen up. As Economic Surveys go, this one has a conscience.