Time for maximum welfare
If there is one thing that is to be learnt from the Covid crisis it is that the neoliberal idea of minimum government is a failure. The foundational principle that defines the self-image of modern societies is that they seek to maximise the welfare of their citizens. Even nations that are avowedly in favour of free-market systems support it because they say the market is the best allocator of available resources. In other words, the stated objective of all nations is to ensure that their people live in ‘achhe din’.
Modi came to power by aligning himself with neo-liberal principles. If his slogan of ‘minimum government’ came tied to ‘maximum governance’ what the second part entailed was never made explicit. Over the seven years that Modi has been in power, it has become clear that he believes in private entrepreneurship over the public sector. Much of the Modi government’s policies have been aimed at privatising all sectors of the economy, providing stimuli through the financial system and monetary benefits, instead of direct government spending.
The experience of Covid shows that this policy orientation needs a complete overhaul. The private sector is driven by only one motive, maximising profits and accumulating capital. And as we have seen over the past one year, corporate profits can increase even when the rest of the economy is contracting. While Indians were losing jobs or taking pay-cuts, small businesses were shutting down, India Inc was registering record profits. You cannot have a better example of market forces not working for the common good.
The same is true for the health sector. Privatisation of health has not only resulted in inequalities in access to health but also caused misallocation of resources. More has been spent on air-conditioning and beautifying hospital rooms than on ensuring that there is enough oxygen supply. It is easier to get a McDonald’s burger at the food court in a big private hospital, than emergency life-saving drugs. Private health is oriented towards procedures and ailments that make more money than simple treatments that save more lives.
As the private sector has grown, the government sector has withdrawn. Instead of spending on building better health facilities for the poor and incentivising doctors and health workers to work in small towns and villages, the government has chosen to spend on medical insurance. The underlying assumption is that private health will take care of the poor as long as a collective insurance system pays for it. These are neoliberal pipe dreams that haven’t worked in any country, leave alone a developing economy like ours.
Independent India set up a planning commission to decide how scarce resources can be deployed to achieve maximum welfare in the short term and development over the long term. The institution became more or less defunct by the early 2000s, and the Modi government removed all pretence by changing its name. Yet, that is precisely what we require now – central planning using the latest data collection and analysis techniques. Given the spread of cellphones and Aadhaar, it is extremely easy to collect data from all parts of India and analyse it using both human and artificial intelligence.
The Centre has to spend at least an additional 10 per cent of the GDP. Estimates made by the NIPFP in 2013 suggest that even if all of this is spent on subsidies, salaries and pensions, it will still boost India’s national income by almost that much. If the additional spending is split between capital and revenue expenditure, GDP will go up by 17 percent. This is absolutely essential to ensure India’s economy goes back to its pre-Covid trajectory as soon as possible.
The planners need to quickly identify different categories of beneficiaries and what kind of support they need. CMIE’s latest unemployment figures for rural India suggests that the situation in May is even worse than what it was during the strict lockdown last year. The poor in our villages will need work under MGNREGA-type schemes along with access to free rations. This will ensure that they don’t have to spend their entire money on food and have some left over to buy things like cooking oil, soaps, batteries and other necessities.
The urban middle class, which is in a very bad shape, needs to be supported through vouchers that can be used in any shop to buy goods. This will ensure that the money being spent by the government goes into consumption instead of being saved. This also has to be accompanied with a degree of price control on all essentials and items of daily consumption. Otherwise corporates will simply raise prices to match the higher demand unleashed through government spending. Corporate profits can be fixed for one year at a specified multiple of the repo-rate. Since government spending is derisking their investments, there is no reason for them to expect supernormal profits.
Small businesses, hawkers, small retailers, need interest-free loans so that they can finance their working capital cycle. Some will require loan-waivers to ensure that they remain viable. The government has to rework the GST system, or even suspend it for a couple of years, to help revive the unorganised sector that employs an overwhelming majority of workers.
All this has to be done using a real-time feedback and tracking system. It requires central planning, monitoring and allocation, but local execution. The planners and executives at the top need to constantly tap into local feedback to tailor custom-made solutions for each district, block, qasba or village. If Google and Facebook can send us tailor-made advertisements, then it is clear that new data technologies and AI can target welfare to individual household clusters.
The Modi government has to work in partnership with state governments to not only track, treat and vaccinate but also it has to follow the same principles for organising a quick economic recovery. The time to do this was yesterday, but even today is not too late.
The author is a senior economic analyst
