"Wealth cannot be distributed unless it is created." The statement hits the bulls eye. It is not required to go into debate on Socialism, Capitalism, Marxism to get hold on it.
The Socialist ideology also believes in creation of wealth, but in their own way of public ownership of means if production and all. Capitalism believes in, bring up an idea, raise capital and create wealth. There will be lease intervention of the Govt in business arena. Apparently both the systems ended up creating huge economic disparities.
There is no much difference in Gini Coefficients of Capitalist economies, and former or current socialist regimes. When the economic disparity is rampant, when economically vulnerable sections form huge chunk of the electorate, populist measures of freebies come in. Economic disparity plays part in developing economies, but in developed countries such expenditure is a normal thing. The expenditure on freebies may turn out to be successful only if the society is tax compliant enough to sustain such outlay. Otherwise, it may turn out to be economic catastrophe.
Barak Obama administration could bring the Health benefit scheme popularly known as 'Obamacare' because USA economy is the largest economy. Moreover it has got set establishment of Wealth Creators and Taxpayers. Depending upon those USA can bring in such schemes. After change in regime President Trump thrashed that scheme in bin.
Greece, in Europe, kept on spending on salaries & pensions raising public debt to the extent of 200% of its GDP. Spending on freebies, non productive sectors instead investing for wealth creation leads to economic catastrophe. End result ,EU is still trying to ease out crisis arose due to Greek problem.
Oil rich country of Venezuela based its economy entirely on oil revenues. offered number of freebies to its subjects. almost neglected the other sectors. Global oil prices crashed and Venezuelan economy is collapsed.
Another freebie that has been in discussion across the globe is the Universal Basic Income. India's Economic Survey for 2016-17 also discussed the possibility of such in Indian economy. In this case Switzerland put a precedence by rejecting the idea of Universal Basic Income in the referendum. Striking a balance between Freebies and Economic Growth is difficult yet necessary task.
After independence for a long time Indian economy followed the socialistic pattern of society. India adopted a multiparty Parliamentary democracy with quasi federal model. Indian political system works from Panchayat level to Parliament. At every level issues are different, type of political struggle is different but one thing is common. That is announcements of 'Freebies' if come to power.
The form of freebies change according to the institution. Pressure cookers, Irons, etc. are offered at the Municipality, Municipal Corp. elections. Farm loan waivers, Electricity bill waivers/concessions, Laptops, Tabs form the part of freebies offered at the Assembly elections. And the general elections to Loksabha comes in with different sort of freebies.
For example the 'Interim Budget' presented a month before announcement of General elections officially offered freebies such as PM KISAN and rebate in individual income tax up to 5 lac rupees slab. Congress party offered altogether different scheme that may seem like Universal Basic Income called NYAY, Offering 72,000 per year to 'poorest' 20 percent population.
Tamil Nadu based Dravidian parties are leading in not just announcement but implementation of such freebies at the cost of neglecting/extending fiscal limits of state treasury. Amma canteen, Indira canteen, free laptops and most interesting to note is freebie for poultry farming and supply.
These schemes put a huge burden on state's coffers.
To implement the PM KISAN scheme with retrospective effect the union government provided for additional spending in previous year budget and revised the fiscal deficit target also. That's why striking a balance between Freebies and Economic Growth is necessary.
To analyse this issue let us go with an example of farm loan waivers and schemes such as Rythu Bandhu and PM KISAN. Farm loans are given by banks at lower interest rates. Union government as well as various state governments offer interest subvention schemes for farm loans. Agriculture sector has been facing various issues. Those are irregular and inadequate supply of fertilizers, seeds, pesticides, farm labor and loans also. Another major issue is price for the agricultural produce.
Some regions of Maharashtra faced a classic problem. Failure of Kharip crop due to deficient rainfall, lack of irrigation and destruction of Rabi crops due to thunderstorms and hailstorms. In this scenario farmers were demanding farm loan waivers in various states.
There was an unprecedented 'Farmers Strike' in Maharashtra. So Maharashtra government announced farm loan waiver scheme of 36,000 crore, Madhya Pradesh, Chattisgadh, Rajasthan governments announced farm loan waivers.
Clearing the loan accounts and enable farmers to seek new loans for new cultivation seasons, is the basic idea behind farm loan waivers. But, just after announcement of farm loan waiver scheme the NPA in farm loans rose to 24 percent in Madhya Pradesh. Farmers who fell under scheme criteria simply stopped repaying the loan and those who didn't refused to repay loan. They started expecting similar waiver.
Result, NPAs have risen. Farmer's previous loan accounts are not clear. According to Banking rules Banks are not ready to advance further loans to farmers. Half of cultivation 2019 Kharif season is gone with more or less average monsoon but farmers are not able to get funding for cultivation season.
Here the PM KISAN and schemes like Rythu Bandhu, KALIA frames in with the objective of fulfilling the working capital needs of farmers.
There are major policy level freebies in India since long time. Like the Public Distribution System, which eventually got the statutory status under Food Security act. Union Government passed it in 2013, but state governments such as Chattisgadh have been running it for many years before it.
These systems work only when both the beneficiary and the supplier are benefitted.
Another policy level freebie is in existence known as MGNREGS. Annual Financial Statement for 2018-19 provides 89 thousand crore for the scheme. Has this scheme created any long term assets?
There are few states which collaborated the NREGA with state programs such as Maharashtra. 'Magel Tyala Shet tale' (Farm pond on demand) and Jalyukt Shivar scheme were collaborated with NREGA. It has created a disintegrated watershed structure across Maharashtra, especially in drought prone areas. With this scheme 24 TMC water could be preserved and Ground water table rose substantially.
Despite of deficient rainfall in successive years farm productivity rose substantially.
The Mid Day Meal scheme for Government schools. Which might seem unnecessary expenditure, scope for corruption etc. But one thing must be considered that it has resulted in rise in enrollment in rural areas also improved health indicators of underprivileged children. In a way it is to be considered as an investment for the future.
Balancing the fiscal prudence, maintaining the growth story is a tremendous task.
While considering all the lacunae in spending on subsidies Direct Benefit Transfer has made a huge impact. Current Government is trying to cut down expenditure on subsidies.
Prime Minister emphasized the importance of wealth creators in independence day speech. It is necessary to emphasize on wealth creation with least hurdle. Creation of a society which will not seek freebies but contribute more and more to economy has to be the objective. To achieve that objective Striking balance between freebies and Economic Growth is the way forward.
Nicely written
ReplyDeleteThank you.
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