Define irony. Every government releases data on reduction of poverty, yet every government adds new schemes to reduce poverty. The construct of bottom of the pyramid economics arrived in 1998 via a seminal study on sustainable development by management guru C K Prahalad. In contrast, the idea of bottom of the pyramid politics arrived in 1932 in a radio address, The Forgotten Man, by Franklin D Roosevelt, as he promoted the New Deal.
Allegiance followed articulation and bottom of pyramid politics put down its roots in India early. Jawaharlal Nehru promoted the idea of reallocation of land to the landless; Indira Gandhi ramped up taxes chanting the slogan ‘Garibi Hatao’; the V P Singh regime propped up by the BJP and the Left declared that the “coffers are empty” and pushed a loan waiver; Manmohan Singh’s ‘New Deal’ legislated the right to employment, a massive loan waiver and the National Food Security Act.
Flyover politics has spurred the composition of sop symphonies in the past three years. There are the one-time compensations like loan waivers—by nearly 10 states which would add up to over Rs 2.5 lakh crore—and then there are annual allocations for income support schemes introduced by states like Telangana and Odisha. The PM Kisan Samman Nidhi provides Rs 6,000 to 12 crore farmer households and is expected to cost Rs 75,000 crore.
This week, Congress President Rahul Gandhi upped the ante with a new raga, promising to pay Rs 6,000 per month to 20 per cent of the families at the bottom of the pyramid to help them achieve a minimum income of Rs 12,000 per month. Called NYAY, the sop to five crore families, covering roughly 25 crore persons, is estimated to cost Rs 3.6 lakh crore or about 1.8 per cent of the GDP at the minimum. It is possible that the cost of coverage would be higher—the Socio Economic Census reports only one in 10 has a salaried job, and shorn of technical punctuations, roughly 13 crore families in rural India live on around Rs 5,000 per month, well below the ballpark figure of Rs 12,000 per month. If implemented, NYAY will be the world’s largest income support scheme.
Beyond the divide of ideology and the debate on moral hazards, there is no disputing the fact that millions live in abject poverty and need help. The question is essentially about the approach—the solution can often become the problem. In the trenches of the political economy the worry is what it would cost to hire a person who gets money sitting at home. The fund flow will impact MGNREGS rates, the minimum wage, the availability of farm labour and agri output. The costs are meant to be shared by the Centre and states. Already under stress, will states fund repair of the broken state of education, health care, water supply and install the infrastructure necessary for agricultural growth and urbanisation?
It has been argued that NYAY spend will prop consumption, ramp up growth, and result in higher revenues. A larger economy will enable absorption of the huge bill. It is true the stimulus could drive consumption. Equally, the hypothesis must pass the test of Karl Popper’s observation on poverty of historicism and what Robert Lucas stated about assumptions of rational expectations. Very simply, the past relationship between spend and growth may or may not pan out. And if and when it does, the fact is eventually costs rise to nudge prices and spur inflation.
Margaret Thatcher said that the trouble with socialism was that governments ran out of money. Governments in India have challenged the postulate by borrowing more and more. Since the beginning of the millennium, the borrowings of just the Centre have shot up from Rs 1.11 lakh crore to Rs 6.26 lakh crore, the interest cost burden from Rs 99,314 crore to Rs 5.75 lakh crore, and subsidies from Rs 26,838 crore to over Rs 2.92 lakh crore. The question is less about who is paying and more about what is tenable.
There are funding solutions. The power sector loses over Rs 80,000 crore a year to theft and leakage—liberating distribution from SEBs for last-mile delivery can bring this down. The PSUs lose over Rs 25,000 crore a year—parking the government’s stake in a sovereign trust listed as ETF can get the government out of business and deliver resources. Monetisation of land can yield cash—just ports and railways hold over 150,000 hectares. Downsizing Central ministries, decentralisation of power to states and local bodies, and expenditure reforms will save taxpayer money.
In fact, a fiscal crisis could be a feel-good factor, the catalyst for Liberalisation.2. History, though, frequently triumphs over hope. Governments have consistently shied away from decisions with an electoral cost. Bottom of the pyramid politics, despite decades of programmes and crores of subsidies, has morphed into bottom of the barrel economics.
The fact that politicians were ahead on the learning curve on the potential at the bottom of the pyramid is not surprising. Business must invest private funds to acquire market share whereas politics allows parties to promise public funds to boost political prospects. Economics of development takes time. Economics of compensation delivers votes.
Author of Aadhaar: A BiometricHistory of India’s 12 Digit Revolution, and Accidental India