If rural wages have gone up despite a poor implementation record of the jobs scheme, it is clear that growth has played its part.

One can’t really object to Mr Pranab Mukherjee’s assertion in his inaugural presidential speech that trickle-down theories do not address the “legitimate aspirations of the poor”, or that growth, by itself, cannot raise the living standards of the vast majority of Indians. Even rulers of economies wedded to a more austere form of ‘markets’-based solutions are veering around to the view that there is a case for public intervention. In India’s case, a commitment to welfarism is part of the liberal-democratic capitalist framework that the country consciously adopted after Independence – and which the ruling United Progressive Alliance (UPA) never fails to flaunt at the slightest opportunity. The UPA-1, if its cheer leaders are to be believed, rode to power in 2004 on a wave of anger against the public perception of a hands-off approach of the previous regime to the problem of mass deprivation in the society. Likewise, it was schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and farm loan waiver that prompted the same masses to give the UPA a second chance in 2009. Mr Mukherjee is , in a sense, only reaffirming a position of the ruling structure that he was very much part of until his elevation to the Office of the President of India. But like most mantras, this one, too, can lose meaning when delinked from context. Proponents of blind welfarism tend to forget that the period from 2003-04 to 2010-11 saw the Indian economy register an average annual growth of 8.4 per cent, against 5.8 per cent through the nineties. It was basically this growth acceleration that helped generate the resources for the government to augment spending on assorted subsidies and welfare programmes, old and new. But just as the fruits of economic growth do not easily reach the poor, government expenditures by way of direct intervention are also notoriously leaky, often lining the pockets of everyone other than the intended beneficiaries. The trickle-down problem is, thus, common to both growth and welfarist dogmas – something that ideologues on both sides, unfortunately, recognise only with regard to the other.

A balanced approach would view growth and poverty reduction goals as complementary to each other. The fact that farm labourers in most States today get paid more than the official minimum wage – which was not the case till 5-6 years ago – is credited by many to MGNREGA. This view, however, tends to ignore the abysmal record of MGNREGA’s implementation in poorer States. If wages have still gone up, it only shows that higher growth and urbanisation have also played their part in the tightening of labour markets, through creation of new employment avenues outside of agriculture.

A frontal attack on poverty, therefore, cannot be based on government handouts alone; there is equal need for widening of business and job opportunities that can come only from growth. That makes a strong case for government money to be invested more in rural roads, farm research and extension, education and health, alongside shifting to a system of directly transferring subsidies and other welfare payments to the Aadhaar-enabled bank accounts of the targeted recipients. These will help the fruits of growth as well as welfare schemes to percolate downwards faster.

(This article was published on July 27, 2012)
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