Date: 10/10/2022
Relevance: GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Key Phrases: Welfare State, Illogical And Untargeted Welfare Schemes, Economic Complexity, Massive Productivity Differences, Interstate Wage Differentials, Regulatory Cholesterol, Maximum Governance With The Minimum Government
Why in News?
- Chile has recently rejected a draft utopian constitution that aimed to provide free housing and other basic amenities to the citizens.
- The act is being recognized as an act of considerable civic maturity as it might have pushed the country into a debt trap.
- Similar economic decisions are responsible for the ongoing crisis in Punjab (India), Sri Lanka, Venezuela, Mexico, and Bolivia.
Key Highlights:
- The modern state is a welfare state which has the duty of taking care of poor and marginalized sections of the population although borrowing for spending cannot make the countries rich and can never lead to the betterment of the people.
- Illogical and untargeted welfare schemes can neither be good economics nor good politics in the long term as they are bound to have an adverse impact on economic growth, employment, and development.
- However, investment in education, skill development, and health are indispensable for human capital development and overall socio-economic development.
- Thus, instead of spending the scarce and additionally mobilized financial resources on irrational and indiscriminate freebies, the government must spend on education, skills, health, and employment generation so that the people get quality education and health services at an affordable cost.
What are the reasons for huge wage inequalities in India?
- The country’s wage differentials reflect massive productivity differences in the five areas — states, cities, sectors, firms, and skills.
- State governments need to sustainably create high-paying jobs by raising
productivity and reducing crippling inequalities in these five sectors:
- States:
- In the next 20 years, six states in South and West India will account for almost 35 percent of GDP growth but only 5 percent of population growth since increased economic complexity will generate higher wages.
- Cities:
- Hyderabad has a higher GDP than Odisha and four times that of J&K.
- The three pillar model of governance being followed in India i.e., PM, CM, and DM is no longer fit for the present complex economic conditions.
- A district magistrate also known as a collector is unelected, inexperienced, and unempowered for the complex trade-offs needed to generate well-paying jobs.
- Sectors:
- Software sector has high firm productivity which employs only 0.8 per cent of our labour force but generates 8 per cent of GDP.
- On the other hand, agriculture employs 42 per cent of our labour force but generates only 16 per cent of GDP.
- China has raised its per capita income 80 times in 40 years by moving 700 million people from farm to non-farm employment.
- States will have to increase manufacturing and service jobs in order to create more high-paying jobs which is the only way to help farmers.
- Firms:
- The largest and smallest manufacturing companies in India have a 24 times difference in productivity.
- States will have to reduce the blockages due to regulatory cholesterol and try to bring maximum governance with the minimum government in order to attract high-paying jobs.
- Skills:
- States with higher populations of residents with skills in demand will attract more high-paying jobs.
- States:
Do you know?
- Various committees constituted for poverty estimation in India:
- Alagh Committee (1979):
- A task force constituted by the Planning Commission for the purpose of poverty estimation, chaired by YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements.
- Lakadawala Committee (1993):
- An expert group constituted to review methodology for
poverty estimation, chaired by DT Lakdawala, made the following
suggestions:
- Consumption expenditure should be calculated based on calorie consumption as earlier.
- state specific poverty lines should be constructed and these should be updated using the Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and the Consumer Price Index of Agricultural Labour(CPI-AL) in rural areas.
- An expert group constituted to review methodology for
poverty estimation, chaired by DT Lakdawala, made the following
suggestions:
- Tendulkar Committee (2009):
- The Tendulkar Committee had in 2011-12 estimated poverty lines and poverty ratio based on the monthly per capita consumption expenditure. Accordingly, the poverty line at all India level was estimated as monthly per-capita consumption expenditure of Rs 816 for rural areas and Rs 1000 for urban areas.
- Rangrajan Committee (2012):
- As per the committee, the poverty line should be based on certain normative levels of adequate nourishment, clothing, house rent, conveyance and education, and a behaviorally determined level of other non-food expenses.
- Alagh Committee (1979):
Reforms needed for assuring living wages to poor people:
- Empowered Mayors: Empowering mayors with the devolution of funds, functions, and functionaries.
- Providing skills: Skilling creating the supply that will attract demand (providing skills to workers in advance for the manufacturing boom just like South India did for software with its 1980s engineering college deregulation).
- Agriculture reforms: Agricultural reforms with respect to prices and distribution.
- Uninterrupted power and reliable public transport: Uninterrupted power as generators are unaffordable by small employers and availability of reliable public transport as this helps the environment, women, and youth.
- A rational human resource in the Civil Services: Don’t punish good performers by promoting bad performers.
- Digitisation: Setting a 12-month target for paperless and cashless for all citizen interfaces by leveraging India’s unique stack of digital public goods.
Conclusion:
- India’s problem is not jobs but wages which will not rise without the balanced targeting of the five poor places.
- State governments must restore policy balance by targeting poor people and transforming poor places.
Source: Indian Express
Mains Question:
Q. Illogical and untargeted welfare schemes can neither be good economics nor good politics in the long term as they are bound to have an adverse impact on the economic growth, employment and development. Critically examine.(150 words).
