Reforming entitlements

Why UPA's safety nets are not easy to roll back

A significant message being articulated by the Bharatiya Janata Party (BJP) in its election campaign is that the policy focus should shift from entitlement to empowerment. In speech after speech, the BJP's prime ministerial candidate, Narendra Modi, says that people should stop depending on what the government gives them and become self-reliant. At one level, this is a direct attack on the United Progressive Alliance's (UPA's) record of instituting a number of large safety nets - the Mahatma Gandhi National Rural Employment Guarantee Act and the food security Act being the prime examples. While the basic objective of both schemes to provide food and livelihood safety nets to people who genuinely need them cannot be questioned, there are concerns about the design of the schemes and, in the case of the former, the quality of implementation and monitoring. The real question is whether these schemes are high on errors of both inclusion and exclusion - in other words, whether people who don't need benefits are getting them and people who do so are not getting them. This concern has been particularly acute in the food security domain, with the Act guaranteeing subsidised foodgrain to about 67 per cent of the population, while the population below the official poverty line is just about a third of that level. The fiscal consequences of badly targeted programmes are enormous, not to mention the collateral damage of corruption.

But championing the transition from entitlement to empowerment in speeches is not enough. Concrete policy proposals must be put forward. Effective reform of the entitlement framework will require three things. One, there has to be a massive increase in the creation of productive jobs, so that the demand for safety nets is genuinely residual and, most importantly, temporary. This means, on the one hand, infrastructure and labour market reforms and, on the other, education and skill formation. Several of these issues have been high on the policy radar screen for a long time, but have fallen far short in implementation. How is this going to be changed? Two, there needs to be a firm commitment to fiscal consolidation, perhaps through a re-enactment of the Fiscal Responsibility and Budget Management legislation. This will give the government the space to roll back several subsidies, including those on petroleum and fertilisers, which have adverse consequences both at the macro and micro levels. Three, the position on agriculture at the World Trade Organisation negotiations favours a compact and effectively targeted food security programme. Boundaries laid down by this process could be used to contain the reach of the food security mechanism, while also reforming some of the more egregious aspects of the current agricultural procurement and subsidy framework.

While this is a policy agenda that a new government should embrace, the political economy of entitlement will pose an enormous barrier to reform. All major parties have cultivated constituencies, which benefit from one or more of the very entitlements that they might want to end. Particularly in a situation of narrow margins of victory and small majorities, rocking the entitlement boat could prove to be very risky politically. Much-needed reforms will only work when there is broad political consensus on them, which is really going to be the new leadership's most significant challenge.