Govt spending must pursue evidence-based policy for best outcomes

It's important to see the quality of spending and missing gaps in resource provision

There is no substitute for evidence-based public policy. Incorrect narratives can often confound public spending and create a feel good factor that may not reflect true human wellbeing at the bottom of the pyramid. There is a very good reason to keep fiscal deficits under check; it is equally important to see the current quality of spending and some of the missing gaps in resource provision, based on the evidence at hand. While India’s current macro indicators rightly give confidence to retail investors, central bank, rating and investing agencies and multi- lateral institutions, it is equally important to see some of the not-so-happy findings from reliable data at the micro household level.

The pro-poor public welfare thrust of the government has reduced the infrastructure deficits of the deprived households, seen in terms of access to pucca houses, bank accounts for women, gas connection for cooking, electricity connection, clean piped water, rural road connectivity, penetration of cellular phones, easier credit access, and a range of other benefits. However, per capita income, employment, undernutrition, learning in schools and life expectancy are formidable challenges and reflected in our unsatisfactory rank in the Human Development, Global Hunger and World Bank performance indicators. The success of pro-poor public welfare is reflected in United Nations Development Programme’s (UNDP) acknowledgement of 415 million people coming out of multidimensional poverty in India between 2005-06 and 2019-2021. Clearly, the glass is only half full.

Let us look at the indicators that call for midcourse changes to address challenges in human capital, employment, incomes, and domestic consumption. The 2023 PRICE Survey – its findings on a growing middle class were celebrated – points out that the bottom 20 percent has still not recovered from the shock of Covid-19. While average annual household income increased to over Rupees 3.6 lakhs in 2022-23, for the poorest it rose to Rs. 1.14 lakh. That was 16 percent below the 2015-16 level. The slow-down in sales of fast-moving consumer goods in rural areas and of late even in urban areas, the low off take of housing loans by the bottom half, higher employment in agriculture at a time when real agricultural wages are stagnant, the fall in the learning outcomes in schools due to covid, are all signs that call for looking at employment, consumption, and educational outcomes more closely.  

Let us first look at where we can bring down expenditure without hurting the genuinely deprived households. Three fourths of rural and half of the urban population gets free food grains as garib kalyan anna yojana even after the covid is over. Do we need to provide free grains to such a large number of households? Do we study what happens to some of this grain? Do we realize the environmental costs of large scale paddy and wheat cultivation to meet our free food grain needs?

The Rupees 6,000 per year Kisan Samman Yojana is given to all non-income tax paying farmers. How many are non-cultivating farmers whose tenants do not even get to use this cash? Do we really need to give beyond cultivating small and marginal farmers? Similarly, fertiliser subsidies for urea may well be contributing to the degradation of the soil. Do we really need to continue our heavily subsidised fertiliser price regime?  

Infrastructure spending is good for economic growth and is welcome. But then, are we doing a cost audit to see whether there is padding or not? Why don’t we do a technical audit to see whether lower cost options were available? Why don’t we look at Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) as infrastructure spending? It is primarily used for rural infrastructure as there is no dedicated rural infrastructure scheme. Did we need to cut allocation at the budget estimate (BE) stage for MGNREGS, completely dislocating its actual field-level work and quality performance? Giving money at RE does not help proper utilization of the scheme for durable assets. Why has MGNREGS not been reformed to focus on climate resilience through a thrust on rain deficient areas, and on the households of the deprived in resource poor regions, with earmarking of resources for districts with high multidimensional poverty?

There are enough studies to indicate that decentralised management of human development programmes (education, health, nutrition, livelihoods and skills) with adequate professional leadership and untied funds improves outcomes in these programmes. The nutrition challenge is not rocket science, as demonstrated by Sikkim’s eight-point improvement in stunting in four years. The interconnectedness of these sectors makes outcomes dependent on a convergent and integrated decentralised implementation with flexibility at the local level. At a time when the women’s collectives and their social capital are national reality, along with over 40 percent women as elected Panchayat leaders, we are missing an opportunity for an accountable, community-led action for human development outcomes with funds, functions and functionaries. Equity in access to blended learning improves outcomes in schools. We must make government schools deliver quality learning outcomes as there is no other route to sustained economic progress and an inclusive India.

The reformed MGNREGS with its thrust on rural infrastructure, individual beneficiary schemes, climate resilient interventions, plantations, and other durable public assets, will help both employment and consumption in rural areas. By integrating skill opportunities with public employment, we can definitely move up the ladder of skilling and higher productivity.

When consumption slows down, higher wages through higher productivity becomes very necessary. It is time wage rates for MGNREGS (a proxy for floor wages) are revised upwards, to make a difference to the floor market wages. We cannot allow the market alone to determine wage rates when hands in need of work are far in excess of the work at hand.

It is time public policy looked even more carefully at the evidence before deciding priorities and mid-course corrections. Good evidence-based economics is also good politics. The real lesson for government spending is to pursue evidence-based policy.

The writer is a retired civil servant.

These are the personal opinions of the writer. They do not necessarily reflect the views of www.business-standard.com or the 'Business Standard' newspaper.