It\’s social spend boom, stupid

Economists have, for over a month, had an internet debate on growth and social spending. It started with the Financial Times citing Nobel Laureate Amartya Sen as saying it would be \”stupid\” to focus on double-digit GDP growth without spending more on social sectors. The newspaper also cited Jagdish Bhagwati, a potential Nobel Laureate, as stressing second-generation economic reforms to accelerate growth to finance more targeted social spending.

I think Martin Wolf of the Financial Times got to the heart of this debate. \”Obviously higher incomes are a necessary condition for better state-funded welfare, better jobs and so forth. This is simply not debatable. Indeed, only in India do serious intellectuals dream of debating these issues.\” How true!

Rather than enter this debate, let me simply expose the scandalous mendacity of left analysts and politicians on this issue. Sen did not actually accuse the government of failing to expand social spending. But a cavalcade of left analysts and politicians has endlessly repeated the myth that the government is a neoliberal fiend that focuses on fast growth while ignoring social spending. Which planet do they live on? Social spending has actually been booming.

Recent scams make it blindingly obvious that the last thing this government focuses on is GDP acceleration. When Ashok Chavan and other worthies wangled lucrative flats for relatives and friends in what was supposed to be a defence services building, were they aiming for double-digit GDP growth? Was this a neoliberal abandonment of all regulations, or a classic case of the neta-babu raj imposing regulations in the holy name of socialism, and then using them to line their pockets and create patronage networks?

When Suresh Kalmadi and others handed out bonanzas to various contractors in the Commonwealth Games, did these constitute a single-minded focus on accelerating GDP? Or did they display a single-minded focus on accelerating their own personal wealth?

When former telecom minister Raja manipulated 2G spectrum to favour some businesses, causing revenue losses of possibly Rs 176,000 crore according to the CAG, was he trying to accelerate economic growth? No, he was illustrating the strategy of the political class: no matter how many controls are abolished to facilitate growth in some areas, controls must be expanded and milked in other areas to ensure that politics remains the most profitable business of all.

Like all businesses, politics requires massive cash investments in winning elections. Likewise, politicians want high dividends from their investment. But democracy means they may never be re-elected or get another cabinet post. Any opportunity to make big money may be their last. So, they make hay while the sun shines, piling up enough cash to last a possible lifetime out of power.

Every political party in India is an investor with considerable expertize in ways to improve profits and shareholder value. But the Congress has always been the biggest business house of all. It knows that to stay profitable in a democracy, a ruling party must provide visible hand-outs for the masses, even while raking in black money itself. This principle has been the lodestar of seven years of Sonia-Manmohan Singh rule. Second generation economic reforms have taken a back seat.

On coming to power in 2004, the first priority of the Congress-led UPA coalition was to rectify the supposed anti-rural bias of the preceding Vajpayee government. So it shifted governmental focus to Education For All, rural employment guarantees through NREGA, and Bharat Nirman – a multifaceted rural infrastructure programme covering irrigation, roads, telecom, electrification, health and much else. This was a win-win strategy, wooing voters while ensuring that leakages from social programmes leaked (to the extent possible) into the desired political pockets.

Between 2004-05 and 2009-10, central plus state social spending more than doubled from Rs 1.73 lakh crore to Rs 4.46 lakh crore (and from 5.33% of GDP to 7.23%). So, social spending has actually risen faster than GDP.

Rapid GDP growth has financed, not hindered, rapid growth of social spending. The Economic Survey (2009-10) says gross central revenues more than doubled in 2004-05 and 2009-10, from Rs 3.04 lakh crore to 6.41 lakh crore. This helped finance the social spending boom.

Sonia Gandhi\’s key policy innovation has been a National Advisory Council brimming with NGOs. This led to the Right to Information, a sort of Right to Work (through an employment guarantee), Right to Food (to be implemented through a Food Security Act) and Right to Education. To claim that this is a mindless neoliberal search for double-digit growth is nonsense. I hope Amartya Sen will denounce such claims as stupid.

3 thoughts on “It\’s social spend boom, stupid”

  1. Anandh Pachaiappan


    I regularly read your articles (since early 2007, where you mentioned about sub-prime). I would like you hear your point of view on “Allocating less than 1% of Budget to Law and Order”.

    P. Anandh

  2. Martin Wolf hit bulls-eye. And about the varied dimensions of our politicos i think we must all promote and join hands with Baba Ramdev. He is insipring and his dream is indeed is every Indians.
    What do you think people?

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