If containing the coronavirus outbreak is the primary national policy prerogative at this time, a close second is the task of providing relief to those who have been hardest hit by the lockdown. With advances in financial inclusion, reliable identification and mass mobile internet, the so-called JAM or Jan Dhan, Aadhaar, Mobile trinity, Indian society has efficient ways of delivering aid to those most deserving of it.
State will fall short
The economic damage caused by the coronavirus outbreak will be so large that the government alone will not be able to ameliorate all the suffering and setbacks in society. The Indian economy is large and complex, and the pandemic will have direct and indirect consequences over a long period of time.
This means that India as a society — of which the government is but one component — faces a long-drawn challenge of having to find ways and means to simultaneously help both the vulnerable and productive segments of society. As I recently wrote in Mint, we need to align the distinct tasks of providing relief and stimulating economic growth with the medium-term challenge of post-pandemic reconstruction.
The Narendra Modi government’s announcement of a Rs 1.7 lakh crore relief package will almost certainly be inadequate; and perhaps four times as much will be required this year. In other words, we might need at least 5 per cent of the GDP for relief and stimulus alone. That’s bigger than what the Union government usually spends on defence, health and MNREGA put together.
Even if the government were to scrap discretionary spending — like the remodeling of the national capital — it’s going to be hard to raise over Rs 10 lakh crore. Raising taxes or levying cesses will be counterproductive, stifling growth when it is most needed.
While there has been both enthusiasm and avoidable controversy around the naming of PM CARE, a new public fund for Covid-19 relief, and several states have solicited public donations into their respective Chief Minister’s Relief Funds, government-administered relief funds will be of limited utility. Such funds are holdovers from an earlier era where we did not have the technological means to target and deliver aid to those most in need.
As economist Ajay Shah has shown, at India’s levels of administrative efficiency, it costs society three rupees for every rupee that the government spends. Because money is fungible, even if the PM’s and CM’s relief funds are more efficient than ordinary government expenditure, this ratio does not change: government-administered funds are a very inefficient way to deliver the relief rupee to people. This does not mean we don’t need them at all — we do, for some important reasons. What it does mean is that whenever and wherever possible, we should use less inefficient ways to redistribute the money.
But we do need centralised funds
Why do I say we need centralised relief funds? There are situations where the social benefits of a rupee sent will exceed the three rupees it costs, and only government has the necessary machinery in place to deliver them. Expenditure on public health, immunisation, emergency food provisions, public shelters and information, for instance, fall into this category.
The other reason is that in some contexts — in remote locations or in economically weaker states — the government is perhaps the only agency that can deliver the goods. So there is a case for such funds to exist, especially at this time, and there is a good case for individuals, charities and businesses to contribute to the governments’ relief funds.
Beyond this traditional method, a necessary, efficient and feasible mechanism for crisis relief is to enable for all components of society to directly help the needy. The Modi government should roll out a citizen-to-citizen transfer scheme that allows individuals, charities and companies to put money directly into the beneficiaries’ bank accounts. We already do this informally, when we give some extra money to our household staff, or people we know in the neighbourhood. With JAM we can do it at scale.
In fact, we already have all the necessary ingredients for a social security system that is inclusive and workable in the Indian context of hundreds of millions of people in the informal sector.
I have earlier argued that a “re-imagined social security system for the 21st century must tap government, corporate and social contributions for insurance and retirement accounts. Imagine a social security account where state governments can top up the Centre’s contribution, where corporate social responsibility (CSR) funds can be applied in addition to employers’, and where charitable foundations supplement an individual’s contributions. Such a multi-contribution system is possible today.”
Imagine: you, your NGO or your company can directly contribute into the Jan Dhan account of a person you know, or an unknown person you can define based on demographic criteria (age, location, income) and get tax deductions. This socially transferred rupee will cost society far less than the 3 rupees it would, had it been administered through a government channel. It will also allow better targeting as you can better identify the needy than a faceless bureaucrat.
That’s the basic idea, but it will need safeguards, which are easily implementable. Tax deductibility can be capped, donations above a certain threshold can be moved into retirement/healthcare accounts and criteria-based donation schemes can be offered. I’m sure it is possible to think of a hundred ways in which such a system can be abused, but that shouldn’t deter us from putting in place a social security system that’s better than status quo.
Enable the samaj
Indeed, enabling society to better help itself is consistent with Indian tradition. Political theorist Partha Chatterjee summarises Rabindranath Tagore’s view thus: ‘before the English arrived in India, the samaj would carry out through its own initiative all the beneficial works necessary to meet people’s needs. It did not look to the state to perform those functions. Kings would go to war, or hunt, and some would even forsake all princely duties for pleasure and entertainment. But the samaj did not necessarily suffer on this account. The duties of the samaj were allocated among different persons by the samaj itself. The arrangement by which this was done was called dharma.”
The coronavirus pandemic has created such conditions that what was an necessity has now become an imperative. The Modi government must take its own ideas to their logical conclusion: make social security really social, as opposed to only government and employer obligations. It can get off the ground by providing relief to those hard hit by coronavirus and lockdown.
Nitin Pai is the director of the Takshashila Institution, an independent centre for research and education in public policy. Views are personal.
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