This post tries to pen down my recent pre-occupation with the concept of the ‘welfare state’ as we understand in India. The dominant story of our democracy through the last 60 years has been of bringing the majority of our population out of poverty, and providing them a social security net. Even the economic reforms package of 1991 is explained in terms of the ‘trickle-down effect’ i.e. create enough wealth in the country, and it will trickle down to the poorest, making them better off. My major concern is whether this works best by creating schemes and structures that hand out sops to the poor, or by making it easier for them to find jobs. I feel that this merits discussion, and so am penning down some illustrations.
Simply put, the main issue I have been thinking about, is whether it is better to create efficient laws that enable the creation of jobs and wealth, rather than creating programs which essentially function as doles. Take NREGA for example. It is touted to be the largest social-welfare scheme in the country. Its purpose is to provide employment, and in doing so, create infrastructure and assets. However, as many critics point out, the NREGA provides jobs, not creates them. There is no target on how people will be employed to build a certain amount of infrastructure. It merely mandates that whoever cannot find a job, has to be given one. This may involve digging a pit for 50 days, and covering it up for the other 50.
The scheme is not generating employment, or infrastructure. It is merely handing out cash to poor unemployed farmers, while not really creating any long-term assets that will be useful to them in the long-run. Agreed, it puts more money in the hands of rural Indians. But it’s merely taking money from one pocket and putting it in the other!! This does not generate more wealth in the country. It just makes rural India richer at the expense of taxpayers!!
Another example could be that of the Factories Act. The professed reasons for having the same is to regulate factories and the conditions of workers employed in them. However, many critics point out their inherent inefficiencies. Factory owners deliberately evade the provisions of the Act because it is so difficult to comply with. There are innumerable anecdotal stories where one hears of factory owners running four different establishments (instead of one) with less than 20 workers to avoid coming under the Factories Act. Therefore, a law which is ostensibly a welfare legislation, is so difficult to comply with that owner prefer to stay outside its purview, defeating its very purpose.
Or take the Minimum Wage Act. Workers under it are to be provided as minimum of Rs. 100 a day for every day’s work. If one works 20 days a month for 12 months a year, one’s earning would be nearly Rs. 25,000 for the year. However, there must be an analysis of whether minimum wage actually reduces potential for more people finding employment. The argument is that if it is cheaper for a factory owner to invest in machinery than to pay workers Rs. 100 a day, he will mechanize his factory, thus reducing employment. This conclusion was also reached by a Joint Economic Committee of the US Congress during the Clinton Administration.
While Rs. 100 seems like a paltry sum, what needs to be considered is whether there is a large number of people willing to work for say, Rs. 70-80 per month, who would otherwise have been employed, but now cannot find work because of our minimum wage law.
I am not proposing that this is indeed the case, but the truth is that in our country, there seems to be no strong alternative view to the dominant view of handing out welfare-based sops, rather than create an efficient and enabling state, which will help job creation, while also preventing exploitation.