Getting team India to win again – poverty

People living on less than $1.25 per day are below the poverty line. India is home to 250 million, a quarter of the global total.

In the a recent paper Martin Ravallion points out that the eradication of poverty was not always considered to be good policy. Between the 16th and 18th centuries, Europeans believed that poverty kept the economic engine humming by ensuring the availability of plentiful cheap labour. That led to laws that were palliative, keeping the poor in place. The subsidies of energy, rail fares and diesel, and meal subsidies in India are part of this same legacy. The politicians value these as tools to win favor with voters, and so are loath to get rid of them. But the economic distortions they create make the potential of the country unreachable.

An example is the rail subsidy. Fares are heavily subsidised, and the cost apportioned to the goods that are carried by rail. Shipping companies have calculated that it’s cheaper to move goods by road. Heavy goods vehicles are destroying the new highways. Traveling from one city to another by road is a surreal experience, with the passengers in small road cars, regularly dwarfed by 18 wheel pantechnicons, hoping that their vehicle’s horn has been heard above the cacophony.

When politicians try to remove any of the subsidies, the poor object with such vehemence that the idea is quickly scrapped1. The poor make up a big part of the vote.

Poverty is not just a problem for the politicians and the poor. It is a challenge that the whole country must solve.

It would be unfair to leave the impression that the intent of politicians is to keep the poor in penury. The Right of Children to Free and Compulsory Education Act enacted in 2009, which came into force on 1 April 2010 is intended to address poor levels of eduction among the poor. Some of the states are experimenting with conditional cash transfer (CCT) schemes to encourage attendance. The central government has introduced school meals with the same intention.

Even with these positive ideas the challenges are huge. With almost 300 million children of school going age, recruiting and training the teachers, designing the curricula, building schools, and ensuring standards of education are established and maintained is a mammoth undertaking.

The CCT and free meals encourage the students to attend, but that does not guarantee the attendance of teachers, who are poorly paid. Indian parents, both rich and poor, have been shifting their children out of government-run schools in search of the better education in private schools2.

The more innovative states are finding solutions to these challenges, and the competition between the states drives the others to emulate those successes.

But it will take time, and the clock is already running on India’s demographic dividend. If the youth becoming available to power India’s future economy do not find jobs, they will become disenchanted. India can’t afford that.

More at:
Getting team India to win again
Getting team India to win again – infrastructure
Getting team India to win again – The 1991 financial crisis
Getting team India to win again – fiscal consolidation
Getting team India to win again – the plan
A mess of pottage
Express or stopping?
Feast and famine
How Long Will It Take to Lift One Billion People Out of Poverty?
Lessons from Palanpur
Not always with us
Penury portrait
The Idea of Antipoverty Policy
The Future of Global Poverty in a Multi-Speed World: New Estimates of Scale, Location and Cost
Where Do The World’s Poor Live?
Where will the world’s poor live?

  1. Will India Be The First BRIC Fallen Angel? pg3 []
  2. Will India Be The First BRIC Fallen Angel? pg10 []

Retreat from the cliff part 2

Tax breaks and subsidies are intended to drive people towards financial decisions that work in the best interest of the economy.

Isn’t capitalism supposed to be able to do that on it’s own? Apparently not.

America’s tax code is so complex that few tax payers are willing to submit their returns unaided.

Not only is it costly for the tax payer, it’s also costly for the government. The breaks and subsidies cost $1.1 trillion according to a recent estimate.

There is no question that some of the tax breaks work. However, the majority are the result of successful lobbying to the benefit of specific interest groups.

So which ones to get rid of?

Let’s start with all of them. Specify a time-frame, say nine months, for the interested citizens to motivate why the breaks and/or subsidies should be reinstated. On D-day, those subsidies and breaks without a reprieve stop.

Who gets priority in the decision making? Affordability should determine that. Businesses that would go broke; businesses that have invested huge amounts of money, and would lose that money; the poor.

That should get rid of quite a few like the ethanol subsidy. It only took 33 years to get rid of that one.

Parts of this idea have already been raised in the run-up to the presidential election. They have not got much attention. That’s a pity.

More at:
The high price of tax breaks Not so easy
Taking from the 19%, giving to the 1% Mitt’s maths
Charity and taxation Sweetened charity
Barack Obama and the economy The choice
Visas for entrepreneurs Where creators are welcome