Growth vs Entitlements: Impact of PDS on Poverty Reduction

one of the most scholarly paper i ve come across so far on pds and growth vs entitlement issue. and unusually unbiased as well in terms of data and conclusions (despite the occasional rhetoric here and there which is unavoidable considering they are jnu profs… but at least the academic integrity has been maintained). authors are himanshu n abhijit sen (planning commission)… read from section 1 though may require some background, hence putting the gist below

The paper aims to decode how much of poverty reduction in recent years has been due to “growth” and how much due to “entitlements” (they have measured only PDS and mid day meal only and not included NREGA and others).

poverty reduction from 1999-00 to 2004-05 was ~0.85% points per annum. This jumped to ~1.3% points per annum between 2004-05 and 2009-10 and ~2.2% pts per annum between 2004-05 and 2011-12.

In the official poverty calculations, PDS grains which are provided at say 1 re (whereas the market price is say 10 rs) are valued at 1 re only. So say if a household consumed 5kg of PDS grain and 5kg of non pds, our records will show he consumed a total of 10 kg at Rs. 55 (5 * 1 + 5 * 10). Let our poverty line basket be 10 kg of grain only then in money terms too our poverty line would be Rs. 55.

What the authors do now is to value this PDS grain consumption at market prices both in poverty line calculation and household consumption. So new poverty line would be 10 * 10 = Rs. 100. Our poor household’s expenditure too would be now Rs. 100. Now the authors see how many of the households will have an expenditure < Rs. 100 if we assume they don't get any PDS grain i.e. people who would have been poor if there were no state assistance. The difference in the number of poor calculated using this approach and official number of poor would give us the number of poor who were lifted out of poverty because of PDS (and mid day meal). If we compare across time, we can get how many people were lifted out of poverty due to growth in incomes (non pds consumption) which we can assume comes entirely from growth (not entirely true as part of it would come from NREGA) and how many due to PDS.

The authors conclude that:

a) between 1993-94 to 2004-05, out of 0.85 %point poverty reduction p.a. 0.73%pt was due to income growth and rest PDS + MDM. between 2004-05 to 2009-10, out of 1.28 %point poverty reduction p.a., income component was 0.87 %point only while rest all came from PDS and MDM. This shows the importance of PDS and MDM extension in accelerating rate of poverty reduction.

b) however, 2009-10 was a severe drought year where incomes were highly depressed. If we look from 2004-05 to 2011-12 where poverty reduction was 2.2 %point p.a., 1.6% points came from income growth and remaining 0.6% points from PDS. This means nearly 30% of poverty reduction happened because of PDS and MDM (despite all the leakages). Poverty ratios would be ~4.8% points higher (i.e. close to 27% instead of 22%) if there were no PDS and MDM.

c) The impact of PDS and MDM on poverty reduction has become more important compared to earlier period. This is because of PDS reforms in many states, shift away from TPDS and near universalization of MDM in this period. Also the impact of PDS is increasing with moves to universalise PDS show that PDS is becoming less leaky with extension – contrary to the fear highlighted by food security critics.

d) Everyone knows the wonder story of Bihar in poverty reduction between 2004-05 to 2011-12. It was considered worst on PDS performance. The authors say the following about it,

“But the NSS 68th round reports that 43% of Bihar households accessed PDS cereals in 2011-12, up from only 14% in 2009-10 and less than 2% in 2004-05. This expansion, unnoticed so far, is remarkable because it went hand in hand with two other features: Bihar climbed to the top of the poverty reduction league in 2011-12 from being a laggard so far. Much more significantly, Bihar’s PDS grain leakages (i e, what NSS does not capture as PDS consumption out of official offtake figures) reduced to about 20% in 2011-12 from 65% in 2009-10 and 97% in 2004-05.”

Click Here to download the paper.

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UPSC Mock Essay: Regulatory Institutions in India: White Knights or Trojan Horses?

A white knight is he righteous person who selflessly rescues the weak in distress.

A trojan horse, put into fame by the famous Battle of roy, refers to a person installed in a particular position to serve the narrow, selfish interests of the installer.

In the context of regulators, a white knight regulator would genuinely perform the functions it was actually supposed to do. What these functions are, we would explore in the next section

A trojan horse regulator, on the other hand, would be unable to discharge its duties properly, letting some vested interests have their way. These interests may be of the political executive, or the industry players, or some narrow turf wars. To what extent have the regulators turned into trojan horses in India and what are the factors behind it, would be explored in the subsequent section.

Then in the final part of this essay, we would explore the possible reforms in the regulatory space in India so that we an move these institutions from the trojan horse to the white knight space.

1. WHY DO WE NEED A REGULATOR / FUNCTIONS OF A WHITE KNIGHT REGULATOR

The primary task of most regulators is the protection of consumer interests. After the liberalisation reforms, the state has vacated field for private operators in many sectors. When the state was there, it could still be assumed that it would keep the interests of the general public in mind. But the private sector exists for profit. In its pursuit for profits, it may be tempted to pursue shortcuts, leaving the consumers vulnerable. eg. An airlines may try to skip engineering checks of planes to cut costs. But this would put the lives of the passengers in peril!

Similarly, in most of these sectors, the consumers may be unorganized – the general public – whereas the operators may be organized, or even monopoly. In case of broadcasting, the consumers are dispersed while the channels are organized. So if all the news channels start showing excessive advertisements simultaneously, there is little a consumer can do.

Then in some cases, the information needed by the consumer to ensure good service quality may be too costly or too technical. eg. in the case of drugs, the consumer has no option but to buy whatever drug the doctor has prescribed even though cheaper versions may be available. This is because he has absolutely no knowledge of the field and to learn medicine in order to understand it may just not be worth.

Another added layer of complexity in India is that consumers may be poor, illiterate and easy to exploit. The greedy operators may stoop to any unethical level for their profits. eg. the death of tribal girls in the clinical trials of the HPV vaccine (parliamentary panel report).

In all the cases above, a laissez fierre approach would lead to market failures and thus we need a regulator in the form of a white night to protect the consumer interests.

Then another reason for the existence of the regulators is to ensure a level playing field. The marketplace may be full of operators who may follow unethical practices to cut their costs. If a white knight regulator is not there to enforce compliance, a person wanting to operate ethically simply won’t be able to stay in the business. eg. this is what the new drug authority and its ethics committee are supposed to do to ensure clinical trials are fair in India.

A further challenge could be the existence of monopoly or cartels which may make it impossible for a new player to enter the market (apart from its other negatives). Here we need the Competition Commission of India to break these cartels. Similarly TRAI keeps this in mind while recommending policies for spectrum auction.

The third reason for the need for regulators is to provide a credible, cheap and fast mode for dispute resolution. If this is not there, parties may have to resort to regular courts which are painfuly slow and expensive or wait for months and years for mutually acceptable arbitrators to be appointed. That is why this is a very important function of the proposed PPP regulator and the Coal Authority of India.

Additionally, the white knight regulator provides a clear and uniform set of rules for all players to play by, in order to minimise the disputes and distortions. Thus the proposed PPP regulator would also standardise the contract documents and the COal Authority would provide the principles on which coal may be priced.

Finally, in a democracy, even if the service is provided by the executive, a regulator should exist independent of it to provide checks and balance. That is why we need an independent nuclear regulator even though the sector is entirely with the govt. That is why we need the National Human Rights Commission, women, minorities, SC/ST commissions even though the executive is supposed to safeguard them. And above all, the mother of all regulators is an effective Parliament, which regulates the executive itself.

2. STATUS OF REGULATORS IN INDIA

Many of the regulators in India are doing a reasonably fine job within the constraints. The RBI, for instance, has done a marvelous job in protecting the financial system’s integrity. Even in the Lehman crisis, when banks after banks were failing globally or needed bailouts, that not a single bank in India needed such help, bears testimony to the fine job RBI has done. Even now while giving new banking licenses, it is showing great caution. And yet, no one can accuse it of stifling the sector by over regulating as the healthy growth and profitability of the sector shows.

Similarly, SEBI has turned into a professional, mature regulator. Indian equity market disclosure and transparency norms are at par with the world. The participation of the retail investors in large number gives an indication of the faith people have in Sebi.

Turning to the non financial regulators, the Competition Commission of India and the Patents Controller Office have been doing a marvelous job. The CCI has been busting many cartels including the high profile cement cartel, thus protecting the sectors as well as the consumers. The Patents office, too has been resisting big temptations and serving public interest by rejecting frivolous patents and enforcing compulsory licensing (eg. against Bayer for the drug Glivec recently).

Turning to the political field, the Election Commission of India has set high standards for electoral conduct now. The parliament too has provided effective regulation over the executive on many instances. Many bills are pending for the want of consensus (eg. the constitutional amendment bill to ratify the Indo-Bangla Land Boundary Agreement) or had to be amended suitably to get them through parliament (eg. the Land Acquisition Bill initially exempted even the SEZs!).

However, not everything is fine as above in the Indian regulatory space. Before the liberalization, most of our regulators were trojan horses in classic sense. They micromanaged, instead of regulate, their respective sectors. Vast discretionary powers were vested in them and this almost stifled the sector. Thus the RBI used to literally control the boards of the banks. The ruls it framed severely handicapped the private players. The MRTP Commission was a dreaded one. In those days of license raj, this was the general scene in India.

This tendency has reduced after liberalization, but it is still very much present. Many of the regulators are not independent from the executive and toe its line. The classic examples of this are the CBI (which was recently called the ‘caged parrot’), the CVC (which has been largely ineffective since inception), the Atomic Energy Regulation Board (which reports to the Department of Energy secretary himself who it is supposed to regulate), the DGCA (heavily controlled by the aviation ministry), the Railway Board (again heavily controlled by the Railways ministry). The list may go on to include the Lokayuktas of various states, the National Human Rights Commission, the women, minorities, SC/ST commissions.

What is perhaps common to all of the above which makes them a tool piece in the hands of the executive is that they lack financial, operational and administrative autonomy. The appointments to these bodies remain largely political (some recent examples being NHRC, Railway Board, National Women Commission). Transparency and objectivity are not followed and the members can be removed at the sweet will of the govt. Where they cannot be removed at the sweet will officially, the got. makes sure that it appoints only those people to sensitive roles over which it has background levers to operate (like threat of an inquiry in a corruption matter). These bodies also don’t have control over their staff which is appointed by the govt. The govt. also controls their transfers and finances. Thus it is amply clear that they cannot function as white nights in the present setup.

The above tendency of politically motivated appointments is not limited to the above mentioned powerful regulators only. Even weak regulators like the Press Council of India and Censor Board are affected by political patronage.

Sometimes these regulators fall prey to the vested interests and start working in the interests of the very people they were supposed to regulate. The parliamentary panel’s damning report on the functioning of CDSCO in cases of drugs approval was revealing. It highlighted how corrupt the regulator had become that it approved drugs without trials or that many of the drug recommendations it accepted from various doctors were same – word by word! The fake pilot licensing scam eroded the whatever little credibility DGCA had. The fake doctors scam hit the Medical Council of India in 2010. The recent controversy on the clinical trials puts the regulator in bad light again. Every single story is a story of how all standards of morality were put to the sacrificial altar in the pursuit of greed.

Many of these cases arise due to conflict of interest. Even the parliament is not untouched from it. For example, it is common knowledge how the high flying industrialists use their money power to get elected to the parliament – the supreme regulator. Then they get themselves included in the parliamentary committees looking at the matters of their sectors and thus effectively make laws / regulate the very sector they operate in! Then some of the bills creating regulatory authorities are pushed despite there being a clear conflict of interest for everybody to see. Thus the Biotechnology Regulatory Authority of India (BRAI) Bill puts the authority under the Ministry of Science – the very ministry which is supposed to promote biotechnology. How much will this regulator regulate can thus only be a matter of imagination.

This brings us next to the very vital issue of what should we do to improve the regulatory situation in India. How to convert these trojan horses into white knights?

3. REFORMS: THE WAY FORWARD

In order to change the situation for better, the executive’s apathy towards respecting the sanctity of the regulators must end. And this should begin with the parliament.

The parliamentary rules and conventions must be changed to ensure that all matters of critical importance are by convention brought to it. A leaf may be sought from the UK where the govt. decided to bring the proposal of the attack on Syria to the House of Commons when it was under no obligation to do so. Then the departmental committees of the parliament, the probe panels must be given more power. The reports of the NHRC, Women, minority, SC/ST commissions are often placed before the parliament years after they are submitted by the respective commission. By this time they lose their relevance and often there is no discussion, thus eroding the parliament’s capacity to regulate the executive. Increasingly bills are passed without discussions and budget provisions guillotined. A common excuse given by the executive is that the opposition doesn’t let teh parliament function. But it is seen that this happens many times because the govt. doesn’t want to bring a sensitive issue to the parliament or put it to vote. This must be changed. parliament represents people’s will and if a certain percentage of members (say 25%) want a discussion and vote on an issue, it should happen.

Close to empowering the parliament further is the recommendation of the Damodaran Committee on regulators. It has recommended that all the regulators must be made to report to the parliament. Clear guidelines and mandates must be given to them. And then they should testify before the parliament quarterly or semi-annually. Regarding appointments, clear guidelines need to be evolved and the system made transparent. Selection must be made by a broad collegium – at least for systematically important regulators – and clear set of qualifications must be laid down (instead of the present practice of nominating ’eminent’ people). These regulators should then be given operational and administrative autonomy and their expenses should be charged directly tot he Consolidated Fund of India like the CAG, EC etc. Then the post retirement perks and lures must also be checked for each regulator. Their tenure and service conditions should be guaranteed to ensure their independence.

Equally important is to be very careful while drafting laws that the powers and mandate of the regulators are clearly defined and the powers are adequate for them to carry out their mandate. The regulatory loopholes, as exposed in some recent financial scams like Saradha, NSEL, Sahara, need to be plugged. An then these regulators must be brought under RTI as far as practically possible.

Finally to ensure that we don’t reach the other end where the regulators start acting arbitrarily despite the above checks, we must also have dedicated tribunals where the aggrieved can get speedy justice.

Once we create such an environment, our regulators would surely serve the purpose for which they were originally created i.e. further public interest and ensure good governance.

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