I don’t know how many people have actually read Sir Thomas More’s 1516 “Utopia”. It wasn’t just a welfare State, it was more like a communist (not socialist) State, with no private property, centralized planning and free food, health and education. Sir Thomas More’s reasons for writing “Utopia” are unclear. No doubt part of the reason was satirical. But in common parlance, “Utopian” has come to mean an ideal society that one can dream about. It isn’t realistic. For reasons that had nothing to do with “Utopia”, Thomas More was beheaded in 1535. Unfortunately, those ideas don’t die down, even though Sir Thomas More didn’t intend them seriously. Those ideas aren’t beheaded. If Utopia is ideal, its antithesis is Dystopia. In the first recorded use of the word dystopian, John Stuart Mill said, “It is, perhaps, too complimentary to call them Utopians, they ought rather to be called dystopians or, cacotopians. What is commonly called Utopian is something too good to be practicable; but what they appear to favour is too bad to be practicable.” This doesn’t mean bad ideas aren’t sought to be practiced and certainly, in the case of India, they are practiced in the name of the poor.
I think of it in the following way. Let’s use data from 2001 Census. Comparable data for 2011 Census aren’t yet available. There were 593,615 villages. 45,276 had populations less than 100, 46,276 had population sizes between 100 and 199 and 127,511 had populations between 200 and 499. We say that 68.71% of India’s population lives in rural India, suggesting that it is bad thing. We are almost normative about it. There are indeed reasons, since urbanization is correlated with economic development. However, 18% of US population also lives in rural United States and we aren’t normative about that. There are indeed issues about Census definitions of “rural” and “urban”. But that apart, the reason we aren’t normative about “rural” in developed societies is because “rural” in developed economies doesn’t connote an absence of physical and social infrastructure. Contrast that with those villages with population sizes less than 499. They have no physical or social infrastructure worth the name, despite six decades and more after Independence. As development proceeds, for various reasons, some of those villages disappear. But till then, I would interpret “inclusive growth” as delivering physical and social infrastructure there. Whether we like it or not, there are opportunity costs of resources. Something that is spent on subsidies cannot be spent elsewhere.
There is quite a bit of research, not just on PDS, on a pro-urban bias in India’s subsidy culture. Without getting into the niceties of that debate, and there is quite a volume of literature, the point I wish to make is different. Milovan Dilas wrote about a “new class” in communist countries, the Russian word being nomenklatura. That expression wasn’t primarily about subsidies. However, despite urban poor also existing, subsidies in India aren’t what the poor, rural or urban, truly get. Beneficiaries are richer sections, the so-called middle class. There are different ways to classify subsidies, explicit and implicit, producer and consumer, merit and non-merit. The merit subsidies have positive externalities, so that they are in some sense, desirable. Think of the non-merit subsidies – food, fertilizer, petroleum products, power, road transport. In these too, there is a pronounced pro-rich bias. Every rupee that is spent on non-merit subsidies is a rupee that could have been spent on merit subsidies, or on providing physical and social infrastructure. Stated differently, such non-merit subsidies benefit the nomenklatura, which is the reason they demand it in the name of the poor, knowing fully well that the poor won’t benefit.
There is evidence for this in other countries and there is evidence for this in India too. We have been down that route several times since Independence. It hasn’t worked. But we don’t learn, or don’t wish to. Bad ideas don’t get beheaded.
Policy Puzzles
Writer: BIBEK DEBROY