Instead of being limited by fiscal deficits, governments should instead raise tax the super rich to raise funds for healthcare and other welfare measures.

Shortly after the Rajasthan government passed its Right to Health Act last month, economist Aravind Panagariya, who served as the first vice-chairperson of the government think tank Niti Aayog, launched a blistering critique against the state’s “populist” policies.

The law enables any patient to seek emergency care for free at private and public hospitals and healthcare facilities.

In an article in The Times of India on April 10, Panagariya extended the “revdi” (sesame candy) argument advanced by Prime Minister Narendra Modi that approvingly looks upon any largesse to the rich as “incentives” but considers spending on the public as “freebies”.

Panagriya’s dismissal of the Rajasthan legislation as an example of “irresponsible populism” is shocking in a country where the financial burden of healthcare continues to push over 55 million people into poverty every year, according to a study by the World Health Organization in 2022. The study says that nearly 70% of all outpatient care and about 60% of all inpatient care is provided by private healthcare facilities.

In this context, the Rajasthan government initiative, in consultation with civil society, to ensure immediate access to emergency care at private institutions – which will be reimbursed by the government – should be lauded, notwithstanding its limitations.

But Panagriya’s response – a defence of private firms while also stoking fears of capital flight – is ethically reprehensible and economically shortsighted.

Panagariya also sees pensions and the right of the retired and elderly to a dignified life as a “populist” move in the context of the debate over a new pension scheme launched by the Bharatiya Janata Party government. Under the new pension scheme, government employees must pool their savings into a range of schemes promoted either by public sector banks or private companies.

Even Panagariya admits that many in Rajasthan welcome the state’s decision to return to the old pension scheme, under which employees get 50% of their last drawn basic pay plus dearness allowance on retirement without having to make any contributions.

In fact, in an acknowledgment of the widespread concerns among the government employees, the Centre on April 6 set up a panel under the finance secretary to review the new pension scheme.

Rights or ‘generosity’?

For many, the choice between public and private healthcare is often one of having a fighting chance to live or to die. As economist Prabhat Patnaik observed, whether in the case of the right to health or the right to pension, if the goal is to instill substantive democracy, “a government must raise revenues to meet its social obligations rather than reneging on its social obligations on the plea of inadequate revenues”.

India, as economist Lucas Chancel pointed out, is shining only for a few: there has been a massive increase in income inequality between the rich and the poor. “Policy choices in India over 2016-2021 led to huge economic degrowth for the poorest households (-53% drop in incomes) and huge growth at the top (+39% increase),” Chancel has noted.

The government has attempted to tackle this through a strategy that some have labelled “new welfarism”: it reluctantly implements schemes for sections of the population, such as the now-ineffective cooking gas distribution scheme and subsidies for toilet construction, which are portrayed as being examples of the generosity of the state.

Such schemes serve a limited purpose but they are no substitute for the intent and measure of accountability imposed upon the state through the enactment of laws.

It is not surprising that the Rajasthan government’s decision to switch to the old pension scheme, the enactment of the Right to Health Act, the announcement of a minimum income guarantee and a pension law, and the Gig Workers Welfare Act, has provoked ideological and electoral anxieties for the Bharatiya Janata Party and supporters such as Panagriya.

They fail to recognise that these social protection laws in Rajasthan as the consequence of years of work by ordinary people, activists and rights’ groups rather than being implemented top-down for votes. Such policy and legislative announcements put an additional responsibility on the government to walk the talk. Rather than easy votes, this actually invites further public expectation and scrutiny.

The fiscal deficit bogey

One of the cardinal fallacies of neo-liberal economists like Panagariya is the fiscal deficit, which is when government expenditure exceeds its revenue. He pulls up the Rajasthan government as having one of the worst track records in managing its fiscal deficit.

Fiscal considerations are integral for policy implementation, but they are driven by a government’s political and social commitments. “Fiscal prudence” in itself is not a science, as Panagariya would have everyone believe.

What the former Niti Aayog official refrains from stating clearly is the political and social vision that informs his critique of the fiscal unviability of states’ commitment to social welfare. This vision has been demonstrated in the actions of the government he advised.

The Union Budget announced on February 1 declared a 37% increase in capital expenditure to Rs 10 lakh crore, while welfare spending, including for schemes that provide a safety net and contribute to better human development outcomes, has been reduced.

For instance, economist Dipa Sinha pointed out that the budget for food subsidy is Rs 1.97 lakh crore for 2022-’23, lower than the revised estimate of Rs 2.8 lakh crore. Similarly, the budget for Mission Saksham Anganwadi, which provides nutrition and meals for children, remains almost the same as last year at Rs 20,554 crore. The Poshan programme, aimed at improving nutritional indicators in women and children, was allocated Rs 11,600 crore for 2022-’23, lower than the revised estimate of Rs 12,800 crore.

The Samarthya scheme, relating to maternity entitlements and women empowerment programmes, was allocated Rs 2,582 crore, slightly less than last year’s budgetary estimate of Rs 2,622 crore.

Allocations for the rural employment guarantee scheme, which supported livelihoods for many through the pandemic years, have been cut by a third, while the budget for nutritional support for women and children has remained stagnant.

For Panagariya, any government spending that violates the fictive boundary of fiscal prudence is sacrilege and thereby “irresponsible populism”. One of the pillars of this thinking is that such “dole outs” are necessarily inflationary.

However, given that India’s problems are that of unemployment, underutilisation of resources, and demand-constraints, investing more on people will actually give the economy the push it so sorely needs. It is time to call the bluff on this “laxman rekha”, or limit, on spending. Or is it a matter of raising too little revenue?

Taxing the rich

While economists like Panagariya, the media and policy think tanks are obsessed with the spending end of the ledger, no one ever asks if enough revenue is being generated on the other end.

While any legislation that guarantees some rights always raises the clamour against“freebies” and calls for cuts in social spending, there is hardly any talk about raising enough resources to increase India’s abysmally low welfare spending. After all, be it financing of health insurance schemes or expanding government healthcare infrastructure, realising government promises requires revenues to be raised.

It is in this context that several economists, grassroots movements and civil society activists have been pushing for taxing the super-rich. A thorough critique is necessary of a growth model that has perpetuated extreme inequality. But at the same time, even a minimal wealth and inheritance tax on the top 1% of the rich would generate enough resources to ensure universal and social rights for those at the bottom of the wealth pyramid.

The Covid-19 pandemic has amplified this demand globally. Columbia, Spain, Bolivia and Argentina have already implemented versions of tax on the wealthy. The idea is being debated in the United Kingdom and the United States.

Instead of decrying welfare measures as “irresponsible populism”, it is essential for India to raise more resources to strike deeper roots for democratic rights.

This article was originally published in and can be read here.


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