India Today - - UPFRONT - By Ashok V. De­sai

The poor are those who are not rich or mid­dle class. Mid­dle class is an in­trigu­ing con­cept; it sits awk­wardly be­tween the rich and the poor. It re­ally be­longs to Europe, and es­pe­cially to Ger­many, whose Mit­tel­stand has dis­played im­por­tant po­lit­i­cal and eco­nomic virtues. It was the prod­uct and pi­o­neer of eco­nomic en­ter­prise, a bul­wark against royal tyranny, and sub­se­quently the back­bone of state fi­nances. It dom­i­nates most West Euro­pean coun­tries, where pros­per­ity and pro­gres­sive tax­a­tion have de­pleted the num­bers of the rich and the poor.

A sim­i­lar mid­dle class was on the point of emer­gence from busi­ness and bu­reau­cracy in Bri­tish In­dia, but so­cial­ist poli­cies af­ter in­de­pen­dence squeezed it and taught it to keep its head down. They were re­laxed af­ter the re­forms of 1991. But show­ing off wealth can have dire con­se­quences even now. Those who have watched the fate of Sudipto Sen and Subrata Roy may think they de­served what they were served, but the dif­fer­ence be­tween them and a thou­sand oth­ers who have flour­ished is that the rest kept their heads down.

The op­pro­brium at­tached to suc­cess has, how­ever, weak­ened—faster in some states than in oth­ers. It van­ished early in Gu­jarat; it al­ways had a large busi­ness class, which got down to chas­ing suc­cess. It did es­pe­cially well in the regime of chief min­is­ter Naren­dra Modi. He earned its ad­mi­ra­tion and af­fec­tion, and the pe­cu­niary favours it show­ered on his party helped it fight the gen­eral elec­tion of 2014. His face beamed at the elec­torate from hoard­ings to the left, right and cen­tre.

He has not ex­plic­itly shown affin­ity with the mid­dle class, but his cam­paign to ‘Make in In­dia’ clearly re­quires it to take the lead. His calls to the youth are also im­plicit in­vi­ta­tions to join the mid­dle class. And a good deal of what his fi­nance min­is­ter has done was de­signed to help the mid­dle class. In his first bud­get, he gave tax breaks to sav­ings for old age and health in­sur­ance. Last year, he re­duced in­come tax in the low­est bracket as well as cap­i­tal gains tax on prop­erty. The tax ex­emp­tion he gave to builders of small flats was de­signed to make hous­ing cheaper for new in­vestors in prop­erty, many of whom would also be new en­trants to the mid­dle class. This year, he has given tax con­ces­sions to salaried per­sons, small and medium en­ter­prises, and peo­ple sav­ing for old age.

How­ever, it is not elec­torally clever to shower favours on the mid­dle class. Com­pared to the richer coun­tries, In­dia’s mid­dle class is tiny. With the ap­proach of the 2019 gen­eral elec­tions, the fi­nance min­is­ter be­came con­scious of the call of pop­ulism. Un­for­tu­nately, his pre­de­ces­sors were un­der the same com­pul­sion, and they gave so many sops to the poor that he could not find any­thing to add. Then he re­mem­bered a sop he had promised in his 2016 bud­get and then for­got­ten. So he re­peated a prom­ise to pay the med­i­cal costs of the poor up to Rs 5 lakh.

The pri­mary weak­ness of this pro­posal has been brought out by Mita Choud­hury of NIPFP (Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy)—that it would cost at least Rs

1 lakh crore to im­ple­ment. Thus, it joins the many dor­mant schemes of the fi­nance min­is­ter, who hap­pens to be a mas­ter of prom­ise, prom­ise, do noth­ing. I would like to ask how a more ded­i­cated and re­al­is­tic fi­nance min­is­ter would pro­ceed to achieve the same ob­jec­tive. First of all, he would give a sub­sidy to clin­ics sit­u­ated in vil­lages and ur­ban slums, where the poor live. Sec­ond, he would give a sub­stan­tial in­come sub­sidy to med­i­cal staff work­ing in those clin­ics. Third, he would sub­sidise trav­el­ling clin­ics—buses that would carry doc­tors, nurses and ba­sic medicines reg­u­larly to vil­lages. Fi­nally, he would sub­sidise the train­ing of paramedics and nurses, so that they would mul­ti­ply and spread out into the coun­try­side. Sub­si­dis­ing the sick is in­ef­fi­cient: they would have to prove to some au­thor­ity that they are sick and poor, which would cre­ate con­sid­er­able scope for cor­rup­tion and ar­bi­trari­ness. The way to cheapen health­care is not to sub­sidise the pa­tient, but to sub­sidise med­i­cal ser­vices and in­crease their sup­ply.

Ashok V. De­sai is a former chief eco­nomic ad­vi­sor

With the ap­proach of the 2019 gen­eral elec­tions, it wouldn’t have been clever to shower favours on In­dia’s tiny mid­dle class

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