Robbery is not right

The ‘rights-based approach to development’ is immoral and illiberal

Why was there ideological collusion in the passage of a bill that promises ‘food security’ but is certain to severely undermine India’s development path? Several reasons can be adduced—from the electoral to the conspiratorial—but what gave both the terrible bill and the even more terrible scheme it seeks to implement the impression of inevitability was the underlying narrative of a “rights-based approach”. And, as Narayan Ramachandran writes, “[the] apostle of the rights-based approach in India is the National Advisory Council (NAC).”

Over the last decade, the NAC’s narrative of a “rights-based approach” to development has acquired dominance. It has pervaded government policy because Sonia Gandhi, its chief and Congress party president, in all likelihood, genuinely believes in it. The power of narratives is such that even if you replace Mrs Gandhi and her NAC with another political leader and his or her own clique, they will be compelled to persist with the same policies as before, or undertake the Hanumanian task of countering the rights-based narrative before rolling back or changing tack on the massive entitlement schemes. (See my previous post on this).

Narayan argues that the rights-based approach is the wrong development model for India. In fact, “rights-based approach” is a misnomer. It is a clever way to refloat the failed policies of socialism under a new, fashionable but dubious political philosophy. In essence, this ‘development model’ identifies an ever-growing list of life’s needs and necessities, declares that they are ‘rights’ and suggests that these be provided by the state.

A lot of well-meaning people are fooled by this sophistry. Since few good people will dispute that people need food, education, healthcare and jobs to live in this world, they become susceptible to the argument that such necessities are rights. Moreover, since a lot of famous people, including Nobel laureates and rock stars, advocate this approach, the notion that such things are rights acquires wings.

Yet for all the celebrity endorsement, warm fuzzy feelings it creates, the so-called rights-based approach is immoral and illiberal. The only true rights are those that do not come at anyone else’s cost. Preetam’s right to life, equality, freedom and property do not come at Palani’s cost, and vice versa. The state might have to incur a cost to protect these rights, but not to provide them. [Meet Preetam and Palani, in Redistribution as Theft]

The entitlements that the NAC-types call ‘rights’ are different. It costs someone something to provide them. If Preetam and Palani are the only two citizens in a hypothetical state, the cost of providing Palani’s right to food, education, healthcare and jobs must be borne by the state. If the state, in this example, is financed by Preetam’s tax payments, Palani’s entitlements come at the cost of further infringing on Preetam’s rights (in this case, the right to use his money as he pleases).

It is sometimes reasonable to argue that Preetam must be made to pay for Palani’s necessities in order to have a equitable society. Or because Palani might be contributing to Preetam’s welfare in other ways. What is wholly wrong, though, is to contend that food, education, healthcare, internet connections, jobs and suchlike are ‘rights’, in the same way as life, freedom and property are rights.

However desirable, however necessary, if it costs (someone else) to provide, it is not a right. It is an entitlement. Liberal democracies can agree to make some entitlements obligations of the state. But it is important to keep these obligations distinct from rights. The framers of the Indian Constitution made this distinction when they separated Fundamental Rights from Directive Principles. Unfortunately, their successors in parliament lacked the same moral clarity, and proceeded to undermine Rights even as they attempted to rightify the obligations that fall under the Directive Principles.

Because it violates (someone else’s) rights, the rights-based approach is universally immoral. India cannot afford the luxury of this ‘international development’ fashion. The cost of providing an ever-growing list of entitlements is prohibitively large, and will severely undermine India’s future. Right-minded people and political parties (no pun intended) should reject the rights-based approach.

1. The Two-Person Test to determine what is a right (also known as the Preetam & Palani Test). If it costs Preetam to provide Palani something (and vice versa), then, however desirable it might be, it is not a right.

2. If we accept the rights-based approach, then we urgently need to legislate the “Right to Richer Spouse.” If every citizen has an enforceable right to marry a richer person, then poverty will disappear fairly quickly. Such a right will take away some freedom from the richer persons, but that’s no different from the rights to food, education, jobs and suchlike. If you find the Right to Richer Spouse absurd or repugnant, just remember that it is based on the same logic as the right to food, education, healthcare, jobs, internet connections and so on…

3. A storified series of tweets on the topic.

How the government will keep its entitlement commitments

You won’t like any of them

No one really knows how much the Food Security Bill (or Act, if it becomes law) will cost the exchequer. Given the way the legislation is framed, it is impossible to make an accurate assessment of its costs. That doesn’t mean we are short of proponents who argue that it should be (or, worse, normatively must be) affordable. We also have a few opponents who argue that it’s more expensive that what the proponents suggest. We’re talking about numbers whose order of magnitude is in the range of single-digit percentages of GDP.

The scheme is open-ended: there’s no expiry date, no sunset clause. It covers around two-thirds of the population—even those who are not really needy. This means that the outlays will have to increase as the population grows.

Obviously, finding the money to keep this scheme going year after year will be a big problem. There’s worse news though—this programme is over and above other open-ended spending commitments like the NREGA, fuel and fertiliser subsidies which are in the vicinity of 2%-3% of GDP. These are the explicit subsidies. We will not even attempt to calculate the implicit subsidies and opportunity costs in this post.

Many of these schemes work such that the subsidy load will increase when growth slows down. In other words, at such times, subsidies as a fraction of GDP will increase—tightening the government’s budget constraints and reducing its fiscal space.

The nature of these schemes is such that governments will be scared to cut them during times of distress, forget ending them altogether. So how will the Indian government finance the gargantuan entitlement economy and what might be the consequences?

First, through new and higher taxes. This has already happened. Didn’t you notice the ‘education cess’? Didn’t you notice the higher marginal taxes on high income earners? Expect more of the ‘Good Cause Cesses/Surcharges’, a fiscal sleight of hand to raise new taxes by citing a plausible good cause. (See this post on education cess for more). As the economic and fiscal situation gets worse, expect higher tax rates lower down the income pyramid. Corporate profits are also an easy target—so they too will be taxed in increasingly creative and extortionary ways.

The consequence of higher taxes are lower investments and higher tax evasion. Lower investment means lower growth. Higher taxes when you are already in a low growth phase is a recipe to stay in the low growth phase longer than otherwise.

The second way for the government to raise resources is through borrowing. It can borrow money abroad (and incur foreign debt) and borrow money from the domestic market. The former puts the Indian government at the mercy of its foreign lenders to the extent of its borrowings. If you do not recall the days of the 1960s-80s, when India was mired in foreign debt, ask someone who does.

The Indian government can borrow from Indian citizens and corporates through the bond market and other instruments (a new -Vikas Patra can be invented quite easily). While it transfers money into the government’s budget, it crowds out the private sector. Interest rates will rise because of the large government demand for funds, making it harder for entrepreneurs and businesses to raise funds to expand their economic activity. This too puts the brakes on economic growth. Higher interest rates during an economic slowdown will prolong it.

The third way for the government to raise resources is to get the Reserve Bank of India to print more money. This has the effect of increasing inflation and depreciating the value of the rupee vis-a-vis other currencies. Higher inflation makes people poorer. It makes poorer people even more poorer (because they do not own assets like real estate, shares or foreign exchange that can weather inflation). A drop in the value of the rupee will make it tougher to service foreign debt, both for the government and for private firms. If the rise in exports on the account of a cheaper currency does not outpace the higher cost of imports, the current account deficit will grow. It could even result in a balance of payments crisis, like the one seen in 1991.

The fourth way is what is termed an “austerity drive”—for the government to cut expenses. Because politics will not allow cutting back on salaries, pensions, subsidies and entitlements, the government will cut two things: office expenses and capital expenditure. So you’ll probably get to see ministers photographed coming to work on bicycles and civil servants working without air-conditioning. Other than schadenfreude, these measures achieve nothing substantial. Cutting down on capital expenditure—roads, power plants, defence equipment—does create fiscal space, but at the cost of future growth.

Where does this leave us? Well, at the edge of a vicious cycle of low growth, high inflation, low investment, higher unemployment, higher taxes, greater evasion and higher out-migration of talented individuals and firms. We’ve been there before. It’s unconscionable that we are being taken there again.

The only way to avoid this vicious cycle is to suspend entitlements and rekindle growth. It is unlikely that growth can be rekindled without sustained pro-growth measures: greater liberalisation, simpler taxation and coherent economic governance. The Delhi Straitjacket must be dismantled.

Related: INI9 Conversation with V Anantha Nageswaran on the falling Indian Rupee.

Why the President of India must reject the Food Security ordinance

President Pranab Mukherjee must reject the Union Cabinet’s unjustified ordinance

The UPA government’s Food Security Bill (brief) is likely to cause severe damage to the Indian economy, while saddling future generations with an open-ended spending commitment that will be hard to wind down. The government’s own Commission on Agricultural Costs and Prices and the Expert Committee (report) headed by the chairman of the Prime Minister’s Economic Advisory Council (report) have argued against it. As Ravikiran Rao argues in Pragati, the scheme will not only widen India’s gaping fiscal deficit, but severely distort the national food supply chain.

But you do not have to agree with the bill’s critics to acknowledge that a bill on which there is no consensus even among the government’s top economic experts, which imposes a burden on future generations, at a time when the Indian economy is in doldrums and the investors—domestic and foreign—are wary about investing in India, should not be implemented in a hurry.

Yet that is exactly what the UPA government is attempting to do. After emotional blackmail—for which purpose Nobel laureate Amartya Sen was recruited—failed to persuade parliament in the previous session, the Union Cabinet has now decided to sneak it through an ordinance.

Under the Constitution, an ordinance is an emergency provision, equipping the Executive to implement measures when the Parliament is not in session. The ordinance must be approved by both houses of Parliament the next time they convene and “shall cease to operate at the expiration of six weeks from the reassembly of Parliament”. What is important to note is the debates in the Constituent Assembly, the wording of the Constitution and Supreme Court judgements are clear that issuing ordinances is an emergency provision to be used at extraordinary times. Chief Justice P N Bhagwati, heading a Constitution Bench in D C Wadhwa vs State of Bihar held that

“The power to promulgate an Ordinance is essentially a power to be used to meet an extraordinary situation and it cannot be allowed to be ‘perverted to serve political ends’. It is contrary to all democratic norms that the Executive should have the power to make a law.” [1987 AIR 579, 1987 SCR (1) 798/IndiaKanoon]

The Union Cabinet’s decision to implement the food security bill—that is still in Parliament—through an ordinance flies in the face of the letter and spirit of the Constitution. Justice Bhagwati’s ruling is clear—an ordinance can only be used to meet an extraordinary situation, not perverted to serve political ends.

Where is the extraordinary situation? Where is the food emergency? Is there a famine in the country? Is a famine projected? If there is no extraordinary situation, then the Union Cabinet’s decision to wrap its political pet project in the garb of an emergency is against constitutional morality. It is perhaps unconstitutional as well.

There is no doubt that there many right-thinking Indians who believe that the food security bill is a good thing and that it will even provide food security as intended. However, it will be hard for any reasonable person to conclude that the situation in India is dire enough to bulldoze constitutional and democratic norms and present parliament with a fait accompli.

The argument that the ordinance is necessary because Opposition parties have not allowed Parliament to function does not wash. While the BJP has provided the Congress party with a seemingly plausible excuse, the Union Cabinet is bound by the Constitution. It is sworn to uphold the Constitution. It cannot refuse to perform this duty merely because the Opposition is not playing by the rules. If we are to buy the premise that two wrongs make a right, we are either in a jungle or in a banana republic.

President Pranab Mukherjee is perhaps sympathetic to Sonia Gandhi’s ideological persuasions. As a life-long Congressman, he might be inclined towards the party’s socialist leanings. Yet when the ordinance comes before him, the only question he must ask is “Is there an extraordinary situation that demands this ordinance?” Parliament convenes in a few weeks. Can this not wait until then?

The Indian Republic’s history is replete with presidents, who despite being lifelong Congressmen, have had the integrity, courage and statesmanship to question Congress-led governments. It is up to President Mukherjee to decide whether he wants to be a Fakhruddin Ali Ahmed or a Rajendra Prasad.

How the UPA government’s policies caused inflation

Gargantuan spending without addressing underlying supply bottlenecks

Inflation is like fever — it is not the disease itself but a symptom of an underlying disease. The right approach is to treat the underlying disease and not focus on treating the symptoms.

Supply bottlenecks are the underlying problem
Inflation is the direct result of the UPA government’s failure to put in place the necessary policies that could sustain the growth spurt that started during the NDA’s term. When an economy grows at 8% year on year all classes of people — poor, middle-class, rural and urban — will demand more goods & services. Yet, the UPA government has failed to ensure that the economy can produce and efficiently distribute goods & services. This is the core cause of inflation.

The anaemic growth in infrastructure industries is an indicator of the policy failures that have led to inflation. Better infrastructure can moderate price rises by better connecting buyers and sellers. Despite the economy growing at 8%, the infrastructure industries growth has been only 6.7% under the UPA government. In fact this has further fallen to 5% in mid-2010. The shortfall in power supply has worsened from 8.5% in 1992 to 12% in 2008-09. Worse, capacity addition in thermal power is a mere 4.4% of the target.

NREGA has contributed to price rises in many areas because the UPA government has failed to make rural markets competitive. In a village with a few shops, any rise in income of the villagers will cause shopkeepers to increase their prices. If rural areas are better connected to each other with good roads, electricity and cheap transport, villagers can purchase goods in adjacent villages if the goods are cheaper there. Despite the claims by the promoters of NREGA it is unclear if NREGA has benefited the rural poor. The UPA government has shown much less enthusiasm to complete the Golden Quadrilateral programme and extend it to rural areas.

The UPA government has failed to enable farmers to participate in India’s growth. The failure to dismantle barriers to agricultural marketing and failure to integrate India into a single market for agricultural goods not only contribute to food price inflation but undermine the welfare of farmers. (Farmers receive only 50 paisa for a kilo of tomatoes while consumers pay Rs 20).

It is a matter of basic economics that when demand rises faster than supply, prices will rise. By neglecting this basic reality, the UPA government has created the conditions for inflation

Regarding fuel prices
The UPA frittered away the chance to complete the process of fiscal consolidation started by the NDA government, otherwise credit rating agencies like Moody’s would have upgraded India’s sovereign credit rating a long time ago, rather than in 2010.

The removal of fuel price subsidies was done without adequately preparing the nation for the same. The UPA has not revealed that it intends to rectify the fundamental problems in the petroleum sector because of the patchwork of pricing policies. Furthermore, despite it being clear for the last few years that energy prices are rising globally, the UPA government failed to create the framework for a massive improvement in public transportation.

The removal of petrol subsidy and rise in prices does not directly affect the poor — mostly they use buses and trains. Those who use two-wheelers are affected. However, despite presiding over a healthy economy for over 8 years, there is no sign of the UPA government evolving a integrated public transport policy. Instead there is a continuation of the licence-permit raj that leads to the harassment of auto-rickshaws and other private bus operators, and increasing inconvenience for ordinary people.

The fuel pricing policy has damaged our public sector and private sector oil & gas companies. Reliance had to close down 2000 petrol stations because prices are non-remunerative — this is a major waste of capital. While the UPA government is damaging our oil & gas companies in this way, the Chinese government is throwing its weight behind their state-owned companies to corner energy resources around the globe.

UPA’s fascination with pet projects is diverting attention from the necessary ones. For instance, instead of thinking of only building a pipeline to buy natural gas from Iran, and paying money to the Pakistani government to safeguard our lifeline, we should have invested in building LNG terminal & pipelines along our coastline. Investing in ports, refineries and pipelines in India would not only increase the income of Indians but also improve our energy security. We can still buy the gas from Iran without having to depend on Pakistan.

(This note was prepared and privately circulated in July 2010. It is published here as it is still relevant, unfortunately.)

Swaraj – a new blog on The Indian National Interest

It will be about individual rights, economic development, and smart welfare

Harsh Gupta joins us on INI with Swaraj, new blog that will discuss “issues that are not really big ticket glamorous ones, but rather more like Raghuram Rajan’s A Hundred Small Steps.” His first post addresses the problem of malnourished children and how to tackle it India must “slowly but surely…replace the public distribution system (PDS) with food stamps.”

Go visit Swaraj and subscribe to his RSS feed.

Pragati June 2008: The New Jihadis

Issue 15 - Jun 2008
Issue Contents


The New Jihadis
Local manifestations of a global pattern
Nitin Pai

Getting human rights right
Are human rights activists playing into the hands of
Sandeep Balakrishna, Salil Tripathi & Rohit Pradhan

Towards a cultural liberalism
Governments must stop siding with intolerant mobs
Jayakrishnan Nair


A survey of think-tanks
Feline counter-terrorism; Measuring up against international human rights standards; On what makes foreign policy tick; Assessing energy security policies


Look before you hop

A discussion on strategic affairs with Stephen P Cohen
Nitin Pai & Aruna Urs


A review of Budget Session 2008
Kaushiki Sanyal


Where is the financial superhighway?
Two reports later, there is still no movement on reforms
Aadisht Khanna

Improving economic literacy
Effective delivery of public services requires sound public policy education
Mukul G Asher & Amarendu Nandy

A food credit card scheme
How microfinance and the public distribution scheme can work together
Ankit Rawal


History is in the writing
The changing fashions of recording history
Sunil Laxman

Read excerpts | Download