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Updated: April 17, 2010 14:56 IST

Continuing poverty is a policy failure

D. Murali
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Fiscal policies have a crucial role in the management of environment, and incentive-based responses can be generated through taxation of polluting goods, writes D. K. Srivastava, Director of Madras School of Economics, in a tribute included in ‘Political Economy of Poverty Eradication in India and Essays on Fiscal Reforms’ by Raja J. Chelliah (www.sagepublications.com).

Fiscal policies and environment was a subject that Dr Chelliah particularly focused on when he had moved to Chennai and ‘he started working with Professor U. Sankar, an eminent econometrician and expert in trade and environment issues, and other colleagues,’ informs Srivastava.

“To our knowledge, this is the first comprehensive work on environmental taxes in India where concrete suggestions were made for taxing some of the most polluting inputs and outputs in India, including coal, automobiles, paper, detergents, pesticides, fertilisers, plastics and lead acid batteries.”

Widespread malaise

It should be of interest to know that among various words used in the literature on poverty such as poverty amelioration or poverty reduction, Dr Chelliah preferred the strongest word, that is, ‘eradication,’ as notes Srivastava. To Dr Chelliah, the irrationality of the tax system or the deficiencies in the management of government finances was only a reflection of a more widespread malaise of the society.

“Dr Chelliah considered India’s continuing poverty as a policy failure that was organically linked to the working of the democracy where, for short-term populism, policies that were necessary but benefited only after a period were being ignored.”

He rued that politicians remained focused on short-term gains and indulged in competitive populism. “This, he argued, led to preference by the leaders for policies which, with a focus on short-term benefits, could not lead to eradication of poverty that required a long-term strategy and perspective.”

Growth trade-off

Looking at poverty in terms of a spatial dimension, he was willing to trade-off a little of growth to make a major impact on poverty. He also saw that while the southern and western states were doing well, participating better in the growth process and had more effective policies put in place for education, it was the central, northern, and eastern regions that were missing out both in growth performance and poverty reduction.

“Directing investment in these regions may involve sacrificing a little of efficiency and aggregate growth of the Indian economy, but unless the sprawling regions of Uttar Pradesh, Madhya Pradesh, Bihar and Orissa were brought on board, the impact of growth on poverty was going to be always limited.”

Wealth of insights.

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