Dr N Balakumar

Preamble

The notion of Welfare State has acquired a great deal of popularity in recent years. in a restricted sense, Welfare State is a state that provides economic security to its citizens. A state is a Welfare State if it provides certain social services to its people, such as, education, health, unemployment and old age, etc. Welfare State in wider sense, specially in under developed countries, includes various activities, such as, rural development, labour welfare, the reduction of economic inequality and measures to raise the general standards of living besides the provision of economic security. In this sense, India is attempting to become a Welfare State.

The need to tackle the problem of poverty, inequality and economic uncertainty has increased the importance of welfare State. The Welfare State can ensure that production increases and that a greater share of the total produce may be provided to those who are in need.

What is Pareto-Optimality?

Welfare economics is concerned with the evaluation of alternative economic situations from the point of view of the society’s well-being. to evaluate alternative economic situations we need some criterion of social well-being or welfare. The measurement of social welfare requires same ethical standard and interpersonal comparisons, both of which involve subjective value judgments. Objective comparisons and judgments of the deservingness or worthiness of different individuals are virtually impossible, according to many economists.

Various criteria of social welfare measurements have been suggested by economists at different times. One of the path-breaking contribution was made by the famous Italian economist Vilfredo Pareto, which objectively seeks to measure economic efficiency. According to Pareto Criterion any change that makes at least one individual better off and no one worse-off is an improvement in social welfare. Conversely, a change that makes no one better off and at least one worse-off is a decrease in social welfare.

in short, a situation in which it is impossible to make anyone better-off with out making someone worse-off is said to be Pareto-Optimal or Pareto-Efficient.

What conditions are required to obtain Pareto-Optimality?

For the attainment of a Pareto-Efficient situation in an economy, three marginal conditions must be satisfied:

1. efficiency of distribution of commodities among consumers (efficiency in exchange);

2. efficiency of the allocation of factors among firms (efficiency of production); and

3. efficiency in the allocation of factors among commodities (efficiency in the production-

mix, or composition of output).

India and the Welfare State

The Constitution of India (1950) envisages the creation of a Welfare State. The Directive Principles of State Policy in Part IV of the Constitution lay down that the State shall strive to promote the welfare of the people by securing and protecting as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life.

India, with the help of planning, aims to attain a Welfare State by providing education for all, free medical and health services, equitable social security, housing and slum clearance, welfare of backward classes, resettlement of displaced persons, community development and social welfare.

India and Pareto-Optimality

In order to provide the social well-being facilities, Indian Government uses the components of Public Finance, such as, public expenditure, taxation, etc. But, how far Paretos Optimality is reached in India while providing social facilities is a very big question, which has to be answered.

In a country like India where around 75 per cent of the National Income is enjoyed by 25 per cent of the population, to attain equities, it is very essential to aim at Pateto-Optimality.

Even though the public finance policies are framed keeping in mind Paretian conditions, due to the following reasons, India is not able to reach the point of Pareto-Optimality:

1. the efficiency of commodity distribution of any two goods are not equal for all

Consumers;

2. the efficiency of the allocation of any two inputs are not equal in the production of all

commodities; and

3. the marginal rate of product transformation is not equal to the efficiency of commodity

distribution for any two goods.

Apart from the above three reasons, India faces a lot of additional problems - which are unique only to India - in implementing the social well-being facilities. Let us view two examples.

Example - 1

The government is providing Mr X a house/flat through slum clearance program. But, Mr X sells/rents the house after some time and returns to the slum again. There are several Mr Xs in India, which forces the government to incur expenditure again on same individuals. It is impossible to increase the utility of a person when the person himself does not want to increase his utility.

Example - 2

The government is providing free medical facilities. But does these facilities reach those people for whom they are meant to be? The entry of richer class into free hospitals reduces the total utility of poor people. Further, to add oil to the fire we find many drugs which is suppose to reach poor people through government hospitals getting sold outside. In these kind of conditions how a country can attain Pareto-Optimality?

Concluding Remarks

Even though it is very difficult to achieve Pareto-Optimality for a nation like India, it is very much necessary to aim towards it. This requires a lot of structural and technical changes starting from the policies of the government through the executors of various policies and to the people who ultimately reap the benefits from such programs. There is no point in blaming any single section for our inability to attain near the point of bliss. unless all share the responsibilities, it is quite difficult to share the benefits, which, though naturally due to us, have been denying ourselves and indifferently acting unaware against giving ourselves a Welfare State where one person can be better-off without making the other worse-off.