Social Goods and Its Effect on Stabilization Policy

7 months ago

Atiqur Rahman

15 minutes

The concept of social goods was derived from the Greek ideas of community and polis, where people work together with synergy to achieve a common good for the society. Social goods are non-rival in nature, and they do not diminish after one consumption.

These types of goods are non-tradable in the market. For example, fire services are consumed but are still available for others in the public, but if someone is consuming a gallon of milk, then no one can directly benefit from milk.

In the interest of the economic development of the country, it has become a necessity that the provision of social goods should be done on time. Provision of social goods is necessary at each and every level, whether local, national or international. Thus, proper and timely provision of social goods has become a key element in the quality of life and in maintaining environmental sustainability in the economy.

The under-supply of goods may affect the economic development of the country and can also disturb the peace and prosperity in the country. Thus, effective mechanisms should be developed for the timely and effective delivery of social goods and services, and any schemes related to social goods should focus their attention on poverty eradication.

Optimal provision of social goods benefits not only the government but the whole society is being benefitted. Effective provision of social goods raises the living standard of the society and also helps in reducing poverty in the economy.

For example, governments used to frame programmes for mid-day meals. This program was being formulated to attract more and more children from weaker sections of society for education. Thus, from this programme, children receive education and a time meal, so to maintain economic stability and eradicate poverty from society, it is necessary that the government should take timely and adequate steps for the optimal provision of social goods.

Economic Policies of the Government

Economic policy is a various set of actions undertaken by the government to control, regulate and maintain stability in the economy. The actions taken by the government in the form of economic policy are levying of various taxes and government borrowing and spending in the economy. Various stabilization policies like monetary and fiscal policies are all part of the economic policy of the government. These policies are being used to maintain stability in the economy.

Almost each and every type of policy of the government influences the economy, but the main policies which affect the whole society are:

Macroeconomic stabilization policy, also known as monetary policy, regulates the monetary supply, keeps a check on excessive inflation and also smooths out the business cycle.
Policies related to economic development and economic growth.
Trade policy deals with various tariffs and trade.
Industrial policy related to the development of industries in rural and urban areas.
Policies related to the distribution of income and wealth in society so as to maintain a proper balance among all the sections of the society.

(i) Allocation Function:

The government has to make various kinds of provisions for public goods such as railways, defence, government administration, etc. These goods cannot be provided through private mechanisms, so the government use to take steps for their allocation. The government used to make policies for the proper allocation of resources between private and public goods. Private goods are limited and are available only for some individuals, and private goods can be bought only by those persons who can afford them financially, but public goods are available for all sections of society to those who are financially weak.

(ii) Distribution:

Government, through its tax and expenditure policy, affects the distribution of personal income to various households in the economy in a manner which is just and equitable. The government used to levy taxes on the rich and give various grants and subsidies to the weaker section of the society. Thus, the tax-transfer policies of the government help in the reduction of inequality of income and wealth from the economy.

(iii) Stabilization Function:

The economy of a country is most affected by economic fluctuations such as the condition of boom and depression that prevail in the economy. These kinds of changes benefit some sections of the society but cause harm to a major section of the society. In such a situation, the government takes appropriate measures which affect the level of aggregate demand in the economy; such measures are called as stabilization measures. These measures help in controlling the situation of inflation and unemployment problems in the economy.

Social goods can be defined as an action that provides some sort of benefit to the general public. Freshwater, education, and healthcare are all examples of social goods. Entry of new and new technology and various innovations in the online and media world have added a new dimension to the term social good. Social goods are now for global citizens who unite the potential of individuals and create a positive societal impact on the economy.

Now, the days are gone when the government relied on NGOs and multinationals to initiate any change in society. Today is the time of Twitter and Facebook, which is serving as a fantastic tool to engage people in social good actions. Through online platforms, the government can easily initiate changes in the economy, and individuals can add their voice to a cause more easily than ever before and feel like that they are also the agent of change. For example, one of the major functions of the government is to control the traffic situation in the country.

The odd-even formula by the Kejriwal government to control traffic and pollution in Delhi is proving to be a success because of the help the government has taken from the online world. These days, online communication has become a good mode of distribution and spreading positive news about any social good in the economy.

The formulation of stabilization policy is being affected by social goods also.

The government, before launching various schemes for the weaker sections of society, used to plan out their income and expenditure and then allocate funds in the budget for social goods. The government used to declare various healthcare facilities for society, but proper planning is being done on how much to spend on healthcare so that a complete balance is being maintained while allocating resources to healthcare facilities and other types of social schemes announced by the government in the budget.

Providing free vaccination to society is a social measure undertaken by the government. Vaccine is a public good distributed to weaker sections of society. It will be a form of pure public good, but when a vaccine is sold privately for commercial purposes, then it becomes a private good. For example, the pulse polio programme of the government was a great success because they have taken the help of media and the online world; so many people became aware of this programme with the help of social media. A lot of agents were appointed to distribute vaccines across various households in the country. Due to this programme, the government gave jobs to various people, which solved the problem of unemployment.

Thus, the main function of the government is to maintain stability in the economy and to solve the problem of unemployment, and this is being done with the effective provision of social goods in the country. Thus, social goods play a prominent role in the formulation of stabilization policy by the government.

Poverty is an unacceptable human condition that cannot be avoided despite various policies and measures undertaken by the government. The main goal of any economic development is to eliminate poverty from society and to attain sustainable economic growth through the formulation of appropriate policies.

Poverty cannot be reduced only through economic measures but it requires a planned set of coordinated measures. Therefore, economic growth is the only factor that influences poverty and stabilization policies of the government are necessary for high and sustainable economic growth in the country. Therefore, it is essential in the interest of the economy that stabilization of the economy should be the key component of any poverty reduction strategy.

According to (the World Bank 2000 Report on World Development), “Poverty as an unacceptable human deprivation in human well-being that can compromise both physiological and social deprivation”.

Physiological deprivation includes non-fulfilment of basic material needs, which includes health, clothing and shelter. Thus, a person is said to be poor when he is not in a position to fulfil his basic material needs. Social deprivation includes risk, powerlessness and self-respect.

Therefore, in order to maintain economic stability in the country, the government formulated a budget which includes poverty reduction strategies, and these are financed in a non-inflationary manner. Poverty reduction strategies must first be decided, and then an estimate should be done by the government in its budget. Then, it should be financed by the government in a non-inflationary manner.

Thus, poverty alleviation has been the major agenda for every government in India to attain a suitable level of economic growth and development in the country. Various poverty alleviation schemes have been framed by the Indian government in its five-year plans to eradicate poverty from India. These schemes were.

(i) Integrated Rural Development Programme/Swarn Jayanti Gram Swarojgar Yojana:

These schemes were introduced in selected parts of the country in 1978-1979 but were universalized from October 2 1980. This scheme is used to provide assistance to rural poor in the form of bank credit and subsidy to rural poor for employment opportunities. Employment schemes for the rural youth have been framed by the government during various plan periods. The famous schemes launched in this program were TRYSEM (Training of rural youth for self-development), DWCRA (Development of Women and children in rural areas), SITRA( Supply of improved tool kit to rural artisans) and GKY (Ganga Kalyan Yojana). These schemes were introduced to satisfy the basic needs of the rural population.

(ii) Wage Employment Programme:

This program not only provides employment opportunities to the rural youth during the lean agricultural season but also provides employment in times of flood, droughts and natural calamities. This programme also helps in creating rural infrastructure, which helps in creating economic activity in the rural areas. The various schemes launched under this programme were NREP (National Rural Landless Employment Programme) and RLEGP (Rural Landless Employment Guarantee Programme). Further schemes introduced by the government during this programme were

(a) Jawahar Rozgar Yojana/ Jawahar Gram Samridhi Yojana:

The schemes of NREP and RLEGP were merged in 1989 under the scheme called Jawahar Rozgar Yojana. This scheme is used to give employment opportunities to unemployed youth in rural areas. This scheme further merged with the new scheme named Jawahar Gram Samridhi Yojana in 1999. The main objective was to create economic infrastructure in rural areas as well as employment generation, which became the secondary objective of this scheme.

(b) Employment Assurance Scheme:

This scheme was launched on October 2 1993, and covered drought-prone, desert and hilly areas. This scheme was designed to provide employment in the form of manual labour in weak agriculture season.

(iii) Sarv Shiksha Abhiyan:

This scheme aims to provide elementary education to all children in the 6-14 age group by 2010. This scheme was an effort to improve the performance of the school system and provide community-owned elementary education in the mission mode.

(iv) Mid-Day Meal Scheme:

This scheme was launched in 1995. This scheme was launched to boost primary education for weaker sections of society and to improve the nutritional status of students in primary classes.

From time to time, the government has been working for poverty alleviation. Various schemes launched by the Modi government for eradication of poverty were:

(i) Suraksha Bima Yojana:

This scheme is used to target social security by ensuring accidental deaths and partial or permanent disabilities. This scheme will mainly benefit those people who are living in rural areas. Under this scheme, the subscriber has to pay just Rs 12 per year and get a life insurance cover of Rs 2 lakh.

(iii) Krishi Sinchai Yojna:

This scheme benefits the farmers, and this scheme was started because India is an agricultural country. Under this scheme, just 45% of the farmland in India is accessible to the irrigation channels, with the remaining 55% depending on traditional methods of irrigation.

(iv) Garib Kalyan Yojana:

Under this scheme, the government would run several micro-campaigns to ensure that the welfare needs of the poor population are being met and taken care of.

(v) Sukanya Samriddhi Yojana:

This scheme lays emphasis on the financial empowerment of the girl child. Through this scheme, the parents of any girl child below 10 years can open a savings account for their daughters and operate till they attain the age of 21 years.

(vi) Jeevan Jyoti Bima Yojana:

This is a term life insurance policy that goes a long way in saving the financial future of the policyholders. Anyone who is in the age group of 18 years to 50 years can get enrolled on this scheme, provided they have a functional savings bank account. This gives an insurance cover of Rs 2 lakh only by paying a premium of Rs 330 per year.

(vii) Pradhan Mantri Jan Dhan Yojana:

This scheme ensures a bank account for every Indian. In this mass drive, more than 15 million accounts have been opened all over the world.

(viii) Saansad Adarsh Gram Yojana:

Under this scheme, each MP would take out some part of their fund for the development of their constituencies. Physical and institutional infrastructure are some of the ways through which villages of the country can reach their empowerment as a whole.

(ix) Atal Pension Yojana:

This scheme ensures old age pension to those who are not covered under any other pension or social security scheme.

(x) Awas Yojana:

This is the welfare housing scheme launched by the central government to provide houses to all by the year 2022. Houses would be distributed to the needy sections of society, and a subsidy on loans would be provided by the central government, thereby making housing affordable for the economically weaker sections of society.

Thus, from time to time, various governments have launched various schemes for eradication of poverty, and a lot of expenditure has been incurred on these schemes, but these schemes will work effectively only when the government has sufficient funds, and this is possible only if the government is formulating a proper stabilization policy because only stabilization policies arrange funds for the government through its monetary and fiscal policy in the country.

Social Goods and Its Effect on Stabilization Policy

Economic Policies of the Government

(i) Allocation Function:

(ii) Distribution:

(iii) Stabilization Function:

(i) Integrated Rural Development Programme/Swarn Jayanti Gram Swarojgar Yojana:

(ii) Wage Employment Programme:

(a) Jawahar Rozgar Yojana/ Jawahar Gram Samridhi Yojana:

(b) Employment Assurance Scheme:

(iii) Sarv Shiksha Abhiyan:

(iv) Mid-Day Meal Scheme:

From time to time, the government has been working for poverty alleviation. Various schemes launched by the Modi government for eradication of poverty were:

(i) Suraksha Bima Yojana:

(iii) Krishi Sinchai Yojna:

(iv) Garib Kalyan Yojana:

(v) Sukanya Samriddhi Yojana:

(vi) Jeevan Jyoti Bima Yojana:

(vii) Pradhan Mantri Jan Dhan Yojana:

(viii) Saansad Adarsh Gram Yojana:

(ix) Atal Pension Yojana:

(x) Awas Yojana:

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Concept of Social Goods

Economic Policies of the Government

(i) Allocation Function:

(ii) Distribution:

(iii) Stabilization Function: