Policies being pursued in India are based on the growth-at-any-cost model. The poor and the enviroment suffer while the corporates and organised sectors reap the benefits
Mafia prospers:As a result of an underground economy, water supply is
often disrupted and wastage occurs. Delhi Jal Board, citizens lose out.—
Photo: V. Sudershan
The Aam Aadmi Party, having won the trust vote, is now
in the saddle in Delhi. By announcing several measures to benefit
Delhiites, it had already impacted the political discourse in the
nation. The established political parties are trying to follow suit. Why
did the previous Delhi government not take some of these steps given
that the financial implications are not large while the benefits to the
citizens are substantial?
The steps initiated by the
Aam Aadmi Party in Delhi have come under severe attack on various
grounds. First, that subsidies will increase with adverse fiscal
implications. Second, that this would set in motion competitive politics
of giving freebies adversely affecting the budgets of other State
governments and the Centre. Third, that the benefits would mostly accrue
to the middle classes as opposed to the really needy and the poor.
Fourth, the steps were initiated when the government had not yet won the
vote of confidence and, therefore, did not have the mandate to take
such important and far-reaching decisions. Lastly, the tax payers will
subsidise others and this is like robbing Peter to pay Paul. This last
implies that the measures undertaken by the AAP will benefit some at the
expense of others — a zero sum game. The question then is who is the
aam aadmi
and who will benefit from the steps initiated? A deeper analysis of the
processes set in motion by the AAP can help clarify that.
Giving
free water of up to 667 litres a day to a family will definitely
involve increased subsidy. It is also correct that those who do not get
piped water from Delhi Jal Board will not benefit from the announcement
and steps would have to be taken to supply them water. The AAP’s
contention is that both these are feasible given better governance of
DJB, which would reduce wastage of water leading to increased
availability of water and higher revenues for the board.
Further,
given the surplus in the Delhi Budget, more tankers can be purchased
soon and additional water pipelines installed in the coming years.
Checking of the tanker mafia in Delhi which operated with the connivance
of the officialdom and the politicians would help augment water
resources of the DJB. Of course, nothing would change unless corruption
is checked. This would be feasible if the Mohalla committees begin to
function as proposed by the AAP.
Regarding the
reduction in electricity tariffs for the consumption of the first 400
units per month, a subsidy will be borne till Delhi Electricity
Regulatory Commission (if convinced) lowers the rates. But, the AAP will
also check malpractices by the electricity companies which were
yielding them undue profits at the expense of the citizens of Delhi.
Earlier, some citizens and businesses were found to be stealing power,
causing losses to Delhi Electric Supply Board, but after privatisation,
it is the electricity companies who have been stealing from the
citizens. It is well-known that regulation is hamstrung by the famous
Averch-Johnson effect. It implies that the private regulated companies
show higher capital and other expenditures to get a higher price from
the regulator for the product/service they provide. The regulator does
not have an independent source of determining the cost of production and
depends on the private companies to supply them with data and this is
manipulated to show higher costs. This is achieved by showing higher
capital costs, higher overhead costs, and so on. Past examples of such
manipulation are Enron and fertilizer subsidy.
Cross-subsidisation
How
can profiteering by the private companies be checked? The accounts of
the companies need to be checked by independent auditors and that is
what the AAP hopes to do with the help of the CAG. But, what if the CAG,
under political pressure, does not play ball? Can the private auditors
be used? No, because they are usually in cahoots with the companies.
Thus,
at the end of the day, lowering power tariffs may only be possible if
the government is willing to increase subsidies. The same may be the
case for water. Those who are well-off in society often pay for others
on the principle of ‘Ability to Pay’ or ‘cross-subsidisation’. The issue
is whether this is fair.
Subsidies are typically a
result of economic processes that create economic hardships for those
being subsidised. The poor who face under employment and low incomes
need state support to afford even a minimal existence. Typically, the
low incomes of the poor lead to the higher profits of the businesses and
the high living standards of the well-off Indians. In this sense,
cross-subsidisation of the poor by the well-off is a way of paying back
what was due to the poor in terms of the basics of life.
So,
who is Peter and who is Paul in India? As the issue is posed, it is
implied that there is a zero sum game, that is, Paul gains at the
expense of Peter. Can there not be a positive sum game in which both
gain together? Policies being pursued in India for more than two decades
have been based on the principle of ‘growth at any cost’ with all costs
falling on the poor and the environment while the corporates and the
organised sectors benefit. This has led to massive environmental
degradation, displacement of the poor and increased disparities.
Consequently, at a very low level of per capita income, India has one of
the highest number of billionaires and the largest number of extremely
poor in the world and has some of the most polluted rivers, air in the
cities and habitats in the world.
The growth of the
black economy has led to a rapid increase in corruption all around. The
top three per cent of the income ladder benefit from this since the
underground economy is concentrated in their hands. This worsens the
disparity beyond what the official data reveals, leads to price rise,
waste of resources and loss of production due to inefficiency.
The
black economy also leads to expensive and poor quality services. Take
the case of water supply in Delhi. The tanker mafia has corrupted the
bureaucracy, the police and the politicians (the Triad). Often, the
politician and the businessman are the same person. The Triad makes
money at the expense of the citizens. They disrupt the water supply and
allow wastage to take place. The loss of DJB and the citizens becomes
the profit of the water mafia. Thus, checking the black economy will
immediately increase water supply, lower the cost of water to the
citizens and increase the profits of DJB. The same is the case with
electricity or speculation in vegetable prices (traders prefer that
vegetables rot so that the prices shoot up).
Thus,
the issue is not robbing Peter to pay Paul but the returning of what was
robbed by Peter from Paul. In other words, checking the growing black
economy and corruption is a positive sum game for every citizen except
the corrupt. This is what the AAP’s agenda is. The black economy is now
over 50% of GDP and if brought into the white economy or checked, it
would lead to a rise in the tax-GDP ratio by about 20 per cent. This
would be adequate to finance the proposed subsidies nationally, lead to
lowering of prices for all, result in higher profits for the honest due
to increased production in the economy because of the efficiency gains
and increased demand. As income generation becomes buoyant, most
subsidies can be eliminated.
The issue is macro and
not micro as the opponents make it out to be. In brief, the honest Paul
and Peter would gain together while only the dishonest Peter would lose.
It is the latter who is shedding crocodile tears at the actions of AAP.
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