When the burden falls on the poor
ARUN KUMAR.
CESP, SSS, JNU.
The Hindu,
January 13, 2014.
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
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.
arunkumar1000@hotmail.com
