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When the burden falls on the poor

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 announcingseveral 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 Delhigovernment 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 ofother 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 andthis is like robbing Peter to pay Paul. This last implies that the measures undertaken by the AAP

will benefit some at the expense of othersa zero sum game. The question then is who is the

aam aadmiand who will benefit from the steps initiated? A deeper analysis of the processes setin 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. Itis 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 AAPs contention

is that both these are feasible given better governance of DJB, which would reduce wastage ofwater 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 andadditional 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. Thiswould 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 therates. 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, butafter 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 pricefrom the regulator for the product/service they provide. The regulator does not have an

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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-subsidisationHow can profiteering by the private companies be checked? The accounts of the companies needto 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 auditorsbe 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 iswilling 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 profitsof 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 inwhich 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 theenvironment while the corporates and the organised sectors benefit. This has led to massiveenvironmental 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 topthree 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 makesmoney 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

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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 AAPs agenda is. The black economyis 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 dueto 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.

(The writer was convenor of the AAPs Committee on Economics and Ecology. Email:arunkumar1000@hotmail.com)