To laugh often and much; To win the respect of intelligent people and the affection of children; To earn the appreciation of honest critics and endure the betrayal of false friends; To appreciate beauty, to find the best in others; To leave the world a bit better, whether by a healthy child , a garden patch, or a redeemed condition; To know even one life has breathed easier because you have lived. This is to have succeeded.
- Ralph Waldo Emerson

Friday, January 03, 2014

Subsidies and all that...

The Arvind Kejriwal-led Aam Aadmi Party (AAP) recenlty gained power in Delhi and announced certain sops for 'aam aadmi' (common man) forthwith, without even waiting to prove their majority on the floor of Delhi Assembly with the support of Congress (or perhaps wanting to 'do it quick' before someone could pull the rug from under their feet!).  Commenting on the subsidies announced by the AAP Govt., esp. the one relating to power charges, a couple of respected former colleagues expressed themselves as not wholly in favour of such subsidies, broadly on the ground that it was a wastage of precious public resources.

I've a bit of a contrarian view on this (though perhaps still to consider all aspects). Why are direct subsidies necessarily seen to be bad when they're granted to the common man or disadvantaged sections. What about the very many indirect subsidies afforded to the privileged few? For starters, does anybody talk about the huge subsidies by way of Govt. houses given to public servants (just compare the market rents in surrounding areas to the pittance they've to pay the Govt.)? What about the almost 'everything free' life of our so called elected representatives (someone once came up with a calculation for an average MP - it came to millions!)? And we're not even talking of the disparity in opportunities afforded at the two ends of the scale of affluence, an indirect subsidy in itself - remember that someone born with a silver spoon in his mouth has infinitely greater opportunities to progress, against someone born in more humble circumstances.

The going wisdom, honed by the traditional wisdom and conditioning poured into all our minds since eternity, seems to be that metrics like fiscal deficits are affected only by the direct subsidies granted to the economically disadvantaged, while the indirect subsidies are manna from heaven! But just consider: where does the effect of the largesse afforded to the privileged few land up - perhaps on the same plate, just as direct subsidies do? Eventually, it'd seem that the same 'common man' ends up bearing the burden of fiscal deficit from his pocket, either by way of increased taxes (which he can't evade like a smart businessman, being subject to witholding taxes from salary - another subsidy asymmetry!) or erosion of savings due to inflation (while the solution for businesses is simply to jack up the prices of goods and services, protecting their marging).

One argument could be that the advantages accruing to the entrepreneurial class is ostensibly due to the operation of risk-reward equation: more the risk taken, greater the reward.  But at whose cost do such supposed 'entrepreneurs' (many of whom may be the old landed class, rent-seekers rather than true innovators) take such increased risk.  We only have to look at the subprime crisis for the answers!  Closer home, how many industrialists have really been made to pay with a reduction in their lifestyle after their businesses failed - word is that most of the risk is actually borne by the banks and financial institutions, while the super profits/rewards go to the 'promoters'.  And ultimately the tab for the inefficient (and sometimes downright corrupt) lending practices of public banks has to be picked up by the same common man!

So what's really the harm in the poor common wo/man being compensated at least a little bit by being granted some direct subsidies. And make no mistake - the common wo/man is yearning for it!  With the information asymmetry slowly withering away, mainly due to electronic media and especially internet, aspirations are rising all around.  And we the middle class have started to feel the pinch lately, much later (in terms of social development) than many other developed societies - labour wages from farms in Punjab to construction sector in Mumbai have been rising due to the 'NREGA' effect (supply of labour stemmed due to rural employment scheme in their villages), as have the salaries of domestic helps, many of whom used to come from such rural areas.  One pernicious effect brought on by the rising aspirations has been the unsavoury social incidents like honour killings and worse, epitomising the 'clash of two worlds' (mainly rural and urban), where economic conditions and mobility change but social mores do not keep pace.

When some people talk about wastage of public resources in subsidies, the underlying thought seems to be that since the resources are collected from the middle classes (not counting the really rich who have ways of either 'passing on the burden' or evading it!), they should be spent on the same classes.  However, taxation theory also says that the objectives of taxation are not only public/common welfare, but equalization of wealth to an extent by transfer of resources.  We wouldn't want forcible and sudden transfer of wealth (like Dr. Zhivago's house in 1920's USSR being marshalled for housing the poor!), would we?  So taxation and grant of subsidies seem to be the other way in which this is done!

I say subsidies "granted' and not "availed", consciously, because as anyone with an iota of exposure to real life knows, here the lion's share of even those direct subsidies is cornered by many of the same privileged classes who also get a plethora of indirect subsidies, by way of rampant corruption and administrative overheads.  The public distribution system (PDS) of India, which provides 'ration' food for the common man, is a prime example of leakage, as is the MGNREGS (the rural employment guarantee scheme).  The real debate should perhaps center around such inefficiencies and corruption around the subsidy schemes.

I believe AAP's recent electoral success is due to the fact that the other political formations have lost touch with these realities at ground level. And this applies especially to Congress, full of lawyers and economists whose only occupation seems to be to fulminate over esoteric things like balance of payments, monetary & fiscal deficits, market/& FII sentiments, 'confidence of the international community' (whatever that means!) and the like. Issues which don't make sense and not an iota of difference to the life of the common wo/man, who's more concerned on a day to day basis about balancing his/her household budget and keeping his/her head over water.

I fervently hope the common wo/man relegates all such political parties/formations to the dustbin of history and brings in more AAP-like people who're in regular touch with ground realities. But that's only a hope - I'm realistic (or cynical!) enough to realize that there are a host of factors like caste, religion, musclemanship, corruption etc. at play to thwart such a grant vision and perpetuate the status quo. My remaining hope is that perhaps AAP's victory would spur some in the current bunch to see the writing on the wall and take up common people's issues.  Perhaps a small start has been made in this direction by Sanjay Nirupam, the Congress MP, who's now demanded that Maharashtra Govt. should also look at ways and means to reduce power charges the same way that AAP has done in Delhi. Amen!

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