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

January 13, 2014 03:49 am | Updated December 04, 2021 11:26 pm IST

As a result of an underground economy, water supply is often disrupted and wastage occurs. Delhi Jal Board, citizens lose out. Photo: V. Sudershan

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.


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.

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

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