â€˜The great enemy of theÂ truthÂ is very often not theÂ lie, deliberate, contrived and dishonest, but theÂ myth, persistent, persuasive and unrealistic.â€™Â
John F. Kennedy
In view of the Coalgate and CAG controversy, the all important question to ask is: Are the overt and covert subsidies, around 10% or more of the national GDP, in the name of the poor in India, justified? The political class and policy-makers want us to believe that these indeed benefit the poor in India. In India, the tax to GDP ratio has been little more than 10%. And the four-monthly report released recently suggested that the fiscal deficit is likely to be more than 7.5% of the GDP, as in four months itself, half of the budgeted annual deficit has been used up.
The poorÂ comes handyÂ in defense of policy-makers in cases like 2G, Coalgate, to petro-product subsidies. You canâ€™t argue against the interests of the poor in India, against the interests of the Indian farmers, and also against the interest of the backward castes. You can create policies for these segment of people where the actual beneficiaries are someone else. In India, words andÂ rhetoricÂ matter more than implementation, results, analysis and learning thereafter.
These groups ofÂ ‘underprivileged’Â people, who are referred overtly by politicians repeatedly in support of covert crony capitalism to corruption to absolute stupid nonsense policy-making, are necessarily not homogeneous, barring the class of people belonging to the segment calledÂ â€˜poorâ€™. Will Durant, in his ‘The Story of Philosophy’, underÂ â€˜The political problemâ€™Â section (pp20) noted what Plato had realized:
â€˜Any ordinary city is in fact two cities, one the city of poor, the other of the rich, each at war with the other; and in either division there are smaller ones â€“ you would make a great mistake if you treated them as single statesâ€™Â .
Thereby two important policies, one on subsidy for the economically deprived ones, and another on reservation following affirmative action-plan for backward castes in India, have mostly been Â examples of catastrophic failures since independence. Both eventually have failed, in their current forms, to reach their intended target-segments.
Indian government always focused on theÂ â€˜smaller onesâ€™Â inÂ â€˜either divisionâ€™Â that Plato had understood,Â missing out the two sides at war globally as well as in India â€“ the rich against the interests of the poor and vice-versa. And Â thereby, Indian government never differentiated between economically better-off backward-classes (castes) from those of the economically backward backward-classes (castes) in its reservation policies, rich farmers vis-Ã -vis landless agricultural workers to marginal farmers in cases of farm-subsidies, or that of betweenÂ â€˜have nothing povertyâ€™Â to comparatively better offs in society.
WithinÂ â€˜unity in diversityâ€™Â culture and heritage of India, all of them coexist. The disproportionate unity often is stark, albeit being transparent for all to see, with less grey and more of black and white.
Only exception to above is observed (when the interests of these groups ain’t paradigm), when any of these groups’ interests directly poses to be an obstacle to that of the rich, and also an obstacle to the economic investment and growth, call itÂ â€˜GDP Maniaâ€™Â orÂ â€˜GDP-Cultâ€™. Lands and mines of farmers and tribal-sections have routinely been acquired in the name of development, investment, employment and growth; with archaic laws. There are ample times when these lands and mines have been given at less than there market-prices, or almost at no costs to private developers – with or without conditions as Government effectively does not monitor – whatever for the future; and those evicted received practically nothing compared toÂ the market-prices. On an aggregate basis, number of tribal-people adversely affected due to it probably outscores many times more than the number of tribal-people benefiting from reservation policies.
In India, it is not unforeseen that those conditionsÂ again get rewritten, in the form of reform, in foreseeable future. So the promise that some of these coal mines given to power projects as power would be given to state grid at a much lower rate than market prices is an empty promise of the future, against which a present transfer of the asset takes place. Such promises have never been fulfilled,Â as cost of power, steel or cement in India is no cheaper than that of the rest of the world (the last two stubbornly higher in India, and match landed import-parity prices at best).
In a country, where politicians and parliamentarians do not keep their future promises, what credibility should one have for the promises (and agreements) between government and private parties? If traditionally coal has been allocated at less than market prices or even free to power, steel and cement companies; why isnâ€™t domestic buyers getting power, steel or cement at any cheaper rate than the world average, as elsewhere producers mostly pay market prices for input costs?
Coming back to the theme of this article, subsides in India are essentially seen on two categories â€“ one overt subsidies and another covert subsidies. Globally, one learning from overt subsidies is never to subsidize input costs. But in India, we subsidize power to farmer and poor; we subsidize fertilizer to farmer; we subsidize diesel to kerosene to cooking gas â€“ although all of society consumes two of these three, more so the upper economic classes consume most of the diesel and cooking gas. We also subsidize our Public Distribution Systems, with a targeted audience. Other than the PDS, rest all is essentially input subsidization, and there are no means to determine whether input subsidization essentially reaches the targeted segment of theÂ â€˜have nothingâ€™Â category of poor in India, as 35.5% Indians are yet to have electricity at their homes.
The oil subsidy this year is around Rs. 1.45 lakh crores (â‰ˆ$30 billion) and another Rs. 1 lakh crore (â‰ˆ$20 billion) is spent on food, fertilizer and farm gate subsidies. Domestic and agricultural power subsidy also comes to another Rs.Â 70,000 croresÂ (â‰ˆ$14 billion). Many of these estimates are rough lower-side estimates, and puritans should not worry much on absolute accuracy with these ballpark figures.
Another overt subsidy, which has been more effective than above, is in the form of primary education and mid-day meals, and also the NREGA. As these practices essentially do not subsidize input costs, they can continue and apparently, they perform little better than most of the input overt subsidies of above.
So, in a way, input costs as overt subsidies in India come to a whopping $64 billion, roughly, in a year. If you again assume that 35% of Indian population lives in abject poverty, without electricity and other basic facilities, 420 million Indians belong to that category. Please remember that this 420 million is the class of poor that Plato talked about, having further divisions like farmers, tribal-sections or even upper caste people living in poverty. Distributing this $64 billion to these 420 million ensures that each person gets nearly half-a-dollar-a-day, meaning that in a family of four, the subsidy is Rs. 30,000+ in a year. It comes roughly three times more than NREGA for same family. And half-a-dollar-a-day is more than or equal to the BPL (Below the Poverty Line) norm set by Planning Commission of India, in defining rural and urban poor.
But above only covers a small aspect of the subsidies, the overt category of subsidies. When one hears Indian policy-makers defend giving natural resources to industry for free, as per practice, be it for coal or mines or spectrum or land, one often hears the same argument of poorÂ benefiting. The argument of giving natural resources for free or below market prices often areÂ poor people canâ€™t afford high costs from these sectors, had inputs costs been market-driven. But once an output is in the market, there is no way of determining whether it gets consumed by targeted segment, or by all of us. In all probability, the telephone bill to power consumption to food consumption of the rich and middle-class is going to be higher/person on an absolute basis than the poor. We have already seen that other than telecom tariffs, in no other area prices in India is any cheaper from global levels.
Tax exemption is another of these hidden subsidies, and it was aroundÂ Rs. 1,38,921 crore($28bn) in 2010-11. Coal has always been allocated in India free, be it to CIL or private old players like Tata Steel, and now to other private players. Without differentiating between public and private sectors, a loss to exchequer, as per CAG estimate, for allocations from 2004-2010 amounted to another Rs. 10 lakh crores ($200bn), meaning average yearly allocations were roughly $30bn for the period of 2004-2010. If one includes free land as given to Tata Motors in Singur, and in various other cases of subsidized rates to SEZs to IT firms to others, one would not be much wrong to add another $10bn/year of subsidy given by state or people to boost industry, growth and investments.
Such covert yearly subsidies from tax exemptions to spectrum to coal to land, to mention only a few input subsidies to industries, amount to roughly another $70 billion/year. Divide this again among the poorest of the poor in India, and it comes to another Rs. 33K+ for a family of four.
Eventually, it means, that if India as a whole adopts capitalistic society, a minimum of Rs. 60,000/family of four for 100 million poor families can be allocated directly.
This socialism veil under capitalistic rubric has been costing India and Indiaâ€™s poor dearly. The subsidies essentially are justified in words in the name of the poor, but the poor barely gets a fraction of that. Probably we all get a share of same, the biggest going to industries followed by rich and middle-class, and then the left-over Â trickles down Â for the intended poor. Unfortunately, this effect of trickle down has beenÂ minuscule.
Indian Prime Minister, now at war with the CAG, in a speech to celebrate 150 years of the CAG back in 2010Â stated:Â â€˜The additional resources that have become available because of higher growth have enabled our government to fund massive programmes in the social sectors in pursuit of our goal of inclusive growth. In Education, in Health, in Rural Development, outlays have been increased enormously in the last five yearsâ€™.Â What the PM didnâ€™t state there that 80% of the healthcare and 80% of higher education is operated by private players in India today, and also 30% of primary education is offered by the private players, where citizens rich or poor are ‘left to their own devices‘, without an iota of state support. Going by the trend observed in higher education, where within a decade, private sector education playersâ€™ share of students did go up from less than 40% to 80% now, primary education also probably awaits that same fate. RTE bill now rides on private sector, as 25% seats in private schools are now reserved for the underprivileged, where Government merely forms the policies and citizens, irrespective of they can afford or not, pay the price.
Capitalism and socialism both can be good or bad â€“ depending on how they get practiced. But using socialism to benefit the crony-capitalism system can be the biggest threat for India.
Prime Minister of India concluded his session in CAG by stating:Â â€˜I wish the institution of Comptroller & Auditor General and its staff all the very best in the years to come. You have served our country with great distinction but I venture to suggest that the best is yet to come.â€™Â Indian people thank the CAG for doing its job impartially, under Vinod Rai’s leadership. The best of this nation is likely to come only when some of the great institutes in India point out these fallacies of subsidies, and wrongdoings – from policy formulations to their implementations – favoring crony-capitalists at the costs of the citizens and, more so in the name of the poor citizens.
If we can truly make this Rs. 15000/person/year subsidy, out of this estimated $124 billion/year now in India, reach its intended recipients, that is the poorest of the poor 420 million Indians, even for a period of a decade or so, subsidizing these poor through coal to spectrum to diesel may not be needed year-after-year, since independence. However, the business model of having these subsidies or policies year-after-year is for a different interest, and thatâ€™s why the poor unfortunately remains poor in India.
Prof. Ranjit Goswami works as theÂ Director of School of Management of RK University. Opinion expressed in this article is personal. HeÂ invites you to visit his blog,Â Wondering ManÂ (or take a look at his book,Â Wondering Man, Money & Go(l)d). You are also invited to join him onÂ Twitter