05 January, 2012

Eyes left : Look towards Nigeria

There is endemic corruption that beggars belief. There is a highly educated, superb English speaking elite and large masses of illiterate poor. There is insurgency and terrorism around the edges. There is organised loot of the country's finances with a few getting extremely rich and the lot remaining dirt poor. Misguided subsidies are ruining the state finances. There is a thriving film industry that churns our the second largest number of movies in the world and provides opium to the masses. No this is not India. Welcome to Nigeria.

Nigeria is an oil producing country. You would expect that to be a huge blessing, right ? Wrong. It has proved to be a curse. Nigeria is suffering from an unsustainable petroleum subsidy burden. So unsustainable that this week it announced abolition of the subsidy. Predictably there will be chaos on the streets as large scale protests have commenced.

The petroleum subsidy case in Nigeria is a textbook case of how pathetic government policies can ruin a country. Nigeria is an oil producing nation. However it has not set up refining capacity. It therefore exports crude and imports refined products. It then massively subsidises petroleum prices. A litre of petrol costs Rs 20 (US$ 0.40). The government spends some $1bn a month in subsidies. This is simply unsustainable. 

Subsidies like this distorts every economic activity. There is, of course, large scale smuggling into neighbouring countries where the prices are four times higher. The largest per capita incidence of petrol pumps in the world is in the border towns like Idiroko - organised smuggling designed to fill the coffers of the masters in Lagos.

From the perspective of the poor, the subsidy is the only thing the government does for them. It is otherwise almost a failed state. The government says the money wasted on the subsidy will be used to build infrastructure, schools, hospitals, etc - things that the government ought to be doing. The trouble is that nobody believes them. Given the highly sophisticated levels of organised corruption, few doubt where the money will land up.

Replace petroleum subsidy with colour TVs or colossal statues or free power and you'll look at a country, readers of this blog are more familiar with.

India often likes to compare itself with China. It should instead look up to Nigeria. That is the true role model - of how bad things can become if the deterioration in governance and the state continues in its present trajectory.

16 comments:

Prats said...

Very relevant post... I think we are at the cross roads where we can either go the China way or the Nigeria way... The question is what do we choose and I believe that our govt. is slowly and steadily drifting us to the Nigeria way.

TMM said...

The only difference to being India that I feld when I was there for a week or so was the fact that I had an armed bodyguard with me practically all the time. Wonderfully insightful post from you. Whoever would have thought that the actual reference point for India is Nigeria and not China as our over hyped, screeching, borderline maudlin medai keeps projecting

Ramesh said...

@Prats - You are right. We are at crossroads and could very well be taking a left turn (pun intended !)

@Kiwi - Really ?? I didn't encounter any armed guards, but I am slightly dated. Actually, the people there were lovely - as is always in most countries irrespective of what is around.

Appu said...

The subsidies have already killed us and are killing us and will continue to kill us if we dont change course very soon. Case in point:NREGA and sops of the past govt in TN!

Anonymous said...

on a much lighter note and completly off the topic .....

I trust all my Indian 'fellow blog readers' are enjoying the cricket at the SGC..... I know I am !!

Aussi Aussi Aussi.... oui oui oui

cheers Trevor

Ramesh said...

@Zeno - But unfortunately that's what wins votes

@Trevor - Grrrrrrrrrr :)

Vishal said...

Quite scary comparison, this one. But the element of truth really boggles the mind. Policy for votes is all the more precarious and the situation is not getting better. Really wonder when we say we are thriving, why only rosy side is portrayed... there is one big grey side which is totally under the carpet - a bomb waiting to explode!

@ Trevor - Really disappointing to see the way we have been belted down. But at the same time, really great to see Oz re-building its troops and announcing revival. Long way to go though before they can match the invincibility of past 20 years!

gils said...

I always argued y the auto industry is not making fuel efficient cars and y SUV's are such a sad stuff to be owned in a country like India. With growing petrol prices i guess the industry would be forced to reinvent itself. As for subsidies are concerned..i guess we shd have a quota or reservation system in petro subsidy too :) For benz owners double taxation..Audi triple..maruti means double susbidised petrol rate and mahindra means a little bit more :) jai ho :)

Tarun said...

Very insightful post!!! This is what India was in 1970s & 1980s. For ex, Coal India Limited - a stock that even dislodged RIL for highest market cap for a few days last year - had posted losses of nearly $260mn in 1978-79 and had an accumulated losses of $1.4bn by 1984. And all this was largely due to rampant corruption in the hands of our politicians. That was the case with almost every state-owned enterprise. Although we have come a long way since then, the corruption continues and lack of political will on important issues can really push us backwards.I just hope our policymakers are reading your blogs:-)

Ramesh said...

@Vishal - Actually freebies do not necessarily win votes. A strong performing leader giving no freebies can still get reelected. Modi and Sheila Dixit are good examples

@Gils - My view is that you should price petrol at its fullest. The whether you want to drive a SUV or drive a 800 is your choice. Governments can support the poor in basics like food, clothing adn shelter, but nothing more.

@Tarun - Oh Coal India was a perfect example or organised loot - Suraj Deo Singh of Muzzaffarpur comes readily to mind. Corruption is one evil, but even pefectly legal schemes like free power and colour TVs are disasters.

Deepa said...

Comparing India to Nigeria, that's quite a scary thought. But something about the people in India becoming more proactive in voicing their dissent these days, makes me a little hopeful about things getting better. One may want to shoot down the current people's street protests etc. for their methods, but awakening was most important, the means can be bettered. Again, I am a hopeless optimist! :)

@Trevor- Grrrr! :)

Sandhya Sriram said...

I am not a hopeful optimist on corruption being driven out by small agitations and dissents. It is an advanced cancer and needs Chemotheraphy and we dont have the doctor or the medicines or the equipment

But I am a hopeful optimist that India has many positive factors. even if no one does anything for the next 15 years, i think India will still succeed. Lopsided, capitalist, non enviromentally sutainable but it will be a force to reckon.

i am only worried that post that, all the positive factors that have overshadowed the cancer will start dwindling. we will not have sufficient natural resources, we will not be able to fund our oil bills, our gdp deficit by that time would have landed us in a debt crisis, a huge 40 + population strandled by the next round 20 + fighting for the same opportunity, and i wonder what will happen at that time.

RamMmm said...

Hee Hee Hee. Loved the digs at the CMs. We can laugh at ourselves, no matter what. Isn't there a case in probability theory that a million monkeys typing out on a million typewriters (or keyboards now), can churn out one classic of Shakespeare? We don't have a million monkeys in the Govt, and monkeys could be trained! :) Hopefully we churn out a simple poem if not a classic.

Ramesh said...

@Deepa - There's lot of dissent alright, but the culture of freebies, which people have now become used to is the real danger. Every one of us wants a free lunch.

@Sandhya - There is much to be optimistic about, especially if we return to the old Indian values - hard days work; earning your wage and not asking for free, being honest .....

@RamMmm - I actually think megalomaniac CMs are a big risk for India - it seems to affect the female gender disproprortionately !!

sulob said...

like sandhya too am hopin the same... though good things happening are quite bleak right now, i still think india will be back to how it was... n the values that you spoke about are the only ones that will help...!

Ramesh said...

@sulo - We can always hope, but we need more to act. India has enormous strengths, but only if we work on them.