Wednesday, 8 January 2014

Everybody loves a freebie

When I am given a freebie, its a perfectly justified economic act (and I will riot on the streets if it is withdrawn) , but if you are given a freebie, then its economic mismanagement, populism, wasteful expenditure, etc etc. This is the economic philosophy of most Indians, and in reality, most of the people in this world.

This post is a response to the criticism of the raft of freebies granted by the Aam Aadmi Party in Delhi. For non Indian readers, the Aam Aadmi Party, a completely new political outfit formed by non politicians and riding on an anti corruption platform has come to power in the state of Delhi. This is a huge breath of fresh air in the murky politics of India. But they are left of centre and desperately need an Economics 101 course. The two first acts on assuming power was to grant everybody 666 litres of free water and then to halve the power tariff for low volume users. In this blogger's opinion the Party is brilliant politically and disastrous economically.

The learned and the wise of the land have strongly criticised the freebies - populism, wasteful expenditure, etc etc. While there is no denying all of that I am going to train my guns on the accusers and take them to task on the freebies that they get.

One of the worst freebies in India is the cooking gas subsidy. Cooking gas is exclusively used by the middle class and the rich. A poor man in India can hardly afford a gas stove - his fuel is firewood or kerosene. And yet cooking gas is subsidised by more than 50%. I am yet to hear of a single Indian willingly foregoing the cooking gas subsidy - in fact you can't if you are buying from the state oil companies, the chief distributors of cooking gas.

The second absolutely awful subsidy in India is the subsidised price of diesel for cars. Under the guise of needing to subsidise diesel for transport and the impossibility of two tier pricing for diesel, there is a massive unintended subsidy for those owning diesel cars. Diesel cars outsell petrol cars in India by a whopping amount.  Its very difficult to argue that diesel cars are owned by the poor !!!!  Anybody who criticises the Aam Admi Party freebies driving around in a diesel car should be shot.

Take the absolute farce of the Board of Control for Cricket in India. Easily one of the richest organisations in the land. They are hardly able to count the cash that is coming in - that's the rate at which it is flowing. And they pay no taxes - Why ? Because they claim they are a charitable organisation. You and I, the idiots who pay income tax, are subsidising the BCCI.

I am not singling the urban well off. His rural cousin is equally complicit. No rich farmer pays income taxes - one of the most unjustified freebies is the exemption of agricultural income to income tax. He can earn an income of a million (and many do). He pays no income tax.

I can go on and on. Everybody who is criticising freebies is a complete hypocrite  - its all a game of how much anybody can loot from others. Every single citizen of India is complicit in this.

As I said, this is not a peculiarly Indian disease. The non poor who avail of Medicare in the US ,  the rich farmer in France who is cossetted with all sorts of subsidies, the Chinese rich who are taking advantage of the hukou .......... everybody has his hand in the till.

The Aam Aadmi Party's economics deserve to be roundly criticised. But before anybody does that, it would do well if he could forego the boondoggles he is enjoying.  That includes this blogger !


Shachi said...

We were enlightening our non-Indian colleagues over the whole AAP formation and their policies during lunch yesterday. They were laughing throughout (and they do know a bit about Indian politics already since we talk about it quite a bit :)).

They need some people with sound economic background on their team. I vote for you :P!

Ramesh said...

Awwww :)

Asha said...

Agree with you on the first para. The perspective changes depending on the situation.

But since when is LPG subsidised? I am paying 1142 INR per cylinder for the last 3 that subsidised rate? My aadhar card is linked to bank a/c and gas agency, so far i have not received any refund whatsoever.

AAP calling people like Ramesh.

Ramesh said...

@Asha - Oh You are very advanced in Hyderabad. My esteemed Bangalore colleagues are still sleeping after a good dose of ragi mudde !! So LPG is still some Rs 500 or so here.

Natalie Tijan said...
This comment has been removed by a blog administrator.
Sriram Khé said...

Oh yeah, a subsidy is awful only when I am not getting any of that ... the finger pointing and hysterics get vastly exaggerated especially when it seems like the poor are getting subsidies, while conveniently ignoring the tremendous amounts the middle and upper classes get ...
Political science and economics give us plenty of different ways in which we can try to understand how these come about, but ... oh well ... when was any society ever perfect, eh! :(

I am surprised at how much there has not been any analysis of the AAP comparing it to the emergence of the Janata Party that came to power in 1977. (Many of your blog readers probably were not even born then, eh!) That was the common man party--the People's Party! A lot of resemblance between the AAP and the JP ... the macroeconomic policies of the JP, too, were awful ...

Ramesh said...

@Sriram - Not sure if there is much comparison with the Janata Party of 1977 and the AAP of today. The Janata Party was a combination of all the existing political parties as a reaction to the Emergency when their existence was in peril. Jayaprakah Narayan did lead as a non office seeker, but all the other players were seasoned politicians.

The AAP on the other hand is completely from the outside - no existing politician at all. In that it is a unique experiment.

As you observe, the Janata Party macroeconomics was an unmitigated disaster. I would give the AAP some rope - a few freebies is alright, if they can govern cleanly. The jury is still out on their economic policy - they didn't have one since that is not needed to win elections !!, but it is evolving now and the responsibility of office can be a wonderful sanity check.

Prats said...

The subject of distribution of subsidy is a government matter. We cannot blame the beneficiary. It is akin to attributing government lack of policies and function to the subjects.
The way government structures taxes to generate revenues the subsidies are orchestrated as expenditure. It is extremely unfair for the people to be blamed for it.
The fact is there is a subsidy on diesel but also there are extra excise taxes to offset them.
In an ideal world the government should cease all subsidies and direct taxation, while tax consumption through indirect taxes so only who indulge themselves are penalized to the amount of their indulgence.
Coming back to the populist policies of AAP, it still is the new kid on the block and the cause is championed by Congress. There cannot be larger Ponzi schemes of subsidy than NREGA and Food Security Bill. So they have a lot to learn, I am more concern on their whimsical policies and suggestion like Withdrawing army in J&K, No FDI in retail in Delhi.

As Sriram had said they have a lot of similarities with the JP movement and the fact remains like many other parties which have been born out of revolutions AAP might also suffer a premature death due to lack of vision and cohesive socio-economic-political framework.

NR said...

Population growing in lighting speed when economic thoughts are coming on tortize shoulder, when we are unable create number of jobs equal to the birth rate, I see subsidies as an inevitable tool to balance the difference between population-economic growth.

Ramesh said...

@NR - Well, you have an interesting angle. While it is true that economic growth outstrips population growth, it is also probably true that population growth or decline outstrips jobs growth or decline. So subsidies are inevitable - interesting thought.

Ramesh said...

@Prats - Mmmm. Only agree with you partially. At least we should not take to the streets and protest when the LPG subsidy is withdrawn. And shouldn't lobby like crazy to prevent excise duty of diesel cars from being increased.

NR said...

pardon me. my attempt here is on national post only. I do support removing subsidies to fortunate people, but we need catious attempt to make sure subsidies reach real poor. staistics do not reflect reality, lets not show economic statistics and scratch a thought. $1492 is per captia income in india- does it reflect reality?

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