Freebies to poor is a populist measure; freebies to industries and business is economic reforms !

Freebies to poor have been under constant attack. But I haven't seen any economist pointing a finger to freebies doled out to the rich (This chart is for Gujarat land deals). Courtesy: Business Standard

 
Every time the Finance Minister starts to prepare for the annual budget, a crescendo builds up on whether he is going to present a populist budget or a big bang budget. This year, with the newly-elected AAP government in Delhi promising to provide subsidized electricity and free water, there is hardly a day when the media does not drum up this issue. Switch any TV channel and the chances are that the same set of economists and politicians will be telling you about how disastrous the subsidies are for the economy. 

Still worse, if you support the subsidy the poor get you are called a ‘leftist’ and if you question the massive freebies and subsidies that the corporate walk away with every year, you are labeled ‘anti-development’.

At the heart of this contentious issue lies the clever craft with which subsidies have been demonized over the years. What the poor get as financial support (or by way of cheap food, housing and energy) is called a ‘subsidy’, but what the rich and affluent get, and that is several times more, is termed as ‘incentive’.  In reality, the ‘incentive’ that the industries and business get is also a subsidy, but then it is the vocabulary that makes all the difference.

The total subsidy that the poor get in India – and that includes the subsidies for food, fertilizer and MNREGA – stands at Rs 2.52 lakh crores. This is a huge amount, and mainline economists are telling us that fiscal prudence requires cutting these subsidies so as to reduce the fiscal deficit. There can be no denying that efficient use of subsidies is crucial, and that requires improving governance to reduce corruption and leakage I don’t find any mainline economist pointing to the massive waste of country’s economic resources in the name of tax concessions (clubbed under Revenue Foregone in the budget documents) that are doled out to India Inc every year.

It is being said that the subsidy on LPG cylinders totals Rs 48,000-crores, good enough to wipe out poverty from India for one year. It sounds really a criminal waste of resources. Using the same yardstick, Rs 36-lakh-crore tax concession (in reality a subsidy) given to India Inc since 2004-05, if recovered, can wipe out poverty from India for 72 years !

The argument is that Rs 36-lakh crore tax concessions is an incentive to the industry. But what is not being told is that the massive incentive had failed to generate additional employment, and neither did it facilitate increased industrial and manufacturing sector growth. So where has Rs 36-lakh crore gone? On top of it, many of those who got the tax concessions also default on bank loans. The non-performing assets (NPAs) of public sector banks, including restructuring of loans, stands at a whopping Rs 10-lakh crores.

Anyway, what the mainline economists are worried about is Rs 2.52 lakh crores subsidy that spoils the growth story. But let’s look at the loss in just one infrastructure project – the New Delhi airport – built on 4,799.09 acres of prime land given on a highly subsidized price to the private partner, Delhi International Airport Ltd (DIAL). According to the CAG, a loss of Rs 1.63 lakh crore has been incurred. In other words, just one airport got a subsidy that equals to more than 50 per cent of what millions of poor receive as a life-saving support.

Coming to freebies, I have never understood the economic rationale behind giving land almost free of cost to the industries/corporates. For instance, Apollo Hospital in New Delhi was given 15 acres of prime land in the heart of Delhi for Rs 1 per acre. Not the only hospital to get a freebie that it doesn’t deserve, a large number of private hospitals, schools and colleges have been allotted land at throwaway prices. Even a Supreme Court directive to hospitals, most of them now cater to medical tourism, to treat at least 25 per cent OPD patients and 10 per cent IPD patients free of cost, is being openly flouted.

It will be interesting to find out how many industries/businesses, in addition to more than 45,000 hectares given to SEZs,  have been allotted land at Rs 1/acre or Rs 1 per sq metre in all the States.   

Whatever one might say the fact remains big business thrives on subsidies.   Whether it is in the form of natural resources like land, water, forests, minerals being made available to them at a throwaway price or tax concessions, including practically no annual interest rate on investments. Take Tata's. It got land at a price that only seeks 0.1 per cent interest (for its Nano factory). Steel tycoon Laxmi N Mittal was given Rs 1250-crore loan by Punjab Government to invest in Bathinda refinery and that too at an interest of 0.1 per cent. Under microfinance, the poorest of poor pays a minimum interest of 24 per cent, which comes to about 36 per cent on weekly recovery, is he/she has to buy a goat, but the rich industrialists get interest-free loans.

I can go on listing such cases of what is popularly called as crony capitalism. I am not against the industrial sector or the corporates. We need industries for economic growth but I am sure you will agree that if freebies and subsidies are bad for the poor, these are also bad for the rich. What needs to be understood and appreciated is that it is not the poor who are a drain on the nation’s economic resources. They are being targeted simply to divert public attention from the more heinous crony capitalism that continues to bleed the nation’s economy.#

A shorter version of this article appeared on ABPLive.in
Freebies to poor is a populist measure; Freebies to industries and business is economic reforms !
http://bit.ly/1vjqZJw Feb 19, 2015