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‘Reducing Subsidies Is Not The Solution’

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The 54-old-director of IDF research as well as the dean of the Shiv Nadar University, Shubhashis Gangopadhyay, is unconventional in his looks, speech and thinking. While most experts favour cutting subsidies to check the rising fiscal deficit, he says they are necessary. In an interview with BW's Anjuli Bhargava, Gangopadhyay, who was advisor to P. Chidambaram when he was finance minister in 2008, says India subsidises those who do not need the subsidy, and where it does try to subsidise the poor, subsidies fail to hit the target. He also feels there is little original thinking in the country on key issues, as we now try to look for solutions in what others have done rather than focusing on our own peculiar situation. Edited excerpts of the interview:

What can be done to reduce subsidies?
Any waste is unacceptable. No matter how good the original cause is. Today, much of the subsidy is wasted. So, that is the only bit we should, or can, cut. A hot topic is the food security bill and how it will impact subsidies. This is going to increase wastage as everything is going to be done through the public distribution system (PDS), which is inefficient. The whole idea of food security is it is a security for all citizens — rich or poor. Can you imagine a situation where the law and order is provided free to the poor but the police charge a fee from the rich as they can afford it? Food is as basic as law and order. It is a basic necessity. Everyone should have a right to it. But the way we are choosing who will be entitled to it, we are making it unnecessarily complicated.

In principle, we are all entitled to ration cards. Have we ever tried to get to a ration shop? No. We don't need it. So, if you had thought of food security in a similar manner —untargeted — it would make more sense. If the government stands guarantor that anyone who is hungry will get food, I can assure you that the cost of the programme would be a lot less.

Why? And How?
There are many costs people like us will avoid. Do you want to waste time in an endless queue at a ration shop? Or go 3-4 times to get what is due to you if you can buy whatever you need at one go at a higher cost? Will you consume the low-quality goods that may be on offer? The food security bill says a certain proportion of people will get it. Now, it makes no sense for any community not to throw up that proportion. For instance, you tell these 100 people that 75 of you will get it. So choose those 75. Then, 75 will line up. Will the food go there? Unlikely. Many may not need it. So, where will that subsidy go? Into someone else's pocket.

Even if you want to target beneficiaries, cash transfers or food coupons could be tried out. Anyone can buy whatever they need from anywhere. Remember the distribution network itself is an expensive affair. The PDS, when it began, was a food security system. Everyone had a ration card. You had to have one to get any government service — gas, telephone, etc. Then some bright people came from overseas — we always look at ideas from abroad — and said "no, this is a waste, we should target it". That is when all the problems started. The argument against subsidies is it generates more corruption than serves the purpose. But that does not mean subsidies are bad.

How can we say we will not give everyone food? Or that we cannot give so much — let them starve. Suppose a foreign country attacks us. Will you say, "okay, but we do not have so much money to defend ourselves"? So, why is it all right if some people starve to death just because the deficit is too high? If we agree food is something we all must have, the amount we spend is irrelevant. The only thing we need to do is to make sure we spend the minimum. If that means a deficit of 10 per cent, so be it.

But if we have such a high deficit, what about everything else ?
I don't care. Do you want to be in a country where people die of hunger? Is that the choice you want to make?

No, but then everything else goes haywire.
Like what? Foreign investment will not come in? You won't have that flashy road? You want investment at the cost of some people starving? That is the choice you are making, mind you. That is not what social policy is. It may suit the market or some sections of the society, but it is not what the socio-economic view ought to be.

What you are saying is to let the deficit be damned, or let inflation go up?
No. One just needs to find other ways to reduce it. One has to prioritise. Foreign direct investment in retail is not a priority. Making sure people don't die for lack of food is. Take the opposition to the Unique Identification Authority of India. I can understand someone arguing that the government may use to it to keep track of its citizens and there could be privacy issues. But what objection can one have against using it to distribute subsidies? Only vested interests can argue against that. This is the typical Indian approach. Throw the baby out with the bathwater. It's the same thing with subsidies. If we have a problem, does it mean we do away with subsidies altogether? As we don't suffer, we are gladly willing to give up a few million people so that investment can grow and markets can rise further? It is shocking.
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Are there any subsidies that can be done away with and should any be increased ?
The food subsidy needs to be reorganised. I don't think it needs to be increased. On fertilisers, there is some work going on. But fertiliser subsidy should go to farmers — not to fertiliser producers. Some subsidies can be done away with. Subsidy on cooking gas is one. People who are poor and migrant labourers buy it in black, while we get the subsidy. Take the subsidy on Delhi Transport Corporation (DTC) buses for students. The cost of producing the bus pass is more than what students pay for it. Even if DTC said "no cards; just produce your college ID", the whole subsidy would go down. We build roads; we don't allow pedestrians on the roads — either on side walks or to cross the road. So, who gains from the road? People with cars. Are our subsidy bashers pointing out these things? The urban middle class gets the maximum subsidy in this country.

What do you think of the Mahatma Gandhi National Rural Employment Guarantee Act?
It is a horrendously implemented scheme. It was a very good idea to prevent people from migrating to the city for three-odd months. This is primarily farm labour. The scheme was was a good idea. Then, in due course, it got diluted. As with any policy, once it is announced, people come with their respective constituencies. Some said we needed asset creation. So now we have tied it up with that. Then, wages; you have to increase wages. Initially, the plan was to offer wage slightly below the minimum so those who want that work would self-select themselves into it. So, it is worse than any other option, but better than doing menial jobs in cities. But everybody had their say. And in India, we don't debate. We just say "chalo aap ka bhi idea le lete hain" (let's take your idea too). And we get a nice big hotch-potch. So, the original idea is completely diluted.

People are now concerned that the allocation to MGNREGA is coming down. But logically, in a growing economy, one should expect that. Growth should bring about jobs and prosperity, and reduce the need for people to look for work that pays below the minimum wage.











Illustration: Champak Bhattacharjee

Well, if you were the finance minister, what would you do on NREGA and other things?
I would commit suicide (laughs), but anyway, he has a tough job this year. I don't envy him. Actually from 2004 onwards, we have been pretty much on the right track. We promise employment, freedom from hunger, education for all, health (there is health insurance for below-poverty-line households and so on) and civil liberties (though marginally, through RTI). So in a sense, I have everything I need. What else do you need to empower a person?

Except that it is all in theory. On the ground, nothing has actually happened.

Absolutely. And that is because the intellectuals took over. You and me; we study everything, we look at every example — Australia has done this, Brazil has done that, UK did this. We try and solve each problem through someone else's experience. We never think "this is my problem, this is my context and what do I need to do to resolve it?" If I were the finance minister, I would not make expert committees. No more task forces. I would not just throw money to solve problems. 

I would announce a fund — a pot of money — and all problems need to be solved through this fund. Let everyone come up with ideas for food security and let's try them. Let's say we try three new ideas and then see which is effective. I would not thrust things on a bunch of bureaucrats or onto the laps of experts. The last thing you ask is how much money do I need. The first thing to ask is what I want? I don't think we even know that.

In health, for instance, we should be discu-ssing allocation of scarce resources. A hospital has limited resources — should it save the life of a child or a 50-year-old. These are debates we should be having. Instead, what are we discussing? PPP (public-private partnerships)! Since 1991, we have been discussing whether to have PPP and we are yet to make up our minds. All the experts from the country and abroad got together and we studied what Brazil has done, what Argentina is doing and what UK has done. But now when power tariffs are at an all time high in the UK, there is no more talk of what UK did to privatise power. We are unwilling to think for ourselves. So as finance minister I will put money aside to encourage people to think for themselves.

(This story was published in Businessworld Issue Dated 12-03-2012)