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Editor's Desk
March2014

Subsidy politics: Show me the money

Kejriwal did it, so Prithviraj Chavan and Bhupendra Singh Hooda followed suit. These three come from different states, but seem united in their belief that subsidies are the way forward. As a concerned Indian citizen, I ask my readers, if the government does not charge users for services, who will pay for them? Making a political issue of user charges was actually a retrograde step for the country, which is struggling with the problems that urbanisation has thrown up. How do we finance India's growth and provide adequate civic amenities for a decent living?

With the polls approaching, the BJP-Shiv Sena alliance has announced that it would make Maharashtra toll-free, if elected to power. Rival MNS has declared that local denizens should not pay toll. The short-lived AAP government in Delhi had slashed power tariff by 50 per cent for users consuming less than 400 kWh a month. In Maharashtra (except Mumbai), the government has announced a power subsidy of 20 per cent for those users consuming lesser than 300 units a month. The Harayana government has given a rebate of Rs 1.30/unit on power consumption of 1000 units for every two months. And the AAP dispensation had promised free water of 20 kilolitres per family on a monthly basis. There seems to be a clear trust deficit between these political parties and the private sector. These states feel that private players are getting more than they deserve from the various joint projects that have seen the light of day. Further, granting subsidies to the population at large means that the benefits will be enjoyed even by those who really don't need these sops.

It has been proven across the globe that targeted subsidies are the best way forward, so that these benefits can reach the most deserving sections of the population. But our authorities have not thought through these issues. Why should an owner of the latest limousine benefit from scrapping of a toll, when he can clearly afford to shell out the few extra rupees that is required of him?

The country's infrastructure is creaking. Our fiscal deficit is far from being plugged. If the latest projects (improving road, land and sea connectivity, delivering power to deficient areas, etc) are to take off, users should surely be made to pay a little extra.

And if the private sector is going to be treated in this stepmotherly fashion, how can it be expected to cough up the money required for joint projects? The Planning Commission estimates that over the next five years, the private sector will bring in around 48 per cent of the expected Rs 56 lakh crore that will be needed to beef up our crumbling infrastructure. That's wishful thinking, to say the least, if the political leadership continues its current approach.

And let's suppose that the private sector actually tries to come up with the money. How will it be able to tap the beleaguered financial sector, which is groaning under the weight of increasing NPAs?

There's still time to turn back the clock. Political parties should arrive at a bare minimum consensus (after the dust from the elections settles down) on the quantum of user charges (tolls, user levies, etc) that the population has to pay. There are other policy mismatches that need to be ironed out. For example, a number of public-private-partnerships have a long gestation period (this can go up to 30 years), but banks have a 12-year loan financing cut-off. Such anomalies should be removed from the system. The general public must be clearly informed about the benefits that will accrue to them from new infrastructure projects so that they will clearly know why they have to pay extra for these ventures. For example, the savings on fuel from a tolled road might outweigh the cess collected for travel. This cost-benefit analysis should be made clear by public campaigns.

We need a few imaginative policy moves, like the setting up of infrastructure ombudsmen. Elimination of red tape and single-window clearances will help in boosting the ease of doing business, and much-needed foreign capital will start making its way into India. If remedial measures are not taken urgently, all we'll have is bridges to nowhere and decaying cities-├╣we might as well start composing the epitaph to India's great growth story.

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