Giveaways are a jam today and a pain tomorrow – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/giveaways-are-a-jam-today-and-a-pain-tomorrow/articleshow/84388864.cmsSynopsis

The politics of populism and patronage, and the practice of giving short shrift to reasonable user charges across the board, in water, power and transport would only widen India’s large infrastructural deficit, have grave fiscal implications and crimp growth going forward.

Reckless giveaways have grossly misallocated resources in the vexed power sector nationally, for decades; India’s per-capita power consumption is barely a third of the global average, constrained by bankrupt utilities’ inability to supply reliable power round the clock. Yet, Delhi chief minister and Aam Aadmi Party (AAP) leader Arvind Kejriwal seems to have no qualms about promising free power for all in poll-bound Uttarakhand, as he has in Punjab, to curry favour with the electorate.

This is disingenuous, and worse. The politics of populism and patronage, and the practice of giving short shrift to reasonable user charges across the board, in water, power and transport would only widen India’s large infrastructural deficit, have grave fiscal implications and crimp growth going forward. Kejriwal says he would implement the Delhi model of free power in states where AAP comes to power, but it is not clear if his gratis power scheme can, indeed, be touted as a model. Note that Delhi, once the bellwether state for power sector reforms, is now a clear laggard when it comes to payment of outstanding dues by distribution companies (discoms), reportedly 519 days on average. Regulatory assets remain large, and constrained finances and politically mandated tariffs would surely affect investments, restrict supply and the quality of power.

It is plain questionable to replicate the subsidy regime in high-income Delhi in other states, which itself is wholly unsustainable. Note also that the gratis water scheme in Delhi has meant high 40% water wastage, neglected capital expenditure in supply and almost 17% of the population going without regular piped water. Reckless subsidies destroy financial capacity of essential utilities.

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