Flatly wrong

If anyone wants a perfect demonstration of public policy that leads to private enrichment in the name of public good, distorting markets in the bargain, they should look at politicians dealing in land and living space. City politicians in India8217;s capital last week rejected the Centre8217;s decision to auction apartments built by the Delhi Development Authority. Local netas have voted to go back to the lottery system. Lotteries are supposed to be wealth-neutral, giving middle class and lower middle class citizens as much a chance as the rich to buy apartments. In practice, thanks to the low reserve price set by municipal authorities and the very high demand for living space in urban India, these sarkari apartments command huge premiums over sarkari rates. Since lottery winners can sell their apartments 8212; to disallow them from doing so would be violating their private property rights 8212; many government-built housing units are promptly sold. Lotteries like those run by DDA have become investment opportunities for the market-savvy, not a fair system of allocation for citizens of modest means.

The Centre had suggested auctions so that the Delhi local body could get more revenue 8212; surely a most sensible policy and one that politicians should have welcomed. Plus, once an auction aligned apartment rates to market prices, any egalitarian impulses could have been satisfied by targeted government help. That way far less public resources are forgone/spent.

Then, just like in the case of the IPO scam, which also happened because resources perceived to be scarce were being allotted via a lottery and not auctioned, there is the serious possibility of fraud. As SEBI discovered for share allotments, characters like Roopalben Panchal can assume multiple identities and corner big chunks of the IPO. Panchal then sold her shares at market price and made a tidy profit out of official concerns for small investors. A Panchal-like operation is hardly unlikely in government lotteries. In the absence of a proper citizen identity system, it is impossible to prevent multiple bids from the same party in different guises. Presumably, Delhi local netas will need a scam the size of a housing colony before they, like SEBI, begin to see the light.