Opinion Going backwards
AAP’s subsidy policy continues to be perversely targeted. Has it learnt nothing from past mistakes?
Two days before the presentation of the Economic Survey, which makes a spirited pitch for the rationalisation of subsidies, Delhi’s AAP government announced a set of poorly targeted electricity and water subsidies that will lead to an unconscionable waste of resources. By Deputy Chief Minister Manish Sisodia’s own reckoning, the electricity subsidy will benefit a whopping 90 per cent of this relatively better-off city-state’s population — outstripping even the food security act’s widely criticised 67 per cent. On the other hand, the water subsidy will bypass 24.8 per cent of households, arguably the poorest, because they don’t have piped water connections. These perverse outcomes are thanks to the poor design of the programmes. Electricity will be charged at half the rate to households that use 400 units or less of power — an over-generous cut-off that fails to sift out households on the upper end of the income distribution — and 20,000 litres of water will be given for free to households that use 20,000 litres or less of water.
The water subsidy becomes even more problematic when one takes into account the fact that poorer households tend to be larger — and larger households are more likely to breach the 20,000 litre cut-off. The corollary: households that are more likely to be under the consumption threshold may also be able to pay more. The AAP’s water policy has a precedent in South Africa. But in that country, the free entitlement works out to 25 litres per person per day — against Delhi’s 135 — which ensures a sharper and more efficient targeting of households in the most distress.
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Disappointingly little seems to have changed since the last time the AAP was in power, time that the party supposedly used to fine-tune its policies and vision. Even according to modest estimates, the power and water subsidies will cost Rs 1,427 crore and Rs 250 crore, respectively. Given that, according to the AAP’s own calculation, “at least Rs 3,000 crore [equivalent to 10 per cent of the state’s budget] would be required to lay down the network for piped water only in some parts of the city”, the Delhi government has its priorities backwards. It must first ensure that all dwellings have piped and metered connections, and then revisit the thresholds of its policies.
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