Within a few days of the formation of the government, Arvind Kejriwal attempted to fulfill two of the most critical poll promises that catapulted him into the centre stage. The Delhi Government declared that henceforth residents of Delhi would get 20 kilo litres of water free every month for every household but any usage beyond that would result in payment for the whole.
Further, Chief Minister Kejriwal decided to slash the tariff by 50 % for usage up to 400 units for households. Apparently it may seem that Kejriwal has succeeded in fulfilling the key promises but a finer look would show a different picture and the price Delhi might have to pay for such blatant populism. In the first case, the free water would be available to only those who have metered connection which means that a considerable proportion of weaker sections or those who do not have metered connection would not be able to avail this.
What the AAP is doing now is based on its projections for the next 3 months
Further, Delhi have a populace with one of the highest per capita incomes in the country would also make sure that even the affluent would continue to avail free water. The estimates of the Delhi Jal Board officials put the subsidy pay out to the tune of Rs 165 crore annually.
In case of power tariff, in reality the power tariff has not been reduced. The power distribution companies would continue to charge what it used to charge earlier but instead of the end consumer, the Delhi Government would now pay half the amount for those using up to 400 units of electricity a month.
Therefore, all in all, what Kejriwal did in the last couple of days is nothing but blatant subsidy based populism and the reduction of rates has nothing to do with efficient governance which has been the core poll plank of Aam Aadmi Party.
In any case Delhi continues to have a high fiscal deficit to the tune of near Rs 3,000 crore for the last financial year and is expected to be around Rs 1268 crore for the financial year ending 2013-14 but with increased subsidy burden of several hundred crore imposed in the last few days, the figures may become even higher.
This would mean nothing but increased borrowing by the state government or some or the other kind of tax imposition for the sake of bridging the yawning deficit. For all practical purposes, Delhi Electricity Regulatory Commission has made it clear that power tariffs cannot be arbitrarily brought down by government.
Even AAP led Government knows its limitations but still went ahead with its stated plans because what matters is what the electorate thinks. And the electorate no doubt, at least for the time being, is going gaga about AAP for fulfilling the promises. But eventually subsidies have always proved to be self defeating in the long run.
It is quite clear that what AAP is doing right now is primarily based on its projections for the next three months alone, for its game plan is based on the presumption that sooner or later Congress is going to pull the rug and the government would fall.
The possibility of the same becomes all the more imminent if the AAP led government initiates any kind of investigation against the previous Sheila Dikshit led regime. Kejriwal could then proudly go back to the electorate and state that he tried to fulfill all his promises but was not allowed to do the same.
The victimhood and the ‘champion of the middle class' card would make sure that not just to the Delhi electorate but AAP would try to portray to the national electorate at large, before the Union Elections, that AAP is synonymous with subsidised power and subsidised water, economic viability and fiscal prudence be damned. Thus, the ground is being set for AAP's national foray through competitive populism.
Issue of faulty metering systems, inflated bills are no doubt pertinent ones in Delhi. But the solution to that is not more of subsidy. That is not going to make either the power distribution companies or the Delhi Jal Board more efficient. On the contrary it would encourage more inefficiency knowing well that the Government in any case is going to pay them.
The solution to the problems is more of competition among the power distribution companies. In case of electricity, the retail domestic users should be given the option of choosing from the power distribution companies and should have the right to change the service provider in case of unsatisfactory service.
Instead of bringing in competition, Kejriwal is riding on the time tested vehicle of competitive populism. Such populism had a big role to play in ruining India's fiscal and economic situation time and again and is practised by most political parties. Thus AAP is no different than the rest as it has tried hard to project.
Much of the economic woes of India today are because of the populist measures like NREGA, loan waiver and huge subsidy on diesel, petrol as well as fertiliser, which are a huge drain on the national exchequer and are reaching disproportionately high and nearly unmanageable level.
Today the combined subsidies of the centre and the states of India stand at more than 10% of the Indian GDP and are a perfect recipe for national disaster. Such fiscal imprudence has already brought most of the European economies on their knees and had been the reason for the collapse of Soviet Union in the past.
Over the last one year or so, UPA had shown some courage in raising the prices of some commodities and reduce the subsidy burden. But its electoral debacle, the path taken by the AAP and the kind of hype it is getting may compel most political parties to shun any kind of reform agenda and resort to the rhetoric of freebies all over again, the kind of which had been India's nemesis for long and eventually led India to financial bankruptcy in early nineties. But then public memory is short and vote is all that counts. While short run benefits are for all to see, in the long run subsidy based populism has to be replaced by efficient governance. Only then the welfare measures would be truly sustainable.