The unfortunate bitter truth of real-time politics is that in quest to garner votes, economy is the ultimate victim. The revolutionary rise to power of AAP will be recorded in the history books as that of a 'resurgence of middle class', yet, right from the word go, the party seems busy in galvanizing popular support by imparting collateral damage to the economy of the state of Delhi.
A lot has been said about couple of popular decisions taken by the AAP within couple days of it coming to the power. Unfortunately, the only tool AAP could think using is firing sly subsidies at innocent people. The policy of subsidy has been puncturing Indian aspirations for a very long time. Such paralyzing policies, instead of infusing fresh ideas in the system, are likely to aggravate the issues of corruption. It sure does not suit a party that came to power on the plank of eradicating corruption and providing clean and efficient governance. Politics of subsidy defeats both.
We know, from experience, that the basic premise over which corruption is systematically built is subjective application of policy. A window of incentive deliberately left open in the policy is normally what gets abused most because 'people respond to incentives'. Thus, if using less than 700 liters of water is free; by design, people are invited to use whatever means to fall in this category. A structured corruption is likely to emerge out of the new opportunity to manage the demand of falling in the free category. For every demand of a friendly water meter, there will be a supplier, of course for a fee. Water will not come for free afterall.
While the end objective of subsidy and economy is the same -moderating the cost to promote affordability - the two methods have opposite impact. A vibrant economy should stimulate growth by promoting efficient markets within a healthy competitive environment. The ensuing free and fair market practices allow companies to showcase their capability in achieving economy of scale, which, with time, brings down prices of products. The broad base increase in economic footprint results better tax collections for the governments who, then can take up social programs. Subsidy, besides promoting corruption, strangles growth, and hence, the revenue collection. At some point, government falls short of resource to fund socially relevant programs, which usually precedes a precarious economic regime. Effectively, subsidy is counterproductive to mainstream economy.
Subsidy is neither new to India nor has it yielded results as promised. We do not have to scramble through history pages to locate such instances. The present state of Indian economy is a direct result of fiscal mismanagement, which is largely due to numerous active subsidy programs. Moreover, people seem to understand economics better. Recent elections have vindicated the Indian electorates'distaste for populist politics. It is unlikely people of Delhi are going to remember sly populism adapted by AAP next time they go back to ask for vote. In other words, throwing freebies at people is not likely to help AAP's intended objectives. In all likelihood,such methods are certainly going to hurt the economy of the state.
It is apparent ensuring a fair and competitive market environment, providing new opportunities and cleaner administration are credible waysto change lives of people- a role that falls squarely on the government. In fact, it is precisely what AAP has been mandated with. They are popular enough is evident from overwhelming support they received in this elections. The party must understand that people of Delhi have not voted them to power to behave popular.They are there to act decisively on corruption and governance. They must not tinker with the economy.
(Samar Vijay is Director, InvestCare, a leading fund management company. You can reach him on twitter @samarvijay)