Monday, January 22, 2007

The loot in the name of the poor

It is budget time again and most of the focus seems to be on where the tax concessions are going to be or where the tax increases are going to be. News papers the day after the budget, headline with the tax concessions given or the increases. There is focus on new schemes, but there is very little focus on where the money goes & for whom. The Government when it doles out subsidies, often claims that it is for the poor. A short analysis below tries to to figure out some of the amounts involved.

Subsidy from the Central Budget 2006-2007
Food : 24,200 Crores ( From
Fertilizer : 17,252 Crores ( From
Petroleum : 27,863 Crores ( From the previous blog post )

Subsidy from the State Budgets 2006-2007
Education : 93767*(100-1.2)/100 = 92641 Crores ( From RBI & RBI ) . 1.2 = % of cost recovered from users
Electricity : 35,632 Crores ( From RBI
Health : 25775*(100-4.8)/100=24537 Crores ( From RBI & RBI )
Irrigation : 14911*(100-16.9)/100 = 12,391 Crores ( From RBI & RBI )

Just these expenses add up to 2,34,517 Crores. This translates to Rs 31,980 per family per year for the bottom 1/3 of the population [ Assuming population of 110 Crores & family size of 5 ]. This is just a fraction of the money allocated & spent in the name of the poor, none of which seems to have much impact on poverty. A very large loot, in a country which has so many poor people.

And we have not even touched on such heads like Social Security (13,171 Crores) [No, Social Security is not employee pension] , Nutrition (5148 Crores), Transportation & Communications ( 13,957 Crores), Agriculture (23,634 Crores).

Would it not be better if we just scrap these schemes and instead transfer the money to the poor families? With Rs 31,980 a year or an extra Rs 2,500 a month these families will definitely have a greater chance of pulling themselves out of poverty ( If they do not automatically come out of it by just this transfer)

The biggest issue with doing some thing like this would be to correctly identify the beneficiaries. Technology could help us here. I see having a single unique biometric based national identity as the starting point, something like the US social security number. More on this in a later post.

Thursday, January 18, 2007

Domestic Fuel : A case for targeted subsidy

From The Hindu

The government plans to restrict subsidised domestic cooking gas (LPG) and kerosene to poor people only, Petroleum Minister Murli Deora said today.

"Yes, we are in agreement with the suggestion that there should be dual pricing (subsidised price for poor and market price for the people who can afford) for cooking fuels," he told reporters here.

Public sector oil firms sell kerosene at just over Rs 9 a litre, cheaper than a bottle of mineral water, he said, adding kerosene was being subsidised by over Rs 15 a litre while LPG was being sold at a discount of Rs 155 per cylinder.

"Why should subsidised LPG cylinder come to my home or to any other people who can afford it," he said.

This is a welcome move. I do not see why the government should subsidize the rich or for that matter parts of the Hotel industry that thrives on diverted subsidized LPG.

What is the size of the subsidy bill we are talking about ?
From Business Line 23 March 2006

The Ministry hopes to deliver domestic LPG and PDS kerosene to households across the country at affordable prices during 2006-07.

It plans to make available 118 lakh kl of PDS kerosene and 74.42 crore domestic LPG cylinders to households at subsidised prices.

LPG subsidy alone would be 150*74.42 = 11,163 Crores. & subsidy on kerosene works out to 1180*15= 17,700 Crores. That is a total subsidy bill of 27,863 Crores.

A simple back of pad calculation shows that this amounts to Rs 3800 per family per year if targeted at the bottom 1/3 of the population ( Assuming pop=110 Cr & avg family size=5 ). This is a significant sum of money. It makes immense sense for the Government to target this subsidy at the poor instead of handing it over to every one in the country.

One way of operationalizing this, would be to restrict LPG subsidy to those families that possess a white ration card/Below the Poverty Line ( BPL) ration card. The scheme could be that if you possess a white ration card & want to avail of the LPG subsidy, you need to register that card with your Gas supplier. The gas supplier can then endorse your card. This would mean that you will get a lower supply of subsidised kerosene. So the BPL family can decide whether they want to take the fuel subsidy in the form of Kerosene or LPG. All the others would be supplied unsubsidized LPG and Kerosene. To prevent subsidy leakage, you would still need to impose rules that limit the number of subsidized refills that one can avail in a year, the gap between each subsidized refill etc.

What are the major weaknesses in the above scheme?
  1. BPL card administration is weak. It is possible for the undeserving to get hold of these cards
  2. BPL card administration is a state subject. One would need to convince states to fall in line with the above plan
The first weakness is manageable. After all instead of subsidizing every one, you are now subsidizing all the deserving & some undeserving. The second weakness will be quite tricky to overcome. One option could be the Central government restricts supply of subsidized LPG to each state. So states that are unwilling to implement that plan can devise their own ways of targetting who should get the subsidy.

If there is no after life

Part of the answer from person posting using profile "Should I" to the question that President Kalam asked on Yahoo Answers . [ Got this link via Desipundit ]

Education also provides the opportunity for us to instill the idea in children, early on, that killing human beings is cheating others of their opportunity to exist and fulfill their function in this world. Children need to be taught, with great repetition, that we have only one life... and thus, we must not take any persons life away from them, prematurely, because that is their ONLY life. Once again, this flies in the face of religion which often distorts the truth by telling children and adults that there is a "second" life, or an afterlife, "heaven", etc. There is no evidence of secondary lives or secondary existences... and this fact should be taught to children. If they realize they have one life, and the same applies for everyone, then they will be forced to deal with that fact when deciding whether, or not, to join a movement, such as that which we loosely refer to as terrorism

That life is precious is instinctively understood. We know that people who die , don't ever come back. But would this realization that there is no after life have impact on how precious we consider life to be? Would this also mean that people will be less inclined to sacrifice oneself to say rescue another human?

Tuesday, January 16, 2007

Light at the end of the tunnel ?

Just read on Apmedia that the Supreme Court has turned down the various objections (excuses ?) that the State Governments had come up with, as to why they could not implement the September 22 judgement on police reforms. The September 22 judgement was given wide publicity, and then we heard that States would be filing an appeal. What was not widely reported, was that the Supreme Court had turned down the appeal by the State Governments. It looks like the long over due reforms in the police force will finally see the light of the day.

Friday, January 12, 2007

End of Legislative Majoritarianism ?

The judgement of the nine judge constitution bench of the Supreme Court, regarding the acts in ninth schedule, has now opened the acts that were beyond judicial scrutiny to judicial challenges. The Bench held that all such laws included in the Ninth Schedule after April 24, 1973 would be tested individually on the touchstone of violation of fundamental rights or the basic structure doctrine.

From what I can glean, the land ceiling acts of Andhra Pradesh, Bihar, Gujarat, Haryana, Kerala, Madhya Pradesh, Himachal Pradesh,Karnataka, Punjab, Rajasthan, West Bengal, Maharashtra, Orissa, Uttar Pradesh, Dadra & Nagar Haveli, Tamil Nadu, Gujarat, Assam (or shall I say every state's land ceiling act ? ) is now open for scrutiny. So too are the urban land ceiling acts (ULCA) . The fifty year saga of curtailment of property rights now has some hope of being reversed.

Also it opens up for scrutiny The Industries (Development and Regulation) Act, The Monopolies and Restrictive Trade Practices Act,The Foreign Exchange Regulation Act,The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,The Essential Commodities Act. It also potentially nullifies Tamil Nadu's law to circumvent the 50% reservation limit. Here is a complete list ( Word Doc) of acts in the ninth schedule. My interpretaion is that all acts, starting with 67. The Andhra Pradesh Land Reforms (Ceiling on Agricultural Holdings) Act, 1973, would be open for scrutiny.

The worst acts in India, in terms of curtailment of freedom have always found their way into the Ninth Schedule. Any one remember the dreaded MISA (The Maintenance of Internal Security Act) ? It was under this schedule that it found sanctuary. So too the The Prevention of Publication of Objectionable Matter Act, 1976, which attempted to curb the freedom of the Press.

This judgment taken along with the famous basic structure of the Constitution judgement ensures that the Constitution of India will be not be subject to legislative majoritarianism. It adds some welcome rigidity to the Constitution as far as guarantee of Fundamental Rights are concerned. If this judgement were not there, nothing really stops, say a fundamentalist party with a brutal parliamentary majority, from changing India's constitution to make it less secular & hiding that piece of legislation under the ninth schedule.

Just as the abrogation of property rights has come back to bite the very people it was supposed to help [ Refer earlier post on property rights ], any attempt to undermine the spirit of these judgements, will come back to bite at a later date.

Wednesday, January 03, 2007

Who is the Knowledge Commission working for ?

From Zee News: Knowledge Commission against inviting foreign universities

The move to invite foreign universities to offer education in India today came under attack from Vice Chairman of National Knowledge Commission P M Bhargava who said it would lead to commercialisation of higher education.

"This move is to commoditise education. Education is not at all a commodity," Bhargava said at the seminar on "Education Commission: Revisiting the Commission's Premises, Vision and Impact on Policy Formulation," organized by National University National University of Education Planning and Administration here.

What is commoditization? Wikipedia has two answers. (It redirects commoditization to Commodification)
  • In the business world, commodification is process that transforms the market for a unique, branded product into a market based on undifferentiated price competition. Consumers usually benefit from commodification, since perfect competition usually leads to lower prices.
  • In Marxist political economy, commodification takes place when economic value is assigned to something that traditionally would not be considered in economic terms, for example, an idea, identity, gender.
I presume Dr. Bhargava did not mean the first option. So let us assume that he was using "commoditise" in the Marxian context. In simple terms this boils down to higher education being a public good & hence needs to be supported out of Governmental revenues.

Given that in India, access to even secondary education is extremely limited, [Refer page 5 of Secondary Education in India - Investing in the future By Wu & Dar] this subsidized higher education is unlikely to reach the bottom quintile and more likely to be grabbed by the middle class & the rich. So why is the Knowledge Commission fighting for the rich & middle class?

From the same article
"I strongly oppose the move of Commerce Ministry to invite the foreign universities into the country," he said.

Bhargava said the move will facilitate the second grade and third grade universities in abroad to come and set up their shops here.

"No good university will come. The second grade and third grade university will come and make profits in the name of quality education," he told a news agency later.

We have heard this story before. Remember the early 90's stories of Indian software engineers only working on low end maintenance projects? Or the early 2000 stories that only low end call center work is outsourced to India? What Dr. Bhargava says is likely to happen. The first that will test the waters are going to be younger educational institutions, those that have little to lose & a lot to gain. The Ox-Bridge/ Ivy Leagues will come in much later. But why should we quibble? Does the color of the cat matter as long as it catches the mice? If the new entrants offer value, they will have a market. If not, they will need to go back to the drawing board and rework their India strategy. Any one who is under the mistaken belief, that all a foreign university needs to do is to set shop in India and every one will flock to it, needs to read about the struggle of MTV, Pepsi, Coca Cola, Pizza Hut etc. to gain market share in India. India is an extreme value conscious market. You need to get your value proposition right to crack the market and the same will apply to higher education.

Who is the Knowledge Commission helping by keeping out foreign Universities? The immediate gainers are our private colleges, mostly owned by our ruling elite. They can continue getting away with providing third rate education in a controlled environment. The biggest losers are our middle class students ( who can't afford to study abroad) , our Professors ( who have fewer employment opportunities ) & our nation as the rich opt to study abroad spending over Rs 3000 Crores a year. So is the Knowledge Commission working to help India's elite maintain their stranglehold on education business?

PS : If Dr Bhargava is speaking in his personal capacity, then I would like to know why he thinks education should not be "commoditised" but egg/sperm donation can be ?