LPG price hike

The release of LPG connections to poor women was one of the reasons for the BJP's victory in the Uttar Pradesh assembly elections. In total 2.5 crore such LPG connections were given. The party has positioned itself from being just a representative of traders and upper castes to that of the poor also. Given the mass scale of poverty, it makes electoral sense. Welfare politics has been played by various parties, including Indira’s Congress. Helping the poor and the needy is morally, socially and politically unquestionable. Opposition protests over the LPG price hike in Parliament notwithstanding, eliminating oil and gas subsidy is part of the agenda of both the UPA and the NDA. In elections it is ultimately votes that matter. Whether subsidy reaches the intended beneficiary is another issue.

But there is a price to pay and it is extracted from the better-off sections of society. Money is diverted from growth-oriented policies to welfare plans. Ideally, the downtrodden should be helped with revenue from higher growth. At a time when growth is slowing and job creation not happening, the government is raising taxes. The GST has raised the cost of services. Oil and LPG prices have been raised over a period when global oil prices have plummeted from $111 a barrel to $50. The savings from the oil subsidy are being used to fund the Prime Minister's Ujjwala Yojana, meant to provide LPG connections without upfront charges to 50 million poor households as well as to finance infrastructure projects.  

Our economists, however, disapprove of politics of freebies and loan waivers. Prof Jagdish Bhagwati and Arvind Panagariya, both Modi admirers, believe government spending should be guided by growth considerations. The poor would benefit from the trickle-down effect. Amartya Sen, on the other hand, favours priority spending on education and health of the poor so that a healthy, empowered workforce contributes to growth. Political parties like the BJP and the Congress, however, accord priority to freebies and welfare which get them votes. Neither Jagdish Bhagwati nor Panagariya has commented on the direction the BJP's politics has taken, though Panagariya's departure from Niti Ayog can be read as a sign of disillusionment with "Modinomics".