Subsidies can’t fetch what governance can

Kuljit Bains

The more the Punjab Government does number crunching, the more it finds itself unable to deliver on the sweeping promises made to farmers and industrialists. The Finance Department has put its foot down, asking for cuts in the proposed handouts, even as the government is at pains to somehow deny the partial rollbacks.

The situation is, no doubt, politically uncomfortable, but coming to terms with reality is not just the only option available but will also be in the interest of the state. Loss of face from not keeping promises may ultimately be less damaging to the people of the state, as well as the Congress government, than completely drowning the wrecked ship.

Industrialists are up in arms over not being given power at Rs 5 per unit. There is a slight modification in the promised new subsidy, and even that reduced benefit is yet to be given. Farmers have now learnt that only those whose loans were less than Rs 2 lakh would be eligible for waiver. This is different from waivers “up to Rs 2 lakh”, as now those with larger loans will get nothing. The government expects to cut its cost by nearly half by imposing this condition.

One important aspect to note is whether the subsidies ultimately reach the intended beneficiary. A study by the Centre for Research in Rural and Industrial Development has found that 81 per cent of the agricultural power subsidy goes to medium and large farmers, i.e., those with more than 5 acres of land, whereas the most distressed are the ones with less than 5 acres. Also, landless farmers, or those without tubewells, farm labourers, who are the poorest, get no benefit.

Numerous government surveys have also found that lakhs of beneficiaries of subsidised ration schemes, social welfare pensions, or even urban power subsidies, are fake. All this points to the need for a delivery audit of various schemes to first get a true assessment of the situation. Thereafter, a revision of all existing schemes may be undertaken to ensure, one, that only the intended beneficiaries receive the subsidies, and two, to see if the subsidies are promoting the right kind of productivity in the state. One example of an unhealthy subsidy is free power to agriculture promoting paddy in the state.

All subsidies have to be designed keeping in mind sustainability, and aimed at ultimately pushing recipients in a direction where they may no more need the dole. The money being spent to subsidise power for farmers may well be spent on building infrastructure for diversification, and promoting alternative crops till a new agro-economy takes shape.

Geographic and demographic realities of Punjab make only certain kinds of industry feasible. There is high population density, land prices are also very high, and so is pollution. Distances from raw-material sources as well as markets across the country are prohibitive. Ideal industries in the state, thus, would be labour-intensive, less power-consuming, and have small land requirements. That would point to IT, service sector, education/health industry, trading, et al. The government’s responsibility, thus, is to ensure all aid pushes investors in this direction.

The history of subsidies in Punjab shows that these have been used as substitutes for good governance. Farmers were not always this badly off, even when they paid their bills. Many potential industrial investors, especially NRIs, underscore their fears of corruption and law and order in the state. They would be better wooed with a healthy business environment than subsidies.

It may do no harm to remind Chief Minister Capt Amarinder Singh that many of the people who voted for him did it out of faith in his governance abilities. He may not want to let them down.