Column: Anti-aam aadmi water policy

Written by Surjit S Bhalla | Updated: Dec 28 2013, 08:38am hrs
December 28, 2013, will go down in history as one of the most important political days in Indian history. A from-nowhere movement called the Aam Aadmi Party (AAP) will form the government in Delhi. Enough has been written, and even more will be written, about this political miracle. Soon, concern will rightfully turn to important matters of governance, particularly economic governance. The AAP has set for itself, and the electorate, pretty high standards of thinking and governance. So, what can we expect from the AAP in terms of its economic policies

One clue to their philosophy was recently provided by their ideologue czar, Yogendra Yadav. He admitted to the fact that the philosophy of AAP was socialist, though he added and hoped that its policies would not be silly. Both the socialist and silly components of AAPs policies are examined through the prism of its well-articulated and developed policy on water distribution.

Most conventional beliefs about socialism centre on the ideology, and hopefully practice, of helping the poor, and the disadvantaged. What differentiates true socialists from populists is the practice of populism. We can forget about non-socialists because without the need for evidence we know that they are rapacious and guilty of every exploitative crime. The real question is whether the new socialists buck the trend of others who have also campaigned in the name of the poorand grotesquely failed to deliver. The AAP and its leadership is acutely aware of this phenomenon because their campaign for two years has been against the Congress party, an in-the-name-of-the-poor political organisation bereft of any ideology except the exercise of power, and at least according to AAP, and many others, the fulsome exercise of corruption. One of the supreme ironies of the ascendancy to power of AAP is that its major ally in the governance of Delhi is none other than the Congress.

The thinking water policy of AAP is as follows: within 24 hours of coming to power, AAP will provide 700 litres of water per day free to every household. However, any household using even an extra drop of water than the stipulated 700 litre average would pay for all the water consumed.

Some idea of the thinking behind this extraordinarily innovative water policy is obtained from an April 2013 AAP document. This document notes that the profit of the Jal Board in FY13 was R466 crore, and this is where the cost of providing free water would come from. One interpretation of their policy is that since profits are obtained from the sale of a public good, e.g., water, such profits should be returned to the people. This would be a sensible policy if all public sector efforts, e.g., in health and education, were also free. An idea Sirji, but the thought remainswhere is the money for all this socialism

In my previous article Aap ki Tea Party (FE, December 21, goo.gl/1pgzpE), I had suggested that AAP was really the Tea Party of the left, i.e., it seemed to have borrowed its tactics, and non-economic beliefs, from the ultra-conservative Tea Party in the US. But I must admit that my thinking, and research, has been severely challenged by the AAP water policy.

Parallels with income taxation come to mind. There is a threshold I have to cross before the tax rate kicks in. For example, for the first R2 lakh that I earn, I pay zero income tax, and for the next R3 lakh, I pay a tax rate of 10 %. So, if I earn double the threshold level, i.e., R4 lakh, my tax liability would be R20,000, and my average tax rate would be 5%. Contrast this with the AAP water proposal. For the first 700 litres a day or 21 kilolitres (kl) per month, I pay zero tax, and for the 21.00001 kl onwards, I pay for all the 21 kl consumed, i.e., R260 (based on slabs of rates and fixed charges).

How realistic and constraining is the water threshold of 21 kl per month Not constraining at all. According to most estimates, the normal per capita consumption of water is around 150 litres per person per day (lpppd). Assuming an average Delhi family size of 4 (NSSO data), the AAP largesse of 700 litres per household translates to 175 lpppd. This level is well above that prevailing in Western countries like Germany and Denmark!

The mystery remainswhere did AAP get the idea of free water from According to Yadav, the economic policies of AAP (on water, electricity, etc) were formulated after considerable thinking on the part of the AAP team of advisers and economists, no doubt buttressed by feedback from the large number of mohalla meetings.

Extensive perusal of the literature does yield an example of a similar water policy. More than a decade ago, in 2000, President Thabo Mbeki of South Africa (SA) outlined the following water policy: All poor South Africans should receive a minimum amount of water for free, and that amount was stipulated to be 6 kl per month. After this consumption, for each additional litre, the household would be charged for the entire consumption.

The AAP policy is virtually identical, but with important differences that make the comparison with the SA proposal akin to chalk-and-cheese. First, the South African government's free amount was based on an average household size of 8 persons, or only 25 lpppd, or one-sixth the AAP level for the upper-middle class. Since most requirements of minimum water are above a 100 lpppd, the South African policy meant no change in the revenue of the water authorities. Second, the SA policy allowed each municipality to freely interpret and implement the recommendation, i.e., it could charge the residents to pay only for the extra water consumed, or for all the water consumption. It appears that no municipality has followed the infinite tax policy since statistics show that 75% of all free water in South Africa is delivered to people who can actually afford to pay for it.

It also appears that AAP has gone back thousands of years to the Mahabharata for insights into 21st century policymaking. Recall that in the Mahabharata, Shishupal's mother was given a vow by Krishna, her nephew, that he would pardon his cousin, Shishupal, a hundred times for his misdeeds. On one fateful day, Shishupal started abusing Krishna in the court, which was filled with all the dignitaries of that era. Lord Krishna kept smiling and dissuaded Shishupal to not cross the 100-mark. However he chose to ignore and, on the 101st mistake, was killed by Krishnas Sudarshana Chakra.

There is a more enlightened policy that the AAP could chose to implement, if it were not besotted by its own image and political success. The first goal of any subsidy has to be the upliftment of the poor. Water delivery allows policymakers for near perfectactually perfecttargeting. Arvind Kejriwal and Yogendra Yadav can know with precision who has a water connection and who does not. About 20% of Delhi households, around 7 lakh, do not have any piped water connection. The top-60% of households should pay a higher rate for the water consumed in order to finance the water consumption of the bottom-40%. Unfortunately for Delhi's poor and disadvantaged, the recommended capitalist policy will not be followed by AAP because it is not in the name of the poor, and definitely not socialist.

The author is chairman, Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company. Twitter: @surjitbhalla