Column: Kejriwals waterfront

Written by Surjit S Bhalla | Updated: Jan 4 2014, 10:48am hrs
By announcing its two ostensibly pro-poor, pro-aam-aadmi policies concerning water and electricity, the AAP has made clear its economic vision for the country. Note that I am not crediting the AAP with its vision of a corruption-free economy and polity. That is a goal of everybody, including mothers for motherhood, and any significant reduction of corruption will be a major contribution to Indian democracy and its economy.

It is well known, including by policymakers within the AAP, that discretion in decision-making increases corruption. As do distortions in the pricing mechanism (as shown in the accompanying table). For example, if the government prices kerosene substantially below diesel, then the policy encourages corruption by making it profitable to mix kerosene with diesel.

One of the most intriguing features of the AAPs policy on water (and electricity) is their pro-rich stance. How did this happen As the table shows, the water policy goes significantly against the poor and the lower middle class. One of the most stylised facts about development, incomes and poverty is that larger-family households are poorer. As the table shows, households with a family size greater than or equal to 5 members have average expenditure levels (NSSO 2011-12 data for Delhi households) only twice the poverty line. These households will pay for all the water consumed because their usage is higher on a per household basis. In contrast, those who need water less and can afford to pay more (with per capita expenditures almost four times the poverty line), will receive water free. The poor will pay R663 crore to the AAPs water board; the rich will receive R333 crore from the AAP as subsidy. What Kejriwal and the AAPs water policy illustrates is a perfect inversion of Robin Hoodsomething corrupt, in-the-name-of-the-poor Indian governments have attempted but not succeeded at so perfectly. I challenge anyone to imagine, let alone formulate, a more anti-poor and more anti-lower middle class policy. Phrased differently, can anyone formulate a more pro-rich policy

Some hints about the Kejriwal water policy can be obtained from his 2005 agitation. At that time, as many of us recall, Delhi was facing a serious water crisis caused by inefficient water management. One pilot recommendation was to privatise water management in two central areas of Delhi, representing only 12% of the customer base. The management would not have any authority to set tariffs or policyjust management. It was also viewed anxiously by the central government as a test case for public-private-partnership in bringing water reforms, and infrastructure, to India. However, the simple recommendation of private management did not go through. It met with considerable opposition from a new NGO wanting to make a splashKejriwals NGO called Parivartan. Kejriwal opposed the policy and succeeded. On his own exceptional calculation, he declared that the scheme was detrimental and would lead to an exponential increase in the price of water. The forecast has not come true but Kejriwal is now the CM of Delhi. Possibly, it is this early activist success that makes Kejriwal feel that he is an economic policy and water expertbut it still does not explain why he would recommend and implement a retrogressive and pro-rich water policy. One must credit the AAP with at least being completely and stubbornly transparent.

Possibly the following Sikh joke can explain the stubbornness in the face of all opposition, and opposition even from well-wishers. (In this politically charged and correct world, I guess I can say it because I am a Sikh!) An especially clever embezzlement took place in a company. The investigators let it be known that only a person with a very high IQ could have pulled off the embezzlement. Whereupon a sardarji who worked in the company volunteered that he was the one who had carried out this impressive crime. During the investigation that followed, it became clear that the sardarji was not actually guilty of the crime. So, he was given a chance to revoke his confession and thus escape prison. The proud sardarji refused to change his mind or confession, and as explanation blurted: Main keh jo ditta!, loosely translated as, I said so, didnt I

When confronted with questions about their policy, the AAP leaders go out of their way to stress the fact that they have been in power for only a few days, while the people who have brought misery upon the citizens of Delhi have been in power since Independence. True. But isnt it a bit disingenuous to claim for time when the same party passes pro-rich policies in its first few days in power Well-wishers of the AAP (steadily decreasing but still large in numbers) would want to believe that the party would incorporate constructive criticisms into their policy recommendations rather than be stubborn like the sardarji in the joke. By not doing so, they risk losing the popular support they enjoy, and Kejriwal will be left thinking that he could have been a contender.

Some clues about the AAPs policy in future and its prospects are revealed by identification of the AAP supporters: dominantly left-of-centre, disillusioned Congress supporters. Both anecdotal conversations and empirical data support this conclusion. Fully 40% of those who voted for the Congress in 2008, voted for the AAP in 2013; the corresponding figure for the BJP was only 9%. There are two ways one can interpret this fact. The AAP supporters interpret as follows: if the AAP had contested in Chhattisgarh, Rajasthan and MP, then nearly the same treatment would have been meted out to the ruling BJP as was meted out to Congress in Delhi. This line of thinking is worthy of empirical testing, an exercise that nevertheless remains to be done. The second line of argument (to which I subscribe to) is that there was an overwhelming negative sentiment, a wave against the Congress, and the BJP benefited from it in the above three states, and Kejriwals AAP benefited from it in Delhi.

The AAP needs to be complimented for making their philosophy and ideology so transparently transparent. They are politically clean, their fund-raising policies are devoid of corruption, and their economic policies are considerably left of centre, and may even be to the left of the Left. Their slogans, attitude, demeanour, and policies are eerily and transparently close to that of the CPM. This means that one of the most interesting elections in 2014 will be that in West Bengal. The citizens of that intellectual state will have a clear choice between every version of the Left that is thinkable. How much can the BJP lose by fielding a candidate in at least half the constituencies of that state

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