The Prime Minister?s assertion that government subsidies do not reach the poor, and are even counterproductive in maximising their well being, is a reassuring sign for any cardiologist watching the man?s political heartbeat. It is good news for all reformers that his original spirit is still showing up every now and then on his cardiogram. Perhaps the fact that the lecture was delivered in a comfortably academic setting, at the Institute of Economic Growth, had something to do with it. But whatever the surroundings, it deserves a round of cheering. As any student of market economics or observer of ground reality knows, an overextended State in a politically overwrought framework of governance is all too vulnerable to being held hostage by the whims of clan-oriented priorities. Subsidies, in such a scenario, are mostly dead on arrival.
The PM?s candour is more than welcome. That he should admit to a governance crisis in the country, even with an election looming, is equally impressive. It confirms that his mind has not been thrown to sordid electoral calculations. Whether it is the public distribution system (PDS), fertilisers, primary education or public health, India has failed to create an incentive mechanism that makes the results justify the funds allocated to these do-gooder devices. In the absence of a system that works as intended, most subsidies end up fattening middlemen and other politically patronised people who have little need for such state largesse. The governance system at every level is simply scandalous in its inability to deliver on public commitments, and ideas of disintermediation?such as smart cards for coupons and direct transfers?are faced with enemies who fear their implementation. The PDS, for example, to which crores have been committed of taxpayers? money, is so rotten today that fixing it doesn?t even seem possible anymore. So much for the old dream of seeing that every citizen?s elementary needs are met. Alas, the PM?s statement seems aimed more at indicating his own position than at setting off a flurry of action to close the glaring gaps. As recently as on August 15, 2007, the PM announced an increase of $6 billion in agriculture sector spending?without a word of what is being done about the delivery system. Moreover, can anybody honestly claim to expect a slashing of public subsidies in the forthcoming Budget? Those signs are equally vital.
