Dr. Arvind Kumar*
Isn’t it odd that until we pay for something we don’t understand its value. The more expensive the thing, the more we revere it. It is human nature. So why is it so hard to understand that if food, water, electricity etc. are provided for free, if you don’t have to pay for it, you don’t pay much attention to how much you use. But somebody is paying for these freebies, somebody is bearing the burden of taxes for others to splurge these resources. Declarations of giveaways hinder the nation’s self-sufficiency, impose heavier burdens on honest taxpayers, and deter investment in innovative technologies. As per World bank globally, subsidies total around $320 billion a year, excluding China and India. This equates to around half a percent of these countries’ combined GDP. And if only low- and middle-income economies are considered, that figure rises to between 1.5 and 2 percent. In India, water and electricity are often provided free or at highly subsidized rates, which is seen as a birthright. This policy ensures that water pumps are always operational, contributing to continuous agricultural production. The country produces vast amounts of rice and wheat, resulting in immense and sometimes unmanageable surpluses of these grains. In contrast to the malnutrition crisis that the government is fighting hard to address, large quantities of wheat and rice are left to rot in fields, especially in northern India.
This paradox is fueled by a rigid system of subsidies provided to grain farmers, which encourages the production of more wheat and rice than can be effectively stored or distributed. When we waste food, we also waste all the energy and water it takes to grow, harvest, transport, and package it. And if food goes to the landfill and rots, it produces methane—leading to global warming and eventually climate change. We are all being baked in the heat thanks to global warming and climate change.
What a vicious cycle of things?
The basic question is how long it can go on. It’s a policy that is focused on helping the poorest. That makes sense. But it’s also not sustainable.
The pumps — more than 20 million operating nationwide — are not only draining aquifers, such mammoth pumping was the most significant reason that the farm sector sucked up 17 percent of the electricity that India consumed from its utilities, which is putting increasingly urgent pressure on India’s electrical generating sector, 65 percent of which is attributed to the coal mining industry. By contrast, there were only 3,000 pump-irrigation wells in 1960, prior to the Green Revolution, according to India’s Ministry of Statistics. But the electricity subsidies led to the drilling deeper wells and adding more powerful pumps to reach new depths, a practice that consumes even more electricity and produces even more climate-changing gases.
Free Lunches vis s vis Stable Economy
India was among the first few countries to announce a relief package worth USD 23.2 during times of corona which intended to help poor households that faced losses or saw their incomes fall during the lockdown and also provided free food. That was a must and understandable. But why continue with the same during normal times? While providing free goods or services may be politically appealing in the short term, it can have detrimental effects on economic vitality, enterprise, and individual motivation over time. Balancing social welfare with sustainable economic policies is crucial to ensure long-term prosperity and stability. Various aspects of environmental degradation and resource depletion have arisen due to shortsighted approaches to recent growth and development strategies. You do not get services direct from the source. For instance, you are not drinking water straight from rivers and glaciers. There is a long process involved before it reaches our home. Putting a price on water quantifies and makes visible values derived from water in a defined manner. Determining how water pricing can effectively tackle water scarcity is a complex matter.
These factors help address the external impacts of water usage comprehensively. But we do not live in an ideal world. So even if we price the process involved people are going to value it because they will be paying for it regardless of the amount. In a city like Delhi why do we need to give free water and electricity? Shouldn’t providing a water connection to those who do not have it, building schools, having more teachers, increasing public hospitals, shelters for the homeless needs to be prioritized? The situation we are witnessing in Delhi, not long time back was the same in Rajasthan. People there made tankas and locked them because they understood the value of water, Why is the Delhi Jal Board from a profit of Rs. 600 crore has gone to a loss of Rs. 73,000 crore. 40% of the water is wasted due to leaking pipelines and theft of water in unauthorised colonies.
World bank research shows that, on average, across the 10 low and middle-income countries examined, 56% of subsidies end up in the pockets of the richest 20% but only 6% of subsidies find their way to the poorest 20%. So instead of acting as an equalizer, subsidies are instead exacerbating existing inequalities. But it doesn’t have to be this way.
Way Forward
Given the gravity and intricacy of the issue, policymakers must adopt systems thinking. This approach can establish an environment conducive to innovation, offering a holistic perspective, identifying opportunities within challenges, and promoting adaptation in dynamic environments. A single instrument is unlikely to meet all policy goals simultaneously. Any single tariff design, for example, cannot promote cost recovery and single scarcity, while simultaneously ensuring equitable access for the poor and vulnerable. A country like India ought to expand its efforts to reform water pricing, aiming for universal access and efficient utilization of water resources. This includes initiatives to enhance water rights, establish autonomous and effective institutions for water management, and raise awareness about the critical issue of water scarcity and the imperative to take prompt action. We need integrated policies and collaboration across ministries and sectors. The only freebie given should be in health and education sector because the maximum expense goes towards it. A healthy body houses a healthy mind. Education enables individuals to increase power to act. Handouts from governments cannot elevate the living standards of impoverished families; rather, only education can effectively achieve this goal. Strategically designed and well-implemented subsidies can play a crucial role in ensuring access to sufficient and fair allocation of resources. This support can empower individuals to lead productive lives and break the cycle of poverty.
*Editor, Focus Global Reporter
