Good Politics is Good Economics too

Ever since the Aam Aadmi Party has formed Government in Delhi, it has given rise to a new kind of debate. Its policies on free water, Power subsidy have attracted a lot of criticism. It gives rise to a few questions which I will try to answer with my limited knowledge.

1.    Do populist policies always have to be left of center?

2.    Is there any room for such measures in an economically open country like India?

3.    Is there a way where a policy can be both populist and economically viable at the same time?

4.    How far is the claim of such policies being economically and financially hollow, true?

Let me start with last question for that is essentially the question I am set out to answer.

Water, Healthcare and Education should be equal and affordable to everyone. Unfortunately, they are not because they are essential for us and hence command a premium in this world of dwindling resources. 

In USA drinking water is not only affordable, its available 24 hours. In most countries its either free or subsidized. If Government does not regulate the market for essential goods, a few large players will control the resources and command a very high price. In case of Delhi, we already have Water Mafia.

Water mafia is just one such world, there are land and education mafia too. Unfortunately, our politicians have a huge stake in all three. If Land, Education and Water was to be made affordable to all, it would mean a huge loss for some people. In Chile, government runs a program where everyone can get a home through an equity program. It keeps the house prices in check. Compare this to our country, In Mumbai, land/house prices are higher than New York and living conditions are worse than Bangladesh. 

People will argue that the same policies cannot be in India, with its huge population. I argue, it makes it even more essential to have such policies. A clean politics will deliver a cleaner delivery mechanisms and hence a better multiplier effect. Corruption has created huge sinks where public money gets stuck and no benefit can be driven out of them. It creates transparency in the system and cleans out the mafia. With greater effect of every rupee spent, subsidy on basic goods can be justified.

To the question if they are economically sound for a moderately free economy like India, yes they can be. Free Market is not one size fits all. Financial reforms that aim at freeing up the economy and letting the private players decide the price maybe what IMF suggests, but it’s not always beneficial when it comes to basic goods. FDI is welcome and so is the foreign investment in all forms, but keeping prices of essential goods in control should be the motive of every government.

Left or Right of center? Anyone who does anything substantial about the poor in this Country is termed a communist, even Maoist. The political and the intellectuals are only supposed to talk about it, but god forbid if you get your hands dirty and actually start doing anything about it, then you are a commie. A populist measure can also be democratic. People will have you believe otherwise, because in this Americanised world democracy is often confused with capitalism and consumerism. In Finland, Government gives a welcome kit worth more than 140 Euros to every new born baby. Its populist, popular and useful.

I don’t want to be dragged into the debate of black money, but Corruption scraps off a good 1% from our real GDP growth. If we get rid of corruption not only can be add that 1%, it will make India a better investment option. It will reduce the red tape, the cost of greasing palms( its considered the biggest hindrance in doing business in India) and a better ROI option.

So why not, popular political parties have us believe that a corruption free politics that AAP and Arvind Kejriwal promise can be harmful for this country. Its harmful for them and for some Businessmen they are in bed with, but it’s definitely good for the country.