Tuesday, April 25, 2006

Politics of Subsidy

Tamil Nadu is witnessing a close contest in the 2006 Assembly Elections. In the last four assembly elections, DMK and AIADMK won alternatingly, and with thumping majority each time, thereby killing the democracy in the state.

In the recent legislature, AIADMK Chief Minister Jayalalitha came up with several controversial legislations and ordinances. There was rarely any debate. Opposition parties mostly walked out, or were bundled and thrown out, before bills were put to vote. Opposition leader Karunanidhi of DMK never once went to the assembly, except to sign the register, fearing physical attacks on him within the house. The AIADMK members and ministers started their speech praising the all powerful 'Amma' and constantly attacking and denigrating Karunanidhi and other opposition party leaders. The Speaker ensured that all such attacks stayed in the assembly proceedings but was quick to remove anything said against Jayalalitha.

The politics in general was bad and petty, each side trading charges against the other. People's welfare was given a go by. DMK, far its part, became a close and important ally in the Central Governnment and caused enough problems for the AIADMK State Government.

As the elections neared, Jayalalitha rolled back several of her tough measures and offered a lot of freebies to woo the electorate. Not to be left behind DMK came up with a mother of all manifestos. In the words of Finance Minister P.Chidambaram, "the hero of this year's election was DMK Manifesto". DMK offered the following:
  • Rice to every ration card holder at Rs. 2 a kg. Currently the PDS offers rice at Rs. 3.50
  • Free colour television sets to those who do not have it
Though DMK manifesto offered several other things, Rice at Rs. 2 per kg had somehow captured everybody's imagination. Actor Vijayakanth who has recently started a political outfit called Desiya Murpokku Dravidar Kazhakam (National Progressive Dravidian Party - make what you can of this name) had already promised 15 kg rice free to everyone below the poverty line.

Jayalalitha and her friendly parties first made fun of Karunanidhi's scheme. But seeing the kind of support the scheme had, Jayalalitha suddenly turned around and said she will offer 10 kg rice free to every ration card holder and the remaining 10 kg rice at Rs. 3.50 per kg. Thus if a family needs only 10 kgs, they do not have to pay any money at all and every kg thereafter will cost Rs. 3.50 per kg.

There was no debate in the state on whether such subsidies are needed at all, or if needed, who actually should be provided with such subsidies. Treating all ration card holders alike irrespective of their annual income and offering them rice at such low or no cost has several other ramifications.

The current rice subsidy provided by Tamil Nadu government is close to Rs. 1,500 crore an year. The additional subsidy required for Karunanidhi's scheme could be anywhere from Rs. 680 crore (Karunanidhi has used 1.5 crore ration cards and hence projects an additional outlay of Rs. 540 crore. The actual number of ration cards are 1.88 crore, and hence roughly Rs. 680 crore for an extra Rs. 1.50 subsidy per kg; 20 kg per month, per ration card.) to Rs. 1,500 crores if you look at hidden costs. Rice consumption could go up since it is offered free or at a lower cost. Current subsidy of Rs. 1,500 crore is when the per card consumption is about 170 kg per year. If this goes up to 240 kg that every card is entitled to, the subsidy cost will mount.

The free colour television sets, say 50 lakhs - one each to each family below the poverty line - could cost a lot as well. Karunanidhi proposes to source TVs from China for as low as Rs. 2,000 each. This could therefore cost 1,000 crores further. Then the invisible cost of administering the distribution of the same to the needy. Now, work out the corruption money that would be generated in the process. Already some newspapers reported that DMK cadres were going around collecting names and demanding Rs. 1,000 to include names in the list - of people who would be receiving the colour TV once DMK comes to power.

The politics of largesse will continue as long as people believe that it is perfectly okay for the Government of the day to offer them something for free, and it is okay for them to accept the same. What they do not realise is that it is all coming from their own money. Their collective money.

Do they really want the Government to get them some third rate chinese TV costing Rs. 2,000 or do they want good economic opportunities which will offer them additional revenues of over Rs. 10,000 with which they can decide to buy what TV they want? Do they want to keep buying the dubious quality rice they have been getting in the PDS or do they want to increase their buying capacity and choice of what they can buy?

It makes sense to offer subsidised foodgrains to people below the poverty line. It can be achieved by offering them subsidy coupons which they can cash in any supermarket or roadside shop. Instead we are running a bloated PDS which is corrupt to the core and offers low quality of service to its customers. Rice is constantly stolen from the PDS godowns for sale in the open market at high prices. Once, the PDS used to offer several products: Rice, Kerosene, Wheat, Sugar, Maida, Rava and so on. Today, it is just Rice and Kerosene - products with high subsidy. People buy the rest in the open markets, and most people buy rice in the open market as well. Cooking gas has replaced kerosene in most middle class and lower middle class houses and this trend will continue. Rather than actively working towards better governance and making better opportunities in education and jobs available, we are forced to hold a begging bowl by the political parties.

Party manifestos do not talk about how many schools they will build, how many kilometers of roads they will build new, how they will improve the existing roads, how they will help in increasing business opportunities, how they will encourage entrepreneurs to start new businesses, how they will work with agricultural labourors and improve their life conditions and so on. Instead what we get is empty promises which are not sustainable.

Whoever wins, the extra subsidies will be offered at best for an year. Then the conditions will become unbearable again for the poor in the subsequent years.


  1. Rice all the way

    By the second week of March, it appeared as if AIADMK was going to win by a comfortable margin, but now, at the end of April with 10 days to go for the elections, the writing is on the wall. DMK is going to come back to power and ADMK bag about 50 seats. The reasons

    1. Karthik and his forward Bloc are not going to win any seat, but will garner 3000 to 7000 votes in each consistuency and most importantly 100 % of Forward Bloc’s votes are going to come from AIADMK
    2. Vaiko’s vote bank included two groups. One Telugu speaking people and a sizeable propotion of that is going to vote for Vijayakanth now. The second group of Vaiko’s vote bank was people who voted against ADMK as well as DMK. They are now going to vote to Vijayakanth
    3. When DMK announced Rice at 2 rupees a kilo, ADMK and MDMK were ridiculing that and told that it is impossible. But after 10 days, ADMK announces that they will give 10 kilos free. This is a single factor that is responsible for the MOOD SWING Over the past 2 weeks
    4. In the end result, ADMK is going to win in the northern parts and DMK is going to have a landslide victory in the southern districts (considered a ADMK stronghold)

  2. hello badri!
    bumped into this blog of urs thru satya's blog. just a comment on the phrase "third rate chinese tv". it almost gives an impression that only third rate products are coming out of china. living in singapore, among lots of chinese friends, felt it wouldnt do justice to them to generalize this way. wouldnt it be more appropriate to leave it as just "third rate tv"? just my perspective :)

  3. Dear Balu, I am not suggesting that all chinese products are third rate. Any TV that is going to come at Rs. 2,000 will be third rate.

    However, DMK in its print advertisements is using Samsung TV (with its distinct multi-colour baloon). In the TV advertisement in Sun TV, it is using a 30+ inch colour TV, which will certainly cost Rs. 20,000+ but never anywhere mention that the actual TV that may be provided maynot be of the same size - like normal "ethical" advertisements do.

    This is one big racket!

  4. Dear Badri,

    Please include link about food coupons.

    A brief explanation would be great but a link to the article below would suffice


    in liberty,

    Anonymous Coward