The Limits of Populism

I am astonished that the Indian press has paid so little heed to the remarkable events in Andhra Pradesh. Two years ago, the Telegu Desam Party (TDP) swept into power on a platform promising rice at Rs 2 per kilo, prohibition, and further subsidies for rural power and water.

Left intellectuals claimed (with no evidence, as usual) that this was a case against Mr Narasimha Rao hard-hearted liberalisation. Now, in that election Mr Rao also went populist, offering free rice to families with school-going children. How this amounted to hard-heartedness the critics never explained. They simply declared, delirious with delight, that the TDP victory would usher in a brave new world where subsidies for the poor would solve poverty.

The farcical nature of this claim became evident last week when the same TDP reversed course. The price of rice for the poor went up from Rs 2 to Rs 3.50 per kilo, the very price at which the bad old Congress regime of Vijaybhaskara Reddy used to sell rice. The tariff for rural power was raised fivefold, from Rs 50 to Rs 250 for the smallest pump-sets. A water cess was levied on paddy farmers.

Inshort, TDP admitted what any simple person should know-that there are limits to populism, and you cannot eradicate poverty through ever-expanding subsidies. It is certainly correct for any government to provide some subsidies for deserving sections, but beyond a point a welfare spree empties the treasury and leaves no money for essential development, which alone can reduce poverty sustainably. Andhra Pradesh was barely able to even pay staff wages. Had it continued this way, it would have become not a Mecca of socialism, but a second Bihar.

You might think that Congress Party would say, “I told you so.’ On the contrary, it had the gall to call for bandh against the ‘antii- people’ policies of TDP, ignoring the fact that it did exactly the same thing when in power. This proves once again that competitive party politics in India will tend to drive all governments to the brink of insolvency. There is universal agreement between our political parties that, at election time, they must compete in offering rival packages of subsidies and concessions guaranteed to bankrupt the exchequer. Don’t blame us, say the parties, blame the voters, who get more enthused by promises of bankruptcy than of solvency.

Many people, including me, have pointed out repeatedly that if only subsidies are limited to the poor, it is feasible to provide them significant relief. But not many are willing to agree with me that a democratic society like ours is most unlikely to target the bottom 30 per cent for the simple reason that the upper 70 per cent also want subsidies, and command twice as many votes. Andhra Pradesh provides a classic vindication of my thesis.

In theory, cheap rice in Andhra Pradesh is restricted to poor people, who are given white ration cards. The non-poor are supposed to have pink ration cards, entitling them to rice with a lesser subsidy. Now, roughly one-third of the state’s population is below the poverty line (say 22 million out of the total 70 million). At an average of five persons per family, this means the state has a little over 4 million families. So the state should have issued around 4 million white ration cards.

In fact, it has issued no less than 11.2 million. Meanwhile, the number of pink ration cards (representing those admitting to be non-poor) is a pathetic derisory 0.2 million. This shows what a hoax it is to believe that cheap rice goes to the poor. The gullible Left might have expected TDP to weed out bogus white ration cards. On the contrary, the issue of such cards has risen stridently under TDP, and often its workers have been allowed to distribute such cards as a patronage network.

In theory, the bogus cards can still be weeded out. In practice, says Mr Chandrababu Naidu, it is politically impossible to do so. His Congress rivals agree. All people in the state believe they are entitled to cheap rice, and will revolt if denied access. You can introduce purple cards or yellow cards or anything else to try and limit cheap rice to the poor, but the non-poor will demand and get these too. This is not simply because of the dishonesty of politicians. It is also because the non- poor have more votes than the poor, and so carry clout in a democracy.

This drives home a second lesson—do not place too much faith on subsidies to alleviate poverty, since the bulk of these will invariably be diverted to non- poor, even if the administration is honest.

Despite the Congress call for a bandh, first reports suggest that the TDP package has not created a major wave of resentment, that most people grudgingly accept it as realism succeeding utopianism. NTR first introduced rice at Rs 2 per kilo when the market price was Rs 4. Now that the open market price has doubled, many people acknowledge that even cheap rice should cost more. I find it mind-blowing that given the choice between abolishing prohibition and raising the price of rice, TDP chose the latter. I could not have imagined earlier that politicians would regard prohibition as a greater vote-catcher than cheap rice. Cynics say TDP simply wants to extract more money out of liquor barons before relaxing prohibition. But even if it permits western-style liquor in due course, it seems certain to retain the ban on arrack consumed by the rural poor. Many reports say that despite widespread bootlegging, prohibition has reduced rural drinking sufficiently to be a vote-winner among rural women, and that they would rather give up cheap rice than imperfectly-implemented prohibition.

If this is so-and only time can confirm it—it is a remarkable refutation of the conventional wisdom, that the poor prize cheap food above all else. It means the poor themselves have cast a vote against unending subsidies; that they appreciate there is a limit to what subsidies can achieve, and would rather get on with other sorts of reform. Such realisation has yet to dawn on supposed intellectuals.

What do you think?