Ahmedabad, 16 Dec 2011 | Gujarat Chief Minister Narendra Modi today urged the Union Government to check the water flowing ..
Aam Aadmi Party (AAP) started on a premise that current political options for Aam Aadmi are a choice between devil and deep sea and started on a promise of a refreshing new option. Has AAP lived up to that promise? Let us analyse this on four parameters which I believe are obscuring and ailing India's democracy and India's growth and development:
1) Crony-Capitalism in the garb of Populist-Socialism
2) Excessive and rampant centralization obscuring accountability
4) The way political parties and politics in India is run; family fiefdoms, no internal democracy or transparency
My biggest disappointment from AAP has been their economic vision. Grand Govt schemes, doles, direct intervention by Govt are all very easy to sell to electorates and they create an opportunity for the establishment to control everything through the politician-bureaucrat-contractor-middlemen mafia. So it is a win-win proposition for politicians, easy sell to voters and easy making money to fuel their electoral machinery. This however comes at a huge cost to the exchequer, corrupts India's moral fiber and as history of last 66 years has proven, no Govt dole scheme can ever lift the poor from poverty.
The only antidote to poverty is free-market driven growth with public spending on education, health and public infrastructure. Only this can have a sustained trickle down impact to lift every Indian out of gut wrenching poverty.
Let us see where Aam Aadmi Party stands on this. I am picking the only economic document available on AAP's official website: www.aamaadmiparty.org which is its vision document on price rise (www.aamaadmiparty.org/page/rising-prices). In this document AAP doesn't mention how it will remove some supply side constraints or through structural measures like reigning fiscal deficit or monetary policy to bring down prices, but instead it gives classic and repeatedly proven to be failed socialist measures to reign prices. Here is my point by point analysis:
a) AAP starts with its charge that Govt gives tax relief of 13 lakh crore to corporate and if instead these taxes were collected by Govt, there would be no need to tax essential goods that Aam Aadmi consumes and in fact such goods can be subsidized from overflowing revenues. There is no doubt that that the current taxation system in India is complex with high taxation and then compensating it with all kind of complex exemptions which only helps CAs & tax consultants and leads to litigation. This is proposed to be replaced by the new tax codes (e.g. the new Direct Tax code proposed to replace Indian Income Tax Act, 1961) proposing to bring down tax rates and do away with most exemptions. But make no mistakes, taking away exemptions and decreasing the tax rates is not going to increase the tax revenues (by 13 lakh crores). And some of the exemptions are fairly essential in nature:
i) Exemptions for export oriented units; No country in the world taxes its exports, in fact many give indirect subsidies against the rules of WTO. Indian exports are already noncompetitive because of lack of Infrastructure, high cost of credit and indirect subsidies in other countries. In that context, does AAP wants exports to be taxed and India to become further noncompetitive? This when it draws much of its support from middle class employed in export oriented IT Industry! And how would this impact the current account deficit which is already suffering from huge gap between exports and imports?
Also note that while these EoUs themselves may not be paying any taxes in extreme cases, but employees in these units still pay income tax contributing revenue to the exchequer.
ii) Import duty exemption for items meant to be re-exported. Same argument as above.
iii) Exemptions for setting up industries in special status states like Uttarakhand, North Eastern States. Is AAP against these?
iv) Exemptions in personal income tax, like 80C, Housing loan; These exemptions benefit the middle class the most and helps increasing the saving rate in India and giving a boost to housing construction industry. If you calculate how this saving rate and jobs in construction industry helps the economy, the foregone revue is well worth it. Anyway, DTC proposes to do away with many of these exemptions and lower tax rates and that should be welcomed. But as pointed out earlier, the so called foregone revenue would still be foregone.
v) Increasing investment in plant and machinery (accelerated depreciation); Now come on, this is not really a foregone revenue, any accountant will tell you that this is just accelerating booking an expense already made. So the "foregone" tax would have anyway be "foregone" in later years if accelerated depreciation wasn't allowed.
vi) Duty concessions for mass consumption goods like medicine, toothpowder, candles, kerosene, etc and these directly benefit the Aam Aadmi.
Bleeding-heart Kejriwal's prognosis and I quote "Tax relief for the wealthy and sucking the common man’s blood" and his solution of taking it from the rich and giving it to the poor falls flat as destroyed above!
b) AAP proposes that Petrol and Diesel must not be taxed and in fact if consumers desire, must be subidised
Firstly, why should states not tax an overused and depleting fossil fuel like oil? Would cheap petrol and diesel not lead to rise in use of personal transport as against public transport? Second, Kejriwal shows ignorance of currently skewed distribution of taxes between Center and States. When Union squats over almost all revenues, such taxes are one of a few and important sources of revenue left with states and States could cripple if denied. Unless distribution of revenue between Center and States changes in favor of States (which AAP has not shown any understanding of) it is unfair to ask States to forego this revenue.
Instead of making Petrol and Diesel cheaper and tax free, we should demand public transport to be strengthened, including rail freight transport, which has been left totally obscured by populist measures by successive Rail Minsters. I have never seen AAP making noise against freight rates hike by railways to cross-subsidize passenger traffic but ends up pushing freight traffic to trucks, fueling inflation, burning precious diesel and polluting our air.
c) Next AAP alleges the following in its document and I quote:
India has given oil fields in Rajasthan to foreign companies at very low prices. These companies extract oil at $3/barrel and in turn sell it to the government at $100/barrel. Why doesn't the government extract that oil itself directly? What is the justification of conferring windfall gains on foreign companies? If these wells are taken back from the foreign companies and provide its benefit directly to the people, oil and gas prices can be reduced even more.
Can you take a political party as a refreshingly new option if it uses same kind blatant lies to make its points that left does and which threatens to "take back wells from foreign company" which has invested billions of dollars in a legal and transparent process?
Let me pick on the lies first:
i) India DID NOT gave away any oil fields to any company, foreign or domestic, India awarded acreage for exploration under a very transparent and path breaking New Exploration Licensing Policy(NELP). AAP suggests as if Govt found an oil well in Rajasthan and gave it to Cairn to milk it! Every company competed internationally including with our PSUs like ONGC, Oil India etc. and took a calculated risk in taking up exploration. There was no certainty of a find in any of the blocks. And in fact before NELP, it seems ONGC did explore Rajasthan and found nothing and we should be thankful that forign investors brought in technology and are saving import dollors and contributing to Govt revenues by petro profits, royalty and taxes. On top of it state own ONGC gets 30% of the find for nothing. Bad deal?
And what does AAP mean fields were given cheap? What does it think is a fair price? Is it alleging that the process was not transparent? It is to be noted that there has been no allegation whatsoever by any party on NELP award to Cairn not being transparent. So AAP's unsubstantiated claim is sensational and malafide.
iii) AAP then says these companies extract oil at $3/barrel and in turn sell it to the government at $100/barrel. Really AAP? This is such a blatant lie that it doesn't even merits a response. Why is AAP fooling gullible people? Or is that AAP indeed so challenged that it thinks that an oil well is literally a well in which you put a bucket and take out oil! Here are the last reported financial results:www.livemint.com/Companies/fZRdkedZ9ROdQhvRQwtZiK/Cairn-India-to-invest-3-billion-in-next-three-years.html Note that Cairn paid Govt profit petroleum of Rs.1,054 crore and the royalty of Rs.873 crore and made a net profit of Rs.3,127 crore on gross revenue of Rs.5,990 crore. From the net profit of course there would be 35% corporate tax to be paid. Windfall Profit? By what standards? And does AAP even understand the concept of risk premium? I am tempted to use a dialogue from GoW; तुमसे ना पायेगा...!
AAP then goes on to suggest the solution, that is for Govt to do the extraction itself and take back everything from Foreign companies. Govt was trying to do this on its own for years and before NELP, ONGC, OIL etc. could explore only 15% of acreage. Does AAP wants to take us back to the heady days of Govt monopoly? And if ever, as suggested by AAP, Govt takes back the fields from Cairn, not only will India be dragged to international arbitration, but also bid goodbye to any foreign investment coming into India. Do AAP supporters know that Kejriwal wants us to be taken back to pre-1991 days of zilch investment, no growth, high inflation and so on?
d) AAP then goes on to make similar unsubstantiated charges against privatization of power distribution in Delhi. This in spite of power being cheaper in Delhi than many states that are still supplied by state owned agencies and the supply being far reliable than Delhi's DESU days and as compared to neighboring states in northern India.
Interestingly AAP says and I quote "Electricity rates can be reduced drastically. Rates of electricity need to be reduced in other parts of India as well where electricity has been privatized.".So implicitly AAP is saying it has no problem with state owned agencies charging high on an erratic supply. If this is not sweepingly anti-privatization stance then what is? So in a Ghaziabad (this is where Kejriwal actually lives and not in Delhi) power consumer has to pay not only higher rates for Power than in Delhi but also has to spend additional Rs. 3000/month on backup power supply, but that's fine because AAP has no charge against state owned agencies. In fact AAP wants to take Delhi too to the DESU days. How many Delhites are ready for that?
e) AAP proposes a system will be put in place by which, people’s consent would be necessary for pricing of critical commodities like petrol, diesel, gas, electricity and water. So this is what AAP's swaraj is? Consumer must be empowered by choice, by competition, by assurance of fair trade practices and by protection of consumer rights, not by giving him/her a veto. I mean, given a say, I and every consumer I am sure would ask all of these for free! Clearly, AAP is against the principle of free-markets discovering the fair price and instead wants to turn us to a mobocracy or anarchy. When Govts world over are talking of green taxes, AAP is proposing to make petrol available at Rs. 50/litre or may be less if consumer ask for it. Progressive?
f) Finally, AAP says that speculation in commodities future market is leading to price rise. Forward markets provide price indication to farmers and influence crop patterns to respond to those signals and prevent any short term demand supply gaps leading to price fluctuations. Further it provides price insurance to farmers by being able to enter in a forward contract and therefore being assured of a future price. There is no past evidence of forward markets leading to sustained price rise and blaming it for such fluctuation is like shooting the messenger. It is regressive for AAP to oppose forward markets.
In summary AAP's economic vision is to oppose privatization, get Govt into Oil extraction (and everything else), increase effective taxes by taking away exemptions (including ones enjoyed by middle class) and increase subsidy on fuel and electricity. AAP says it is solution oriented and not right or left but read their vision document, every single statement, every proposal, every prognosis in it is socialistic and regressive and if implemented will take us back to pre-1991 days. AAP's vision of big Govt also leaves its anti-corruption promise hollow!
Post 1991, among the mainstream parties, there has been an unwritten informal consensus on economic reforms and no Govt has reversed them, for example UPA continued with NDA's NELP in toto. While we are complaining that UPA mismanaged the economy by not pushing next generation reforms forward, AAP may in fact take us back to dark socialist days.
2) On decentralization, AAP has made some right noises on Swaraj but if it means economic decisions like prices being decided on street, such decentralization may lead to more problems than it solves. Thanks, but no thanks!
3) On fake-symbolic-secularism, there have been indications that AAP leadership doesn't mind indulging in same kind of fake-symbolic-secularism behind which most of the non-performing political parties hide to polarize minorities votes. Again a disappointment but still early days and may be this is not what it seems.
4) On how parties are being run is the only area where AAP is showing the way with assurance of participative and transparent intra-party democracy. I hope other parties in grip of high command coterie and the shady culture of consensus (which in practice means fixers and deal makers getting things done) emulate these practices. AAP's methods of candidate selection in Delhi elections are also path breaking.
In the end I would say only hope for #AAP is that its internal democracy will throw up some real leaders and will unseat these leftists in wonderland currently defining its vision and running it.
Author : Prakash Sharma | Follow twitter.com/Prakash_Sharma
ProFreedom, Centrist, liberal, Atheist. IITD, DCE Alumni
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