Wednesday, December 14, 2011

Subsidies are injurious to health

Contrary to popular opinion, subsidies do more harm than good.

This is even more true in a country like India where corruption is commonplace and inefficiency is a major problem in the government. Our government gives subsidies for all the wrong reasons. These subsidies do everything other than helping the target group. I should make it clear that by subsidies I don't mean just monetary let offs. I also mean 'welfare' schemes of the government. Giving free housing, loan waivers, subsidized electricity and reservations in educational institutes is all a part of subsidies. 

The government is so busy trying to redistribute income that it has almost forgotten about generating income in the first place. 

Take NREGA for example. It is called a 'You dig, I fill' scheme. The government pays people to dig up an area and then pays a few other people to fill it up. This is their way of giving away money while showing that they are working towards improving rural infrastructure. 

The problem is, this is all manual labour. They don't teach skills. Workers who get 100 days of employment are still sitting idle for the rest of the 200 days. There is no improvement in their ability. These people get jobs because they are entitled to a job and not because they deserve a job. 

The point being, if government gave training instead of subsidies, it would be much more useful to these people. We all know that its better to teach a man fishing than giving him a fish. Leave the creating jobs part to the private sector. If the government can make the unemployed people employable then that will be a big feat in itself. 

The world thinks that India has cheap labour. You can get people to do household chores and stuff for a fraction of a price that you have had to pay in foreign countries. This is infact a myth. Our labour class is almost as expensive as any other country. It's just that we pay for it in two ways. First, we pay them their salary which is direct income for them and then we pay taxes which are used to literally give away money to these people. So in the end, government is just a middleman. A middleman who has a huge opportunity to be corrupt and who has used this opportunity to its full extent. The problem is not expensive labour. The problem is that, due to this government interference, citizens have to pay more taxes but the money doesn't reach the labour class. Hence, both sides are unhappy and this leads to a problem of high taxes and poverty at the same time. 

So why not remove subsidies all together?

Let the citizens pay a high price for labour but reduce their tax burden. This way, the labour class can lead a better life and money can be effectively utilised. Ofcourse, corruption goes down as well. It's a win win situation. 

Unfortunately, the corrupt government workers are the only ones that don't win. Politians won't be able to use it as a 'vote gathering' activity. People responsible for distributing these subsidies won't be able to get their share. 

So, the next time you hear about a subsidy being dolled out, remember the fact that its your money they are giving away. You are going to pay for it in one way or another. Don't vote for the guy who gave the maximum number of subsidies. Vote for the guy who makes subsidies redundant. 


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