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CROSS OF SUBSIDY

Economic reforms in West Bengal took a leap forward on Monday when the independent commission that decides on power tariff announced that all consumers are equal. The implication of this is obvious: cross subsidies are to come to an end. It is important to distinguish between subsidies and cross subsidies. Subsidies can be given transparently to the underprivileged in society. Such subsidies, when and if they are required, should come directly from the state exchequer. Cross subsidy is a different kettle of fish and it has dominated Indian economic policymaking even though it has no economic logic to support it. It is based on a peculiar notion of redistribution. Following this, the price of a commodity like power is hiked up for certain types of consumers so that other consumers can buy the same commodity at a lower price. The wealthy, by paying more for power, are supposed to subsidize the cost of power for the poor. In practical terms, this comes to mean that commercial and industrial units, because they consume more power, pay a higher price for it. While individual and domestic consumers, because they are at the lower end of the consumption scale, pay a lower tariff. Thus, those consumers involved in production, and thereby providing a service to the economy and society, pay a higher price. This has a cascading effect on the cost of production and on prices. There is no rationale behind the assumption that higher amount of power consumed should entail a higher tariff for power. Yet the entire notion of cross subsidy is based on such a premise.

It is obvious that this decision will not please the Left Front government since it will be unpopular with the common people who will exert pressure to overturn the decision. This may prove to be difficult after the recent pronouncement of the Supreme Court that it will not interfere in the fixing of power tariff. What the people of West Bengal as well as the Left Front government should realize is that after a very very long time, West Bengal has become the pace setter in at least one particular realm. It is the first state to end cross subsidy in power. Other states will follow suit soon enough. The government should accept this recommendation and prove to itself and others that it is sincere about economic reforms and development. Populism has been the bane of the Indian economy. West Bengal, because it has been afflicted by leftist myopia for over three decades, has been particularly badly hit. It is now up to Mr Buddhadeb Bhattacharjee to show that he means what he says. Taking tough decisions is what leadership is all about. His attitude to power will show power.

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