Governance in India, a diminishing marginal Utility or

By: Amit Bhushan Date: 15th June 2013

Economics has a strange way of revealing itself. Its effects have to collected, collated, tabularize and analyzed and then some deductions are made basis a/some hypothesis, which again may not be always true in the first place. The chances of protagonists being imperfect or missing various other possible deductions is high since the person is analyzing data from his respective limited view only and that too for specific use. Frequently, some other analyst will reach a different conclusion with same data because his hypothesis and objectives are different. Economics and its governance/administration, therefore requires a lot of debate from people with different backgrounds so that various views are collated, debated and analyzed before a prescription is administered to the satisfaction of people. The present ruling dispensation has been undermining this fact for a long time and the result is that public has reacted to reduce their governing capacity to such a level that even to cover their nudity, they are dependent on outside support. The tell-tale signs are being ignored with the result that we have an ever increasing chaos in the face of policy paralysis, falling growth and faltering businesses. Instead of course correction to bring forth issues for public debate, the government has remain stubborn with its prescription as it continues to push its decisions with widespread ramifications with little or no debate. Its decision to obfuscate the Mining/Coal Block issue (with no attempts to come clean on the issue and filing bogus charges on corporate/former minister/bureaucrats for the sake of show rather than administering the law of the land in letter and spirits), persistence with the oil/Gas exploration incentive structure changes and determined onslaught on opposition with its Food Security Bill are some of the shining examples of how not to administer economic governance on public. The rout and complete smashing of its honest and credible face amongst public is lost on none but the ruling dispensation which is busy with identifying and revealing fascism outside without any introspection inside. Its actions reveal its conviction that governance of India in a democratic manner has a diminishing marginal utility, at least for the current regime. Lets try to analyze application of this axiom of economics to the principles supposedly dear to the current governing regime. The present regime seeks to tie government expenditure to a law and commit a significant amount of current revenues for the sake of Aam Admi so that all future regimes weather by the present ruling dispensation or otherwise remain committed to such expenditure irrespective of the expenditure priorities (and law is being pushed at the fag end of the current regime to paint a rosy preview for the poor people). Good, so far. By the way, if analysis of the government proposals are done basis the law of economics, it would reveal that some of their newly minted flagship programmes have little marginal utility for public. For the uninitiated: The law of diminishing marginal utility states that as more of the good is consumed, the additional satisfaction from another bite will eventually decline. The marginal utility is the satisfaction gained from each additional bite. As more of the good is consumed, we gain less additional

satisfaction from consuming another unit. Thus even if a good were free and you could consume as much as you wanted, there would be a limit to the amount you would consume due to the law of diminishing marginal utility. For example, lets say a thirsty man needs water to quench his thirst. The first glass of water quenches his thirst by 50points and the second had a marginal utility of 35, and third of 20 (if the thirst was 100points, then in excess of 100, the marginal utility becomes negative or so far, -5 in out example). Then the total utility from consuming 3 glasses is 95. As long as our marginal utility is positive our total utility increases although with diminishing marginal utility it increases at a decreasing rate. Beyond a certain level i.e. 100 in our example. Now lets take the governments proposed Food Security bill for analysis. The government wants to make a law that would bind every subsequent government to commit a huge proportion of revenue towards Food subsidy. The impact of inflation on food prices as well as towards revenue realization have not been considered as factors to be examined or dependencies under the law. While these will certainly have their consequences, other calamities like quake or tsunamis along with war or epidemics will be other variables for the government of the day to consider. However a case in point is that nearly half of the money is already being spent every year for the same goals already (unless the figures shared by the government is wrong although the break up food subsidy on cereals, fuels and lentils & oilseeds has never been shared and so, a like to like comparison and analysis is not possible unless the ministry reveals more data). Going by the axiom and given the fact that we have a plethora of highly targeted subsidy distribution programs like Aantodaya, Aaganwadi etc. the poorest of the destitute should not have been facing death due to hunger since he would have been covered under some program bringing in enough relief already. So the argument is that enhancement of subsidy is for whom? If however the government still feels that there are some coverage gaps, then it should examine if they are due to lack of budgets or due to leakages. It should invest its resources likewise i.e. an x for additional subsidies and rest to stop leakages in its distribution system. This is not so in the proposed law which fails to make any budgetary commitment to stop leakages even when the government is facing public censure for the same. To be fair, the government did come up with a conceptually workable idea of reforming distribution basis Unique identity but it has been unable to administer the same even in the states where it has been in power like Andhra Pradesh, Assam & North East or Rajasthan since it does not want to upset many a cozy relations, nurtured by it over the years. It has therefore rescinded to the old business of dividing the opposition for the sake of Aam Admi over its supposed commitment for Food security for which it is trying to mobilize support left, right and center and the signs of the same are ominous. Various divisive measures are deployed to bring out differences amongst leadership through differential treatment so that people are confused about their real numeric strength and make mistakes basis the perception and become target for exploitation. The divided opposition will then, try to reassemble with their secular flags and regional financial demands; administering religion, caste and creed politics amongst their supporters and target the non-secular in a competitive spirit to out-do each other. A generic failure of secular opposition to realize that their idea of secularism has little political value in eyes of people unless it is administered over a large populace to deliver its benefits is little understood by the plethora of parties practicing secular politics. This sets

the possible stage for a resurrection of the ruling dispensation anytime before or after elections or even somewhat later.