The government earns revenue through taxing its general population, which it then applies according to its electoral promises, citizen expectations, and prevalent political-economy. Thus, if it plans to subsidize or pay for a commodity, there is no net removal or reduction of cost. It is just re-routing what otherwise would have been spent by individuals themselves. Such subsidization is generally required where the incentive for market players is limited or there is an overriding social need that requires government intervention. Even then, the intervention should be carefully conceived because government disruptions in supply-demand equilibrium often result in unintended consequences. For example, the excessive urea subsidy has lead to indiscriminate use, degrading the soil quality and the subsidized urea is often smuggled to the market of the neighboring country. There is also a hidden cost involved in such government interventions, as in the case of urea, studies show that for every rupee spent on fertilizer subsidies only 88 paise are added to agri-GDP as against construction of roads which add Rs 1.10 and agricultural Research which adds Rs. 11.2. So, the money utilized in subsidizing fertilizer translates into money being deprived of from the construction of roads and agricultural research, resulting in overall lower growth.
Against this backdrop, the government of Delhi has announced its intention to make public transportation, in terms of bus and metro rides, free for women. This is likely to rake up an expenditure estimate of Rs. 1600 crore additionally every year. The announcement is couched with good intentions, where cheaper transportation will result in an increased sense of safety among women, encouraging them to travel as per their wishes. It is based on the presumption that safety provided by public transportation is absent in other forms of transportation, making it necessary to make it preferred mode of transportation by making it free.
Taking this presumption to be true, the government is keen to raise the Rs. 1600 crore expenditure to fund the free transportation. There are three ways how government can raise money, first, by taxing its citizens, second, by borrowing from central government or financial institutions, third, by re-adjusting budget through a reduction of funding to other sources and applying it to the target. If the Delhi government chooses the first path, say by raising the fares for the male counterpart, the overall cost per household remains the same. The average benefit will be limited to households where the female to male ratio is more than 1. Otherwise, the cost-benefit availed by the female of the household gets nullified by the cross-subsidy tax paid by the male counterparts of the household. If the Delhi Government chooses the second path, which is by raising loans, it not only has to pay the principal amount but also an interest on a calculated rate. Ultimately, however, it will have to repay the loan in the long run, the burden of which comes down on Delhi Taxpayers. Thus, as stated above, there is no net gain, how the government chooses to tax its citizens will ultimately decide if the rich are subsidizing the poor, or the advantageous group (men) are subsidizing the deprived group (here women). For example, if the government raises tax on petrol and diesel it gains from the group that owns the vehicles, presumably richer, but in terms of gender group, females who drive any vehicle including a two-wheeler, will also providing be for this subsidy. Thus, the group which the government seeks to give the benefits is also paying for the benefit. In addition to that, it discourages the use of the private vehicle (arguably the safest mode of transportation) by making it expensive in terms of fuel cost and in the long run prompting more women to give their private vehicle and take public transport.
Lastly, if the government chooses to divert funds from other expenditures for this, it seeks to lower the overall quality of public life. For example, free ride in metro means its probable over-crowding and over-usage as it provides a more comfortable experience than buses, depleting its overall quality. Further, the funds used for providing the subsidy can otherwise to be used for say increasing the number of buses, providing better connectivity, extending metro infrastructure or hiring more security personnel making it safer. Since the primary intention behind the move was safety, in the longer run, the budgetary cuts have a possibility of lower overall safety as the government is not spending upon say providing CCTVs, putting up street lights, increasing the infrastructure to provide connectivity where it does not exists so far. Our polity also has a notorious reputation of not being able to roll-back handouts once they are provided for, this move could possibly stay for the terms to come, limiting the space for future governments to put the money to better use.
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