Dear Kejriwal, freebies further corruption, stop them first

If the Aam Aadmi party’s (AAP) objective is getting rid of corruption in the country, it should delete the word “free” from its lexicon. This word corrupts the common man. It is the root cause of corruption not only in India, globally too. Free offers render an economy and its people uncompetitive. In the long term, such an economy will decline.

[caption id=“attachment_1311669” align=“alignleft” width=“380”]  Arvind Kejriwal. AFP[/caption]

Take, for example, an oil-rich nation that depends wholly on its “free” wealth. The wealth generated from oil corrupts its people if not used constructively. The people are fed, clothed and provided for by the state but over and above that there is absolutely no involvement in providing top of the class education, which is imperative to make an economy vibrant. There will be space for a free market, despite the fact that is where innovation and entrepreneurship thrive. The result is an economy of dissatisfied population, who are unskilled in the eyes of the world. The economy is riddled with unemployment, inflation and corruption. Countries in the Middle East, Africa, South America and Eastern Europe are examples where “free” had been a corrupting influence.

India is not rich in oil, but unfortunately is part of this league because of the freebies offered. The country is clearly in danger of losing its competitiveness. In fact, the reason for the rupee’s 40 percent fall over the last two years and it hitting all-time lows in 2013 is this excessive use of freebies.

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Things that come “free” in India have a huge price attached to it. In the name of aam aadmi, politicians dole out money in the form of food, water, electricity, jobs, laptops, TVs, cooking gas and various other things. The end result is a population dependent on doles by a government that has run out of money to continue providing these freebies.

The National Rural Employment Guarantee Act (NREGA) has taken workers out of agricultural fields to liquor bars. The result is high cost of unskilled agricultural labor that is leading to food prices skyrocketing in the economy.

The corruption and wastage of resources are a part and parcel of the word “free”. The endless bureaucracy in the “free” world has led to massive corruption scams right from the NREGA payouts to distribution of food, electricity and water.

The AAP while doling out free water in Delhi should have a rider along with it to check wastage and diversion. Similarly, cheaper power should have riders of standardised meters and prevention of theft. The AAP should remove corruption by stopping all things “free”.

Government jobs are seen as a lifetime employment. Once a person enters a government workforce, he or she is guaranteed of staying there irrespective of the performance. This is the reason for poor productivity and financial performance standards of public sector units (PSUs). Freedom from work is the mantra of a majority of government employees in the country.

“Free” does not stop at the political level. In financial services, free advice, tips, guaranteed high returns, risk-free trading profits and other such free-but-not-free services loot investors of huge amount of money. Tax-free bonds, which corporates are allowed to issue in the name of infrastructure, corrupt the whole interest rate and credit curve. Tax-free issuers actually borrow at lower yields than the government, skewing the credit curve. The savings in cost by the issuers of tax-free bonds is just around 70bps to 100bps, which is hardly worth the damage it causes to the fixed income market.

Freebies never end in India. Right from free passes to just about any entertainment or event to free rides and free merchandise, the word “free” abounds. Unfortunately the cost attached to this exercise is not taken into account by both the giver and the receiver leading to heartburns all around when the true payment time arrives.

It is high time everything “free” stops in the economy for the country to become productive and competitive in the long run.

Arjun Parthasarathy is founder Investors are Idiots.com and INRBONDS.com. Follow him on twitter @arjunparthasara