Where subsidies can make a lot of sense

The last week saw two important milestones in the history of the Indian metro. The President celebrated the completion of the first phase of the metro in Bengaluru and the Prime Minister inaugurated the metro in Kochi. In the celebratory mood that marked both events it is hardly surprising that there was little mention of the subsidies involved in the projects. The substantial subsidies may well be justified – I believe they are – but at a time when farmers are being killed for demanding the Government live up to campaign promises on support prices, the least we can do is publicly debate the case for state support for metros.

The unstated but overriding case for metros is an intangible one. The metro has become a symbol of modern urban development in India. Its demonstration of modern technology is typically extended to modern designs for its stations. There are also signs that the working of the metro involves modern practices such as employment of a large number of women in a wide range of operations, including driving the trains. And the pride in the metro is quite widespread. For a country that struggles to keep its bus stations clean, the metro stations are, so far at least, a much more hygienic experience.

The extent to which government decisions on the metro have been decided by considerations of pride is not to be underestimated. The huge investments planned for a bullet train at a time of frequent train accidents reflects a larger policy mindset where the intangible can trump the tangible. But in the case of the metro there is a more hard-nosed justification for the subsidy — the changing role of mobility in our cities.

There was a time when the relationship of the urban Indian to work was steady over the long term. It was hardly unknown for people to work with a single company throughout their careers. This led to the individual having very stable demands for transport to work. Over time there was an incentive to take steps to reduce this distance. Large companies, especially in the public sector, were usually willing to help as a shorter commute could contribute to increased efficiency. And as this distance declined so did the demand for transportation in the city as a whole.

It is now obvious that this situation no longer exists. Middle-class employees who do not change jobs are becoming increasingly uncommon in most Indian cities. In tapping the best job options available, the distance from home to work cannot be the deciding factor.

To complicate matters, in families where both husband and wife work, seeking a home close to one spouse’s place of work can involve long commutes for the other. In addition, there are other considerations, such as the children’s schools, which can make moving closer to the place of work difficult. And as the distance to work increases so does the demand for urban transportation.

Allowing individuals to do the best they can in the changing urban circumstances is clearly not the solution. It has been tried, and has failed. The reliance on personal transportation has increased congestion on our roads. Apart from the discomfort, the delays in mobility have a serious negative impact on the economic efficiency of our cities. In a competitive world the costs of this loss of efficiency can be quite high. Conversely, a city that provides greater mobility can offer a potentially more productive workforce, substantially improve its chances of attracting capital.

The fact that the high costs of the metro can be covered by even higher tangible benefits cannot, however, be taken for granted. The metro is designed primarily for the middle-class worker. Even after subsidies it remains largely out of the reach of, say, construction workers. The subsidies would only be justified if the economy of the city is built around a sufficient number of workers who can afford the metro. In cities where a vast majority of the workers cannot afford the metro, it could prove to be a white elephant.

And then there is the question of what would happen if a similar logic was extended to other areas of the economy as well. Within the transportation sector itself there could be a case for highly subsidised bus services to transport poorer workers across the city. It could contribute to increasing the efficiency of activities based on low-cost labour.

The broader arguments on subsidies as a means of efficiency could extend to other sectors as well. Should we not take into account the benefits of a healthier labour force when subsidising food? Beyond the celebration of the metro there is a need for a more significant realisation that subsidies can also be a route to efficiency.

The writer is a professor at the School of Social Science, National Institute of Advanced Studies, Bengaluru

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