Cooking gas subsidy and the myth of market distortion

Have you been receiving SMS’s saying:

Dear XXXgas Consumer, to avail LPG Subsidy in your bank account, kindly submit your Aadhaar to your Distributor and to your Bank immediately

These SMS’s are being sent by Hindustan Petroleum Corporation Ltd (HPCL),  India Oil Corproation (IOC) and Bharat Petroleum Corporation Ltd (BPCL) to its consumers, in violation of the Supreme Court’s interim order that no one can insist on Aadhaar for any government schemes like ration card, bank account, cash transfer or issue of LPG subsidies.

This has been confirmed today by Oil Minister M Veerappa Moily. The unique identification card will no longer be mandatory for giving subsidies unless Supreme Court gives a clearance.

What ‘cash transfer’ essentially means is that instead of paying less at the point of purchase, the higher price must be paid, and the difference will be paid into your bank account.

The neoliberal theology against subsidies is that “Subsidies Create Market Distortions”. The unquestioned assumption we are supposed to accept here is that the market is  a natural phenomenon, like rain or snowfall, and that any state intervention will distort its finely tuned natural functioning. (And we all know how strongly capitalism and economics stands for preserving “other” natural entities like forests and rivers and mineral resources!)

A market distortion is supposed to happen when a market reaches a price for an item that is substantially different from the price that would result while operating under conditions of “perfect competition”, that is, a situation in which all participants have complete information, there are no entry or exit barriers to the market and all market participants are independent rational actors.

The fact of course is that perfect competition does not exist in the real world, because none of these conditions is normally met in any human institution.  The “rational economic actor” exists only in neoclassical text-books, and the operation of power through unequal access to resources ensures that there is neither complete information nor a barrier-free market entry. Capitalism in fact requires continuous intervention by the state in the market in order to ensure the best outcome for corporate profit.

This is how Investopedia describes market distortion through subsidies:

For example, many governments subsidize farming activities, which makes farming economically feasible for many farmers. The subsidies paid to farmers create artificially high supply levels, which will eventually lead to price declines if the goods are not subsequently purchased by the government or sold to another nation. Although this type of intervention is not economically efficient, it does help ensure that a nation will have enough food to eat.

Here’s a thought – how about re-defining “economic efficiency” – not as something opposed to people having enough to eat, but as those practices that result in everyone in a society having enough to eat?

The short argument against cash transfers instead of subsidies is that this is part of a World Bank-led global strategy to bring all the earnings of those in the informal economy into the formal economy. This essentially enables the hard-earned money of the poor to become available to unscrupulous players in capital markets (via banks) for speculation.

And that’s the purpose of Aadhar and cash transfers, not all the pious claims being made by Infosys and government.

Of course, at the moment, cash transfers on cooking gas appears to be linked to Aadhar, and so long as mandatory Aadhar is held up by the Supreme Court, gas agencies must provide gas at the subsidized price.  But clearly, a separate critique of cash transfer as a policy is also crucial. For some arguments against cash transfers, especially by the Right to Food Campaign, see these earlier articles on Kafila:

Cash Transfers and UID: Essential Demands

Dear Manmohan Singh: BPL households don’t think cash transfers will be better than the PDS

Why the Parliament should reject the standing committee’s recommendations on the Food Security Bill

Food Security Bill – MPs clueless

Aam Aadmi party learns from aam mahila

6 thoughts on “Cooking gas subsidy and the myth of market distortion”

  1. Some really amusing assertions and assumptions. First, choice of Investopedia as a source for “neoliberal” definitions. I mean, seriously? Investopedia? No wonder the definition was one that even a junior staffer at the uber free market WEF would cringe at, not to mention legit scholars like Jagdish Bhagwati.

    Anyways, the crux of the issue is even more amusing – cash transfers enable money of the “poor” become “available for unscrupulous capital market transactions, via banks”?!! Now, the disconnect between the ideological flag bearers of the elite Left and facts have progressively declined with the loss of te relevance of the Left itself, but this marks a good and new low. Maybe you can do yourself a small favour by going through the relevant RBI guidelines on capital market exposures of banks – and then figure out how “huge” they are.

    And oh yes, a bit of logic. Somehow a subsidy of “x” paid through the Consolidated Fund of India to oil companies through the banking system is somehow more kosher and “scrupulous” than the same “x” paid to individual consumers!!! Maths,anyone?

    1. Ah, the pompous silencing voice of The One Who Knows Ecomomics Not to Mention Mathematics.
      Except that you dont have to be OWKENMM to know the definition of market distortion. Anyone with Class 12 economics knows this. The reason I chose Investopedia as the source of that particular quote was precisely to demonstrate the way in which such notions circulate in the realm of common sense, naturalizing ideas that have been cooked up in Economics laboratories.
      Of course your Serious Economists would “cringe” at such definitions – that’s precisely the point again. That the WB economists’ obfuscations are meant to make us feel ashamed of saying simply – But ma, the emperor has no clothes!
      “Relevant RBI guidelines” are what you offer to claim that the earnings of the poor in the informal economy are far from “huge”? For OWKENMM you seem singularly ill-read – or perhaps it’s just the malaise of Selective Reading that affects this genus. For the information of those who care, the celebrated darling of neoliberals Hernando de Soto, terms money available in these informal economies as ‘dead capital’ – ‘dead’ precisely because it is not available to capital markets. De Soto’s empirical studies conducted in Peru, Egypt, Indonesia and other countries, lead him to conclude that the money in informal economies is larger than the capital available in their respective national stock exchanges! De Soto in fact is responsible for the WB campaign launched to bring these monies into the capital market – a campaign that has been effectively dissected by Timothy Mitchell in “The work of Economics: How a discipline makes its world” (European Journal of Sociology, Volume 46 Issue 02, August 2005). De Soto’s Institute for Liberty and Democracy has inspired similar “reforms” in many of the countries mentioned above, but also in India.
      Sigh. This is tiring, having to engage with shibboleths of the 20th century being reproduced as The Great Truth.

  2. Linking of Aadhar with LPG is a shrewd corporate strategy of capitalising on user databases. And LPG consumer base is quite huge in India. The ambitions of the Aadhar project, besides giving every person in this country an ID, is to ‘seed’ (that is the word used) Aadhar number into as many databases as possible so that it can have Google kind of master information database of us all in our different consumer guises. The more and more databases Aadhar number gets seeded into, UIDAI will accumulate, integrate and centralize information about every person in India (Aadhar is given to every person irrespective of the credentials) which it will later monetize by selling it to those who are in need of such information. Aadhar is a billion dollar google kind of idea to trap us all in the net of informational capitalism. It will not only be LPG, there will be other things in the future that will be delivered to us easily if we have an Aadhar card – all in the name of efficiency and quick delivery and what not. It is as much important to question the very project of UIDAI and its secretive ambitions as it is to question Aadhar as a mandatory ID for LPG distribution in India. Usha Ramanathan’s article on Kafila sometime ago points at these discrepancies in the UIDAI project. We need more discussions on UIDAI and Aadhar on Kafila.

  3. Under Banker’s right to lien, the amount deposited can be used to settle any outstanding amount owed by the customer (which also includes unjustified charges levied by the bank). So, the subsidy will never reach the target audience and will be used to fill the pockets of bankers! Wonder why this point has never been raised?

  4. Let this government be voted out for imposing the bank account/aadhar and related problems with bank accounts upon the people, just like the previous government was voted out. Let them never come to power again.

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