Economics Journal: Indian Grand Prix Vs. Encephalitis?

[Harpreet Singh Guller]

Economics Journal: Indian Grand Prix Vs. Encephalitis?

Greater Noida, Oct. 30.
In the lead up to last year’s Commonwealth Games in Delhi, many
commentators wondered if India’s priorities were misplaced. Why host a
major sporting event when, by whichever poverty measure you use, a
staggering number of the country’s population continues to live in
poverty, children go hungry and people die of preventable diseases.
Shouldn’t the national budget be directed to worthier causes, such as
providing better schools, hospitals, housing and infrastructure,
instead of pouring money into stadiums, synthetic tracks, fancy
courts, and the like?

Almost exactly a year later, similar questions were asked ahead of the
Formula One Grand Prix, which was recently held in Noida, to the east
of Delhi in Uttar Pradesh state. Unlike most sports, such as football
or cricket, F1 is considered to be a “rich man’s” game. The cheapest
ticket for the Indian Grand Prix was 2,500 rupees ($50). This in a
country where the official poverty line is 32 rupees a day in urban
areas and 26 rupees a day in rural areas, according to a new poverty
line proposed by the Planning Commission.

It should be added, and this is important, that India’s F1 debut was
an entirely private sector undertaking by the Jaypee group, a large
Indian conglomerate.

Reaction by left-leaning commentators in the Indian media was
scathing.

One tweet by prominent Indian news anchor Sagarika Ghose went like
this:

“Formula One great lifestyle statement, but somehow sharp contrast
with encephalitis deaths, crumbling infrastructure. Do we really need
F1?”

Rajdeep Sardesai, another prominent news personality, tweeted:

“Will corporate India which celebrates F1 show same passion for rural
health care? Too much to ask?”

Perhaps I’m being naïve here, but what does F1 have to do with the
deaths of 488 people from encephalitis in eastern Uttar Pradesh? And
should the private sector show the same passion for rural healthcare
as it does for their profit-making activities?

First off, these tweets, and other comments in the same vein, suggest
a lack of understanding of the important distinction between public
and private spending. How would you feel if someone walked into your
home and told you that you shouldn’t have bought that piece of art, or
that pair of shoes, but rather devoted your money to fighting
encephalitis? That is basically what those who suggest that resources
spent on F1 should have been channeled to healthcare are saying.

The Commonwealth Games was a public sector undertaking and made use of
public money. So the question of whether public money should have
been spent on a sporting event when we have more pressing needs in the
country is a valid one. The allocation of public money to a project is
what economists call a “zero-sum game,” as government resources are
fixed and finite. In other words, a rupee spent on the Games is a
rupee not spent on public health. It is legitimate for taxpayers to
ask whether this is a good use of limited resources.

But when it comes to private money, the question is different. In a
market economy, how people spend their money is, presumably, their own
affair. Should the public have a say in how it’s spent?

Most economists of a liberal, or libertarian bent, would say no.
Individuals and corporations pay taxes, and that represents their
contribution to the public purse. Any money they spend beyond that
they do under their own free will. Neither the government nor anyone
else should have a say, assuming it was legitimate.

The one issue that remains is how the land for the F1 track was
acquired.

That land has been part of a wider farmers’ agitation over the land
acquisition process in Uttar Pradesh, which in turn is governed by an
archaic law dating back to colonial times. A new land acquisition bill
pending ratification in Parliament will update the current legal
framework.

In the case of the F1 track and the associated sports facility, the
farmers’ contention is that the state government acquired 2,500 acres
of land at prices as low as 450 rupees to 850 rupees per square meter,
which was later sold to private developers at 4,500 rupees to 5,500
rupees per square meter. Developers like Jaypee Group are now selling
the same land at 18,000 rupees to 20,000 rupees per square meter.

At each stage, more “surplus,” in economic jargon, is extracted,
representing the difference between a low buying price and a high
selling price. The farmers feel short-changed, with many already
having spent their compensation money on conspicuous consumption.

There are legitimate questions about the land acquisition process in
Uttar Pradesh, but it should be noted that these are analytically
distinct from whether an F1 track should be built or not. Still, under
the current system, the government and subsequent private developers
seem to extract much of the gain.

Even so, the farmers sold the land and perhaps are now experiencing
what economists would call “seller’s regret.” This occurs when you
sell something for less than you subsequently feel it is worth. That’s
unfortunate, but it’s not a rational basis for questioning the
legitimacy of the F1 track.

But it would be reasonable to suggest that the generous revenues the
state government has earned through the land acquisition process are
deployed to socially productive ends. That way Uttar Pradesh can have
its F1 track and fight encephalitis at the same time.

http://blogs.wsj.com/indiarealtime/2011/11/07/economics-journal-indian-grand-prix-vs-encephalitis/?mod=google_news_blog