CWG: India going the Greece’s way…?

I am not suggesting here that India will soon be in a situation where Greece is today. However, events in the recent past are not very inspiring for the long run sustainable economic growth.

The question to be answered by economists is whether the expenditure on the Commonwealth Games is the best alternative use of these resources in terms of opportunity costs. The government (in this case the Indian Olympic Association) being the monopoly bidder and organizer for such an event, does not have any mechanism or incentive to do such a cost-benefit analysis, especially when the taxpayers money is involved.

The state is also like a business establishment, but it operates through principles of coercion and not profit and loss, as any other business establishment would do. In the context of Commonwealth Games, Suresh Kalmadi and Co. are in the business of organizing a sports event, not for the sake of entertainment value or the revenues it will generate, but for the sole purpose of ‘our national prestige’ (and you better not argue with that), and most fittingly using our money. It is the one business model where the need of the customer comes last.

Markets are cruel, to say the least. They seldom give another opportunity to honest people who make mistakes in their investment decisions. Whereas the government activities through interventions, gives the chance to the people involved to make mistakes and get away with it, again and again. The 12 day fiesta starting 3rd October 2010 is one such great opportunity for the organizers involved with hosting the event to loot the taxpayer’s money. The daily headlines in the newspaper are suggestive of such a tendency.

A number of international publications in the past few months had featured stories on the connection between the hosting of the ‘Athens Olympics 2004’ and the current Greece Economic Crisis, which could be found here, here and here.

There is no obvious direct link between the Greece’s economic crisis and the hosting of 2004 Athens Olympics games. The contribution of Athens Olympics in the Greece’s economic crisis is more symbolic than anything else. It is a symbol of the frivolous and irresponsible spending on the part of the Greece government. Although the total expenditure involved in hosting the Athens Olympics was about 11 billion dollars, which is a small fraction of the total deficit facing the economy, such wasteful expenditures continued after the games when the going was good. But after the world economic crisis, Greece suffered when its wasteful expenses were revealed and the banks started to see it as a country that could not manage its finances. To cover the risk, they started raising the interest rates and the problem burgeoned.

The new airport, the new metro and other swanky infrastructure laid out just for the Athens Olympics are of little use now that the country is dragging down the world’s economy while struggling to cut its deficits and barely surviving a near bankruptcy situation. The annual cost to maintain the site has been estimated to be about 800 million dollars as of July 2008. As reported in the Daily Mail, “A staggering 21 out of 22 venues lie abandoned since an event lasting just three weeks was held, and the magnificent stadiums are now over-run with rubbish and weeds.” It’s an example and reminder for the Indian government to not indulge in such imprudent expenses any more than they already have.

In a report prepared by the India chapter of Housing and Land Rights Network and released by the former Delhi High Court Chief Justice A P Shah, India’s bid document for the Commonwealth Games in 2003 estimated the cost of hosting the event at Rs 1899 crore (10 million rupees= 1 crore). After multiple revisions the estimate now range from an official figure of about Rs 10,000 crore to independent sources at around Rs 30,000 crore. With these figures, the 2010 games are set to become the most expensive Commonwealth Games ever.

The political cost for cutting government expenditure is simply too high for it to be a consideration. And in a democracy, meeting the revenue-expenditure gap through higher taxes has dangerous implications for the incumbent. Under such circumstances, fiscal responsibility goes out of the window. Therefore the only remaining solution to such a conundrum is the printing press (monetization of the debt) which inevitably causes “inflation”. This solution is always popular since the effects are disguised, dispersed and diffused (stretched) over the long run.

Is this all worth it…? And under this background, if such unnecessary and harebrained expenses are continued, we are sure to never realize our potential as an economy and maybe follow the Greece’s path to doom, if not tomorrow then definitely sometime in future.

Moreover, “No game can, apart from the pleasure it gives to the players and to the spectators, contribute anything to the improvement of human conditions.” — Ludwig von Mises in ‘The Ultimate Foundation of Economic Science’