‘Free’ public services carry hidden economic costs, says CEA Nageswaran

New Delhi: Chief Economic Advisor (CEA) V. Anantha Nageswaran on Monday cautioned against the increasing dependence on free or heavily subsidised public services, saying that pricing utilities below their actual cost weakens public finances and hampers long-term infrastructure development.

Addressing the CII Tamil Nadu Infrastructure Summit 2026, Nageswaran said offering utilities and infrastructure services at little or no cost creates economic distortions, with the burden ultimately falling on taxpayers or resulting in poorly maintained public assets.

Calling it a costly policy approach, he remarked, "Free is the most expensive word in public policy."

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The CEA said it was contradictory to invest in infrastructure while simultaneously promising services at prices below their economic cost. He noted that when essential resources such as water are provided free of charge, they are often overused and wasted because consumers tend to perceive them as unlimited.

Nageswaran also questioned the belief that underpricing public utilities effectively supports the poor. He argued that such policies often benefit households that already have access to these services, while many vulnerable families remain excluded.

He pointed out that people without access to piped water frequently end up purchasing water from private suppliers at prices far higher than regular utility tariffs.

According to Nageswaran, charging realistic prices for public services would allow governments to provide targeted assistance to those who genuinely need support while ensuring utility providers have sufficient revenue to maintain and expand infrastructure.

He stressed that every public service has a cost, whether it is borne by users through tariffs, taxpayers through subsidies, or by infrastructure itself through inadequate maintenance and neglect.

The Chief Economic Advisor also said sustainable pricing is essential to attract long-term private investment in infrastructure.

Highlighting India's economic performance, Nageswaran noted that the country has recorded 7.7 per cent GDP growth alongside a significant rise in government capital expenditure. However, he added that public investment alone cannot drive economic growth indefinitely, underscoring the need for financially sustainable infrastructure models.

With inputs from IANS