CEA Nageswaran warns 'free' public services come at heavy cost for economy

"Free is the most expensive word in public policy," Chief Economic Advisor (CEA) V Anantha Nageswaran said on Monday, warning that building infrastructure on the promise of below-cost services is a contradiction that ultimately ruins economic balance sheets.

Addressing the CII Tamil Nadu Infrastructure Summit 2026 here, Nageswaran said the prevailing political orthodoxies surrounding utility pricing, urban development, and infrastructure financing exact a heavy toll.

The CEA pointed out that pricing vital utilities like water at zero leads society to treat them as limitless, invariably resulting in waste and destruction.

"The thing we call free is the thing we destroy. This is not a paradox, it is a policy choice and it can be chosen differently," he noted.

He systematically debunked the notion that such underpricing acts as a social safety net. Instead, Nageswaran argued that free water effectively subsidises "comfortable" households that already possess piped connections. Meanwhile, the genuinely vulnerable, who often lack such connections, are forced to purchase water from private tankers at several times the standard rate.

Honest pricing, he suggested, would allow the government to protect the vulnerable directly while utilities earn enough to expand coverage to the unconnected.

The illusion of "free" infrastructure always has a hidden cost, he explained.

"Someone always will end up paying," the CEA said, outlining that there are only three true outcomes: the user pays a fair charge, the taxpayer bears the burden, or the asset itself pays the price through slow decay and a lack of maintenance.

This failure to accurately price services directly hampers India's ability to attract long-term investment, Nageswaran noted.

Dismissing standard government appeals to "patriotism" or requests for investors to be patient, he stated bluntly that capital is "not sentimental". "Patient capital" only arrives when the underlying asset is sound and yields a dependable return over 20 to 30 years -- a reality entirely dependent on users paying a fair economic charge.

The CEA also extended his critique of costly policy choices to urban planning, specifically targeting artificially low Floor Space Index (FSI) limits. By restricting vertical growth, cities are forced into horizontal sprawl, making land scarce and expensive.

"This inevitably drives developers to build on the cheapest available plots, often historical tanks, filled-in ponds, and critical catchments. By trading natural water storage for floor space, cities guarantee severe flooding during the monsoons and debilitating droughts when the rains fail," Nageswaran said.

Recalling Chennai's severe water crisis in 2019, when the city's reservoirs virtually ran dry on June 19, the CEA noted that running a major metropolis "to the edge of emptiness" served as a critical lesson that policymakers must not forget.

While celebrating India's current economic resilience -- highlighted by 7.7 per cent growth and a four-fold increase in Union capital expenditure to over Rs 12 lakh crore -- Nageswaran warned that the public purse cannot "bat all day".

"For India's economic momentum to become a lasting inheritance, the nation must embrace the discipline to honour contracts, build to last, and price utilities with honesty and courage," Nageswaran said.