First published on 17.03.2012
A lot of importance is attached to the Union Budget. In a way, it is good because, this way, lazy people like me update themselves with the reigning perspective of the government towards development; however, otherwise, it is supposed to be just an accounts statement. For development, of course, the revenues ought to be generated and accounted for in the budget estimates; however, as a common man, the first thing which interests me is my tax outgo, and, then, the benefits accruing to me, especially the ones originating from the elite — the Vodafone Case and the linked issue of retrospective changes in the tax laws doesn’t interest me much. I have not read the Budget Speech yet, but, from whatever I have read in the news reports, it seems the tax burden on the middle class has been reduced. However, I am apprehensive about the prospective management of subsidies esp. the food subsidies.
Let’s us first check the present matrix of subsidies. In the non-plan expenditure for the next fiscal year (Re: Non- plan expenditure by broad categories), the maximum subsidy would be towards food subsidy amounting ₹ 75,000 crores, the next would be the fertilizer subsidy amounting to ₹ 60,974 crores, the petroleum subsidy would be ₹ 43,580 crores, and the total subsidies would be ₹ 190,015 crores (however, as per the media reports, the total oil subsidies are expected to be ₹ 137,000 crores; so, if the FM keeps his promise of paying cash compensations, not oil bonds, to the OMCs, the oil subsidies would be much higher, and so would be the total subsidies).
Out of three the kinds of subsidies, the oil subsidies are despised the most by the business; the total oil subsidies of ₹ 137,000 crores are indeed very high. The LPG subsidy mostly benefits the upper and the lower middle class, the kerosene subsidy benefits the poor, and the diesel subsidy benefits the entire public by checking inflation. As far as the gasoline subsidy is concerned, it has been removed. The next targets are the LPG subsidy and the diesel subsidies; the kerosene subsidy, I think, can’t be tempered with. The government seems to be working on creating an infrastructure for the cash transfers of the subsidies instead of the transfers in kind. Well, as far as the LPG subsidy is concerned, it can be achieved but only if the government assures introduction of services to each and every desiring member of the public; that is, there shouldn’t be any queues for obtaining gas connections, and the connections should be installed free of cost; this is important to check black marketing, and, in its absence, the poor suffer the most, who mostly end up buying the LPG in black markets as they can’t afford and/or manage the legal LPG connections. But, I think, even then, it might not work because the domestic gas, which is subsidized, is diverted exorbitantly to commercial use, and that can’t be stopped by cash transfers. Also, the poor may not have enough money to buy LPG cylinders in advance of the cash transfers, thus there has to be some mechanism of advance cash transfers. The diesel subsidy is very difficult to manage, especially the one used by those rich people who use diesel cars and the like; this subsidy is completely unexplainable and can be controlled only if diesel cars and the like are banned, and the conversion of petrol engines to diesel engines be made a punishable offense. If adulteration is ignored for the time being, I think, the rest of the diesel subsidy is desirable.
As far as the fertilizer subsidies are concerned, I have not applied my mind independently, but a research paper of IIM Ahmedabad justifies fertilizer subsidies and criticizes direct transfers (Re: http://www.iimahd.ernet.in/publications/data/2009-07-01Sharma.pdf). I think there is not much scope for fiddling with the fertilizer subsidies
However, the opportunity missed is the food subsidy. The budget document has provided for ₹ 75,000 crores of food subsidy, and the FM has promised to provide for the complete food subsidy. But, there was no need for it. Hunger is a physiological need, and the state has to satisfy this need of the people, else it has no right to exist. All other expenditures, including the defence expenditure, should be subordinated to the satisfaction of this need. This need can’t be satisfied by providing subsidies; a proactive approach is a must. It should be a separate non-plan expenditure head and should be budgeted for an expenditure atleast equal to that of the defence expenditure; rather, I would say health, education, etc., should also be introduced as non-plan expenditure heads gradually. An organizational set up as big as that of the Indian Railways or the Indian Army needs to be set up to satisfy the hunger need of the people. This setup should ensure unlimited supply of free, packed, cooked food to anybody who demands it as many times he wishes: Nobody needs to work for satisfying hunger. The set up might marginally increase the food wastage (or may be not), but, at the same time, will ensure a Hunger Free India. Provision for food subsidies is an opportunity missed indeed.
Comment dt. 24.06.2012
Today, after watching Satya Mev Jayate, I got a different perspective on fertilizer subsidy. Now I think the fertilizer subsidy should be removed; the problem is not that of poor economics, but of plain simple lack of common sense. By subsidizing fertilizers, we are subsidizing ill-health.
©2012 Ankur Mutreja