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Rising subsidy burden

— FILE PHOTO

BALANCING ACT: A scene at a ration shop in Tamil Nadu.

Aside from the ‘feel good’ factor on the economic front and the renewed focus on agriculture, the focus of Prime Minister Manmohan Singh’s address to the full Planning Commission meeting on Friday seemed to be on the burden of subsidies.

Mr. Singh did not mince words when he said: “We need to address the problem of mounting subsidies on food, fertilizers and now, in petroleum, which is a recent phenomenon. Over Rs. 1 lakh crore is going to be spent this year alone on these three items. I would like my Cabinet colleagues and the Planning Commission to reflect what these mean for our development options and what development options these subsidies are shutting out. Do they mean fewer schools, fewer hospitals, fewer scholarships, slower public investment in agriculture and poorer infrastructure? It is important that we restructure subsidies so that only the really needy and the poor benefit from them and all leakages are plugged.”

The Planning Commission has estimated the outgo on subsidies at 1.17 per cent of the gross domestic product (GDP) in 2006-07, and projected a marginal drop over the five years of the XI Plan, to finish at 0.82 per cent by 2011-12. The average for the five-year Plan period has been put at 0.96 per cent. But from what the Prime Minister now says, it becomes apparent that the subsidy burden of the Centre will continue to rise, especially in view of the new dimension of subsidising petroleum products.

Planning Commission sources say that food subsidy bill has shown a steady increase not only for the Centre but also for many State governments. The States appear to be vying with one another to offer rice at further concessional prices through the Public Distribution System (PDS), or extend its coverage to include even families Above the Poverty Line (APL).

“The Centre supplies rice at a differential price structure for APL and Below Poverty Line (BPL) categories. Even there the Centre accepts a subsidy. But the States are going further to sell rice at Rs. 2 a kg. It is for BPL families in some States and to all family cardholders in others. We know of States that are footing a food subsidy burden of nearly Rs. 2,000 crore a year. This has to stop somewhere. For some years now, we have been advocating a clear targeting of subsidies, especially on the food and PDS fronts. The Planning Commission, the Central Government, and the National Development Council will have to work on building a political and national consensus on this issue. After all, we are also receiving several complaints about diversion of PDS foodgrains to the open market and smuggling to neighbouring States. We have to look at the totality of this problem and hammer out a solution,” a senior Commission official reasons.

Similarly, the fertilizer subsidy has been discussed for several years, but remains a major problem. Of course, ministers, officials, and farmers concede that this subsidy cannot be wished away if the production costs to farmers need to be contained. But the growing subsidy bill and a simultaneous increase in the Minimum Support Price (MSP) for most commodities continue to push up the market prices. It is because of these complexities that the Centre decided to focus squarely on the farm sector in the XI Plan and offer substantial assistance to States that take the initiative to step up food production and enhance the yield.

Farm scientists hope that the Planning Commission as also the governments will focus on promoting organic farming and cutting down on the use of fertilizers.

The petroleum subsidy, officials say, has become a ‘political issue’. Though the Centre decided to let the market determine the selling prices of petroleum products, keeping only liquefied petroleum gas and kerosene on the sensitive list, this has not happened.

The oil companies have been absorbing the burden of the sudden spurt in global oil prices, with a barrel almost touching the $100-level now. Prices were fixed when oil cost just over $60 a barrel.

The Centre was expected to decide last week on revising petroleum prices, but this has been put off to this week, perhaps because of the Diwali season.

Union Petroleum Minister Murali Deora hopes to work on a package of lower taxes and marginally increasing the prices to deal with the financial burden on the oil companies. Here again, diesel acquires a special significance because of its use in agricultural pumpsets and public transport systems.

V. JAYANTH

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