Chief Economic Advisor Raghuram Rajan, on Tuesday, advocated the need to gradually bring down misdirected subsidies and limit the benefits to needy persons only.
“Subsidies are difficult to tackle because people get used to that. How do we bring down subsidy? We need to do it perhaps by small increment every time. But eventually we have to get to a point where it is targeted at poorest of poor. Everybody thinks he is ‘aam admi’. So aam admi is affected by removal of subsidy. Of course, they are affected. If you were to start removing subsidies, then should not you start by removing subsidies on richest people,” he asked while speaking at the Delhi Economic Conclave here.
The government in the budget had pegged subsidy outgo towards food, fuel and fertilizer at Rs.1.80 lakh-crore for 2012-13. The amount is estimated to go up in view of various international and domestic factors. The government, as part of the first batch of supplementary demands, has sought an additional Rs.28,500 crore to meet the increased petroleum subsidy bill. “There is a need to bring down misdirected subsidy. The issue is often raised by very vocal middle-class,” he added.
Referring to the issue of capping subsidised LPG cylinders, he said, there were about 12-13 crore connections and many of them belong to people in the upper-class. The government, Mr. Rajan said, wanted to curtail the fuel subsidy by limiting the supply of subsidised LPG to six per year per household. “We said, let us limit this subsidy to at least to those who don’t need it. It is painful to my mother, it is painful to my uncle...but truth is it is a misdirected subsidy,” he said.
On why the government is giving too much subsidy or tax incentives to corporate houses, Mr. Rajan said: “I think, broadly speaking, what we want is to broaden the base and as far as possible remove specific exemptions”. Sometimes it also becomes necessary to give a boost to the industry through interest subvention and other measures, he said.