With the government successfully managing to partially lighten its burden by switching over to a nutrient-based subsidy scheme for fertilizers, the Economic Survey has now raised questions on the impact that food, fertilizer, kerosene and diesel subsidies have on poverty eradication. Instead, it has pitched for direct subsidy to the poor instead of price control, ostensibly to reduce diversion to the open market, leakage and adulteration.
“The impact of these [food, fertilizer, kerosene and diesel] subsidies, using the yardstick of poverty mitigation is questionable,” the Survey said, while pointing out that the high level of pay-outs on this count “now constitute a major fiscal burden and tend to crowd out the government’s ability to finance other vital activities in the economy that could promote productivity and eradicate poverty.”
The food subsidy for the current fiscal is estimated at about Rs. 60,000 crore while the outgo on fertilizers is pegged at about Rs. 70,000 crore. With the government’s resources already strained owing to the slew of stimulus measures put in place to combat the slowdown, the Survey’s concern falls in line with the current scenario of robust recovery which “creates scope for partial rollback” of the additional sops.
The Survey noted that it is a “mistake” to assume that a subsidy scheme has to be coupled with price control. In effect, the indication is that the government may choose to opt for a direct subsidy scheme for various commodities instead of the present dispensation as it is also reaching those who can well afford market prices. “… If we want to ensure that poor consumers are not exposed to the vagaries of the market, the best way to intervene is to help the poor ‘directly’ instead of trying to control prices,” it said.
The Survey noted that once the government gets involved in setting the price of a commodity, this “becomes a matter of politics and lobbying, which cumulatively adds to the distorting, and hence prices are best left to the market.”