By Poorva

Edited by Anandita Malhotra, Senior Editor, The Indian Economist

What is the real aim of subsidies in India? Do they aim to reduce class inequalities, improve access to basic resources or just to gather votes? Should they be continued? If yes, then in which form?

 Subsidies are generally provided with an aim of promoting favourable economic and social outcomes.  In India, we have subsidies in various sectors, for food (PDS), electricity, fuel (Kerosene, LPG) etc. As a matter of fact, Indian government has allocated Rs. 3590.00 crores towards fuel subsidy in Annual Budget 2014-15. The real aim of subsidies in India was to re-allocate economic resources and the reduce class inequalities. Let us look at two of the subsidies: food and fuel subsidy, to analyse whether we are using our resources right.

Public Distribution System (PDS), looked over by the Food Corporation in India (FCI), involves distributing subsidised food grains. However, since its commencement, the system has drawn flak for its economic inefficiency, mistargeting, and corruption in dealings. In August 2010, in PUCL vs. Union of India, the Supreme Court found that food grains were rotting due to inadequate storage.  The grains are also alleged to be of poor quality. All this makes one thing clear that proper implementation of this policy is lacking. The government needs to spruce up the PDS. For tackling this problem, the government must keep a check on all fair price shops. The government must ensure that they open at the right time and that the grains are not diverted to the open markets. Hygienic and safe storage facilities must be ensured to prevent the food grains from rotting. Such storage facilities must be provided for in every region/state, so as to maintain uniformity of the scheme across regions, and the stock of grains must be distributed as per the region’s needs.

Looking at the fuel subsidisation policy, fuels such as kerosene, LPG are provided at subsidised prices. Currently, 12 cylinders are available to consumers at a subsidised rate of Rs 414 each (in Delhi). However, though the subsidised LPG is for households only, it is diverted towards commercial purposes and automobile fuel. Also, a large portion of the subsidy goes to those who can afford the actual price of LPG, and not to the poor. As a result the government is thinking of removing the LPG subsidy for the rich. As far as kerosene subsidy is concerned, as per a 2005 article by International Herald Tribune, as much as 39% of subsidised kerosene is stolen. Hence the needy still lack access to fuel subsidies. Apart from this, subsidised price acts as an incentive for the public to use more fuel. People assume that anything that comes cheap is abundant. In the case of exhaustible fossil fuels, it leads to fuel overuse, resulting in emission of green house gases. Hence, fossil fuel subsidy like the subsidy of kerosene and LPG come at a cost.

A major part of all pan-Indian subsidies is financed through the central budget. Huge expenditure is involved in providing subsidies. This leads to a greater fiscal deficit. On the other hand, regrettably, India spends way too less than other countries on education and health.  According to the UNESCO, India has the lowest public expenditure on higher education per student in the world.  In the light of campaigns like “Make in India” campaign, the success of which stands upon the skill development of the Indian human resource, the importance of diverting resources to human resource development cannot be overstated. Hence the resources need to be allocated in a judicious manner.

Subsidies, on the whole may be benefitting a few. However, the opportunity costs of the improper implementation are huge. The government must spruce up the implementation of food subsidy, and rationalise the fuel subsidy. Just as the price of diesel and petrol have been deregulated, LPG and Kerosene may also be deregulated, with the government intervening only if the matters go out of hand. If not so, the government can at least rework the target population, so that those who don’t need subsidies are kept out of it and those, who need it, receive it. We need to make sure that we use our resources right, and optimise our benefit.

Poorva is a first year Economics student at Lady Shri Ram College, Delhi. She keeps herself abreast of all the current affairs and holds a firm opinion about everything happening around her.  She deems all forms of expression, be it acting, painting or writing, as a gift to the mankind. She is also involved in social service through two of her college societies, Enactus and NSS. She can be contacted at :1poorva1@gmail.com

Posted by The Indian Economist | For the Curious Mind