Subsidy is no charity

Dr Ashwani Mahajan
The budget of 2013-14 is before the parliament. While presenting the budget of the last year, the then Finance Minister had said that the Government can not afford subsidy bill, which has reached almost 3 per cent of GDP, thus, it needs to be brought down to 2 per cent. Despite all efforts in the year 2012-13, Government could barely keep the same at 2.7 per cent of GDP. It is notable that the Government has been making provision for various subsidies in order to provide inexpensive foodgrains and petroleum products such as petrol, diesel, kerosene and LPG cylinder to common people and inexpensive fertizers to farmers. For the last few years, these subsidies have been increasing fast continually. In 2002-03, the central Government gave subsidy of Rs. 43, 533 crores which reached to Rs. 2,57,654 crores by 2012-13. An important part of this subsidy, i.e., 85000 crores was for food, 97000 crores for petroleum and 67000 crores for fertilisers.
It is seen that the Government spends money on subsidy so that inexpensive foodgrains and fuel can be provided to the poor and transport cost be kept low and farmers can get inexpensive fertilizers to keep in check the farm cost. Thus, more than 95 per cent of subsidy amount is spent on these items. Generally, the Government is always on the look out for reducing subsidies. It is generally believed that subsidy is a non-essential expenditure which is better kept as low as possible. It needs to be understood that subsidy is not charity that the Government may feel proud to reduce. Recently, to reduce subsidies on LPG cylinders, the Government had reduced the number of subsidised cylinders to 6 per house. This decision of the Government was greatly criticized due to which the Government later decided to increase the number of subsidized cylinders to 9 per household. Similarly, the Government is suppoosed to spend 90 thousand crores in 2013-14, in order to provide inexpensive foodgrains to the poor through Public Distribution System and implement proposed Food Security Act. However, decreasing this subsidy would mean that poor people would not be able to buy enough food grains to satisfy their hunger. The subsidy given on fertilizers is also considered extremely important to keep cost of agricultural production low.
Extreme poverty amidst increasing incomes
According to official statistics, on current prices, the annual per capita income in India was Rs. 5500 in 1990-91  which has increased to Rs.68,747 in 2012-13. However, statistics also show that in the beginning of the decade of 1990, the wages, which constituted 40 per cent of GDP, went down to 34 per cent in 2010. According to the Annual Survey of Industries (ASI), compensation of employees, which was 78 per cent in 1990 went down to 42 per cent in 2010 whereas the profits of capitalists have increased from 19 per cent to 56 per cent of value addition, during this period. On one hand, there are few people having property of thousands crores and on the other hand there are crores of people whose monthly income is less than Rs. 960 in urban and Rs. 780 in rural areas. According to the Finance Minister, 42, 800 persons file income tax returns with income more than one crore per annum (actual number with more than crore income is much more, as many people do not reveal all their incomes).
Government’s compulsion to reduce subsidies
A democratic Government never wants to take steps which diminish its popularity or make people unhappy. On the other hand, it always wants to take such steps which can make people happy so that people re-elect it. In spite of this, the Government is forced to decrease subsidies because expenditures are increasing continually and tax revenue fails to increase proportionately. This results in mounting fiscal deficit or in other words, imbalance in the budget. Fiscal deficit reached 5.9 percent in 2011-12, which was later reduced to 5.2 per cent of GDP after chopping subsidies on diesel and LPG. In such a scenario, the Government can not take the risk of being bankrupt.
However, one needs to understand, why the revenues through taxes have not been increasing in proportion to increase in Government expenditures. The answer to this question is that the Government is persistently giving rebates on taxes in order to promote savings, investments ad exports. According to official statistics, the revenue foregone due to these rebates was whopping 5.74 lakh crores in 2011-12. Had 10 per cent of this amount come to the exchequer, the Government would have been in a position to double the subsidy on LPG rather than reducing it.  Recently, as per the decision by the Finance Minister, General Anti Avoidance Rules (GAAR) have been postponed to 2016. This directly means that foreigners who try to save taxes through wrong means would be able to do the same for two more years. It is to be noted that the Government has to take almost Rs. 50,000 crores (including Rs. 11,200 crores of Vodafone) from such foreign investors but the Government is being lenient in this regard. This is done in the name of economic reforms and it is being said that this leniency is important to attract foreign investors.
Recently, the Government has allowed the foreign companies to enter the field of multi-brand retailing. It is believed that this would affect the livelihood of small shopkeepers, hawkers and peddlers. It is to be noted that according to the 66th National Sample Survey, only 20 lakh additional employment opportunities could be created in the span of five years between the year 2004-05 and 2009-10. On the other hand, 251 lakh self-employed people like farmers and small traders, have lost their employment in the meanwhile and the number of casual labours has increased by 219 lakh. This helps us understand why India stands at the 134th position from the point of view of human development. Even today, almost 80 per cent of children in the age group of 6-35 months are suffering from anemia, 56 per cent married women in the age group of 15 to 49 years are anemic, 46 per cent children below the age of 3 years are suffering from malnutrition and 58 per cent people are not able to get potable water.
Top One per cent of the population gets nearly 9 per cent of GDP, whereas 60 per cent of population engaged in agriculture gets 13.7 per cent of GDP. The increasing prosperity of towns and increasing incomes of 1 per cent rich people can not be considered the yardstick of development in any way. In this scenario, if the Government wants to reduce subsidy, then it is important to make arrangements,  where poor people can get the benefit of increasing incomes.  Subsidies would not be required if the incomes of the poor increases. The inequality is the result of  economic policies because of which the incomes of corporate houses are increasing, alongwith deepening pouperisation  of the masses.  It is important that economic reforms are made targeting the poor. This is not only important for the prosperity of the country but even for the future of the ruling coalition.

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