The economically well-off in India are beneficiaries of nearly ₹1 lakh crore worth of subsidies, which ought to be targeted at the poor, the Economic Survey notes.
In a section titled ‘Bounties for the Well-off’, the report’s author, Arvind Subramanian, Chief Economic Adviser to the Finance Ministry, points out that this anomaly represents a substantial leakage from the government’s kitty and an opportunity foregone to help the truly deserving.
The report identified seven areas — small savings schemes, kerosene, railways, electricity, LPG, gold and aviation turbine fuel — where benefits of subsidies accrue largely to the ‘well-off’, defined as the top 70 per cent of the population based on expenditure distribution as per National Sample Survey data.
Reducing subsidies in these areas would do good not only from a fiscal and welfare perspective, but also from a political economy welfare perspective, lending credibility to other market-oriented reforms, the report said.
“Strengthening the state by improving fiscal relations between the rich and the poor is one of the two main messages of the Budget,” Subramanian said.
Cap on LPG subsidy
For the short-term, the Survey recommends rationing LPG subsidy by capping it to a maximum of 10 cylinders for each household. This needs to be done while taxes and duties on domestic and commercial LPG users are aligned, the Survey added.
Venturing into the politically sensitive issue of fertiliser subsidy, whose beneficiaries are ostensibly poor farmers, Subramanian points to three forms of leakages and lacunae: black marketeering, inability of small farmers to derive full benefits, and inefficiency of fertiliser manufacture.
Noting that the Centre spends 4.2 per cent of the GDP subsidising various commodities, Subramanian proposes a reform package that can plug these leakages.
As part of the package, the Survey recommends several steps, one of which is for decanalising urea imports. According to the Survey, this would increase the number of importers, allow greater freedom in import decision and allow supply to respond ‘flexibly and quickly’ to changes in demand. The Survey also recommends bringing urea under the nutrient-based subsidy programme, which would allow domestic producers to continue receiving fixed subsidies based on the nutritional content of their fertiliser
Spreading the JAM
The Survey also recommends expanding the coverage for JAM (Jan Dhan–Aadhaar–Mobile) as in the case of the Direct Benefit Transfer scheme for LPG, since the Centre controls the fertiliser supply chain.
However, the Survey points out that targeting the poor is difficult at the best of times. It therefore suggested a cap on the number of subsidised bags that each household could purchase, with biometric authentication at the point of sale.