Fisc Vs Subsidies
Ideas put forth by Kelkar may lose to poll compulsions
No heated debate on subsidies is ever really conclusive, embroiled as it is in votebank politics, economics and the needs of poor (in that order). This is evident in the way subsidies in fuel and fertilisers are being doled out—sadly, the rich and not-so-poor benefit more than the poor. Despite several government-appointed committees arguing for cutting diesel subsidy, which has led to a huge increase in the number of suvs and luxury diesel cars on the road, it was cooking gas that was targeted.
The irony is that this came after a sustained government campaign that managed to get thousands of poor families to switch from highly subsidised kerosene to cooking gas. Now, with the rationing of subsidised LPG cylinders to just six a year, it is the poor families that will be hit the hardest—the non-subsidised LPG cylinders cost over Rs 850, and the “black market” rate is well over Rs 1,000.
Defending his stance, Kelkar states, “Nobody is arguing against food subsidies. Our concerns are the unjustified or inequitable subsidies, which are not going to the very poor, be it LPG, fertilisers or food.” With the government talking of expanding food subsidies—indeed, the proposed Food Security Bill is touted as the UPA-II’s landmark legislation before the 2014 polls and has chairperson Sonia Gandhi’s absolute backing—Kelkar stresses the need to ensure it “does not go to people who do not deserve it”.
His report has urged an overall subsidies cap of 1.7 per cent but leaves it to the government to decide how much for each sector. He also suggests that the periodic increase in minimum support price of food grains should be reflected in the PDS prices. C. Rangarajan, chairman of the PM’s economic advisory council (PMEAC), admits to sharing Kelkar’s concerns on containing fiscal deficit to 1.7 per cent. “If the government feels food security is extremely important and they have a commitment to ensure it, then they should correspondingly reduce the subsidy for petroleum and fertilisers to ensure we keep to our target of lowering total subsidies as it is important to bring down the fiscal deficit,” he states.
They feel there can be no compromise on food security, as India accounts for 48 per cent of malnourished children globally. nac member N.C. Saxena, for instance, says the whole debate over food subsidies is irrelevant as the government has a hoard of over 80 million tonnes foodgrains. “This hoard has to reach people and must not be wasted due to lack of handling and stocking facilities. Despite what the government says, the wastage is not less than 15 per cent,” says Saxena.
The persistent starvation of yore may not be seen today, but millions go to bed without two square meals a day, while thousands die due to hunger-related diseases. Biraj Patnaik, senior advisor to SC commissioners on food security, wonders where reforms are going. “What the government is promising through the Food Security Bill is less than what they are already doing,” he points out.
With Aadhar or UID numbers not yet provided to much of the targeted population, civil society members are sceptical about the proposed rollout of the right-based food security scheme, particularly cash transfers to bank accounts. Describing it as “doing the right thing with the wrong instrument”, economist S.L Rao says, “Giving out money has to be efficient”–not possible without the UID and banking correspondents in place.
As the government targets finalising the contours of the scheme by the end of the year for early rollout, activist Harsh Mander says the issue of resources and subsidies “is far more complex and nuanced than it is made out to be. It is reflective of the power of one particular beneficiary—the corporates.” As activists worry about government plans to replace subsidised food with cash, the question remains about social and ethical choices. Not economics!
This also applies to the PM’s overdrive on ‘reforms’ in the past couple of weeks. Before the dust has settled on the decision to allow 51 per cent FDI in multi-brand retail, the Union cabinet has given the green signal to allowing 26 per cent FDI in the pension sector and hiking the ceiling in the insurance sector from 26 per cent to 49 per cent. It is another matter that unlike FDI in retail, pension and insurance sector proposals will need parliamentary approval.
That’s why many ask if these mood-enhancers are just a mirage. Perhaps they are. But hopefully the government will be more pragmatic when it comes to food, empty stomachs and the threat of starvation deaths for millions of the poor.
Your article A Shadow Looms Over Rebate Raj (Oct 15) rightly points out that votebank politics is of prime concern. In the name of food security, thousands of ration card-holders will get some money in their uid-linked bank accounts on the eve of Lok Sabha elections. Like the NREGA, it’ll create a positive atmosphere in favour of the UPA. As for the debate on pruning subsidies on diesel and fertilisers, it’s misconceived by economists. Any cut in subsidy is sure to be reflected either in costlier foodgrain or fall in production subject to import substitution.
More than a slip disc, the food security programme will crush the camel's spine.
India accounts for half of world's malnutrition, yet 80 million tons of foodgrain is stored in the government stock. These facts make food subsidy no brainer. It is amazing so called intellectuals concerned about the budget deficit. Other countries spend far more in social sectors like healthcare and education.
Problem is still the same. Welfare does not reach the people. Recent survey shows Bihar, poorest in the country, only 10% of the real poor get subsidies embmark for the poor! I suggest these committees to spend effort in tackling the real problem, not the budgetary paperwork.
Rightly pointed out the votebank politics is prime concern.It is almost clear that in the name of food security,several thousands of ration card holders will get some money in their UID linked bank accounts on the eve of Lok sabha elections.Like NREGA it will create positive atmosphere in favour of ruling UPA mainly Congress.The debate on subsidies pruning on diesel and fertilizers is misconceived by economists.Any cut in subsidy on diesel and fertlizers is sure to be reflected either in the costlier foodgrains or fall in production subject to import substitution.The idea of cash transfer is also going to be counter-productive in the long run,presently Government make purchase and stock food grains mainly for PDS.In case of cash transfer there will be no necessity of Government purchase,food stocks and ultimately the Minimum Support Prices(MSP's).The policy of MSP and FCI made India self sufficient in food grains.The two noted and influencial economist of IFPRI already advised the Government to scrap Commission on Agriculture Cost and Prices (CACP) entrusted with the job to calculate and advise on MSP's and FCI responsible to maintain the stock for PDS and buffer for maintenance of food prices.The Cash subsidy is an indirect attempt to hand over the food market to the corporate players and import dependence.
It is fact that there are leakage in the PDS system but the remedy is plugging of these loopholes through technology as done in Kerala and Chhatisgarh and not the abandoning of the system which is still the most extensive supply system.
'Subsidies' are dear to any political party,except vote it also provide scope for corruption.I wonder why Government is not investiong in infrastructure and employment creation which will 'enable' the poors to sustain themselves.Now every Government is distributing freebies to different votebanks like Akhilesh Yadav is giving Rs30000 to girls for education but not for educational institutes,dole for un-employment but not for infrastructure for employment.Similarly Central Government for food but not for food production,these tactics will help in the perpetuation of poverty upto infinity and the job of Government is just to define different standrds of BPL and APL and quantity of different commodity to be distributed free.
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