Thursday, March 1, 2012


Subsidy rarely reaches its target audience

Subsidies have always been the most-touted strategy among the political class, especially as it is something that is highly deceptive, completely opaque and totally off -target. This trump card is extensively used by political parties, during both elections and budget to gain mileage. Perceptibly, this policy, which was fundamentally aimed at bridging the socio-economic divide of the society, has increasingly become a tool for politicians to swing electorate towards them. But then there is no secret in the fact that only a fraction of these subsidies does actually reach the poor, thanks to our corrupt system.

As per the latest OECD report, as of 2009, India has the distinction of highest subsidy bill amongst all oil importers (OECD nations). This is one area of policy making where India defeats most of its neighbours, including China. India’s per capita oil subsidy is around three times and its gas subsidy around six times than that of China. Fundamentally, fuel subsidy is designed to provide it to the poor and to ensure affordable supply to them, which is more to insulate them from price volatility. Given the price difference between market price and subsidised prices, the suppliers and middlemen often sell the subsidised oil in the open market, costing India, on an average, $2 billion annually. According to studies, almost half of kerosene supply is robbed from the ration shops to the open black market at higher prices. According to NCAER interim report, the total worth of kerosene black market in 2005-06 had surpassed Rs 10,000 crores. The report also revealed that the subsidised kerosene is channelised more towards urban and semi-urban communities thus depriving the rural poor. Highly subsidised LPG is illegally exploited in non-domestic use (running cars) by the affluent class. A whopping amount of Rs 52,000 crore subsidy was given on diesel in 2008-09 which only helped the luxury car owners, cinema halls, shopping malls, luxury hospitals and telecom towers. Similarly, over Rs 5,200 crore subsidy on petrol every year is only helping the top bracket. Likewise, food grains subsidy suffers from the same rampant corruption. The Central Vigilance Committee (CVC) in its report found PDS as the most corrupt system and further states that the subsidised food grains are diverted from the ration shops to the open markets, inspectors are routinely bribed, beneficiaries are deprived and delayed, subsidised prices are habitually flouted and poor qualities of grains are offered in the Fair Price Shops. The tax payers’ money worth Rs 28,000 crores that is allotted by the Center for food subsidies is mostly hushed up by middlemen! There are more than 460,000 Fair Price Shops across the nation and Central government have doled out Rs 1.80 lakh crores through various poverty alleviation programs including subsidies in fuel, food and fertilizers.

The same is true with fertilizer subsidies as well. The CAG report in 2011 revealed the massive manipulation while disbursing Rs 50,587 crores worth of fertilizers. All in all, subsidies cannot stop, but the abuse of the same has to be stopped necessarily. This can happen only when the targeting of the subsidy is objectively done. Else in its current form, taxes from the middle class would keep filling in the coffers of agents, touts and middlemen, without bringing in any meaningful and sustainable benefit to the poor.


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