Over the last few years, India has been spending less and less on subsidies as a percentage of the total gross domestic product – something for which Prime Minister Narendra Modi too has received criticism.
In his defence, Modi has claimed that this is not a conspiracy to deprive the poor but simply targeting government’s assistance better so that the ones who actually need it get it.
And he might have a point.
The Economic Survey of India tabled in Parliament on Friday revealed that about Rs 1,00,000 crore from the total subsidy bill is being “unevenly distributed” to the better-off population due to flawed targeting of the assistance.
This burden comes from subsidies on account of just six major commodities – gold, LPG, Kerosene, Electricity, railway fares, aviation and turbine fuel. The subsidies to the rich on these commodities, the survey said, add about Rs 91,000 crore to the bill and that could be an underestimate.
“The total amount given as subsidy is no less than Rs 91,350 crore not to forget that this is an underestimate of the actual subsidy to the better-off because of the underestimation of the consumption by the rich,” the press release said. “If we add the subsidies inherent in just the PPF [Public Provident Fund] schemes, the total subsidy to the well-off amounts to above Rs 1 lakh crore.”
According to the Economic Survey, India’s subsidy bill currently on major commodities is projected to reach Rs 2.5 lakh crore in the current year. Hence, about 40% of the subsidies on major commodities are going as leakages to the rich who presumably don’t need the assistance.
The Ministry of Finance in the survey has also highlighted that misdirected subsidies add to the total leakages in areas such as public distribution system which needs to be corrected before rolling out measures like Food Security Act.
“Given that leakages in the PDS [Public Distribution System] range from 40 to 50 per cent, the government of India should defer implementation of the Food Security India in states that have not done end to end computerization; have not put the list of beneficiaries online for anyone to verify; and have not set up vigilance committees to check pilferage from PDS,” the survey said.
Adding that the opportunity cost of these subsidies going the wrong way also has political implications as it could erode the credibility of government programmes.
“This represents substantial leakage from the Government’s kitty, and an opportunity foregone to help the truly deserving,” the survey said. “Addressing the interventions and rectifying these anomalies may be good not only from a fiscal and welfare perspective, but also from a political economy welfare perspective, lending credibility to other market-oriented reforms.”