Rationalization of Subsidies inIndiaSMBA 7Bala Iyer, Pawan P, Dipesh P, Arti &
Meaning:Derived from the Latin word subsidium, it implies coming toassistance from behind.Definition:The Oxford English Dictionary defines subsidy as "money grantedby State, public body etc to keep up the prices of stationeries etc"Objectives:A wedge between consumer prices and producer costsAchievement of social policyGovernment subsidies may be defined as the differencebetween cost of delivering various publicly provided good &services and the recovering arising from such deliveries.
Subsidies TG: Income Level, Social Group & Merit etc Exclusion errors and inclusion errorsError:
S = RX + (d + i) K + i ( Z + L ) - ( RR + I + D )Where:RX = revenue expenditure on the serviceL = sum of loans advanced for the service at the beginningof the periodK = sum of capital expenditure on the service excludingequity investment at the beginning of the period.Z = sum of equity and loans advanced to public enterprisesclassified within the service category at the beginning of theperiod.RR = revenue receipts from the serviceI + D = interest, dividend and other revenue receipts frompublic enterprises falling within the service category.d = depreciation ratei = interest rate
Economic SubsidiesAgriculture &CooperationIrrigation&Flood ControlPower&EnergyIndustryTransportCommunication& othersSocial SubsidiesEducation HealthWater Supply&SanitationRuralHousing and othersIn India subsidies can be classified in two categories
Fertilizer Subsidies (60000 Cr)Food SubsidyIrrigation SubsidiesPower SubsidiesSubsidization of Agriculture
The proportion of subsidies that go to the poorest quintile is only 0.07 per cent ascompared to 52.6 per cent(8.2%) for the richest quintile.
The following steps would need to be taken as part ofthe operational strategy to reform the subsidyregime:(i) Each Department/Ministry/Enterprise should prepare a comparative picture of per unit costsand per unit receipts for all chargeable services;(ii) Each unit should prepare a plan for reducing staff strength, by putting limit on freshrecruitment and developing a scheme for redeployment of staff, and introduction of voluntary andsometimes compulsory, retirement schemes.(iii)Strategies of private provision of publicly provided private goods by sub-contracting, unbundling of public sector activities, and privatisation should be continuallyexplored;(iv)A mechanism for automatic (or linked to an index of cost) upward revision of fees and usercharges should be introduced as guided by User Charges Commission or similar bodies;(v)New public enterprises should not normally be set up any more; and(vi)There should be a periodic review as to the utility of continuing a subsidy and a decision shouldbe taken even at the initial stage of its introduction as to the life of the subsidy
Laying the foundation stone for Rs 20,000-crore integrated refinery expansionproject of the BPCL in Kochi, the Prime Minister said "To meet our target ofrapid, inclusive and sustainable development, we must undertake a phasedrationalization of energy prices to bring them in line with global prices."To ensure supply of energy at affordable prices, Singh said the countrywould need large investments in oil and gas exploration, buying assetsabroad and distribution infrastructure.