The saga of subsidies

“Subsidies are akin to steroids as prescriptions. Lazy doctors like to administer to their ignorant patients a dose of steroids to remedy the proximate cause of illness. Steroids provide quick relief but don’t promise an enduring cure” - Kishore Jethanandani

The budget introduced by Finance Minister for 2011-12 shows 9 percent of central budget is allotted to subsidies, which accounts to 1.43 lakh crore rupees. However, the expenditure on subsidies mentioned in the budget is only explicit portion of central government subsidies. It doesn’t include the implicit subsidies like tax exceptions to SEZ’s, land acquired by the government for industrial purposes, etc. And also, subsidies mentioned in the budget only related to Central subsidies, it doesn’t include the states explicit and implicit expenditure on subsidies. So the amount of subsidies in India is colossal than on paper.

Subsidy is a benefit given by the government to individual or group usually in the form of cash payment or tax reduction. Subsidy is often considered to be in the interest of the public. Cash subsidies, Interest or credit subsidies, tax subsidies, in kind subsidies, procurement subsidies, regulatory subsidies are forms by which government is providing subsidies to individual consumers. Protection of the vulnerable sections is the main intention of government to provide subsidies to individuals. The state has been using subsidies as an important tool in its operational administration. It is quite debatable whether these subsidies are reaching the target section or not. Think tankers thrive to formulate populist policies resulted in inclusion of major part of the population in the subsidy purview, which ultimately increased the weight of subsidies. After implementing the subsidy strategy for decades, people are used to the subsidies, and now it seems, citizens are expecting the subsidies as a matter of right. In the process of changing the role of Government in Indian economy from the driver to a facilitator, Government is keen on reducing the subsidy weight from its expenditure without harming the poor.

Approximately, 90 percent of the total explicit subsidies accounts to food, petroleum and fertilizer subsidies. Obviously, if explicit subsidies have to be reduced, then steps have to be taken to limit these three subsidies. Minimum support price, public distribution system, food procurement and maintaining buffer stocks are important components of food subsidies. Purchase of food grains at minimum support price from farmers by government, without any limit has resulted in the creation of buffer stocks in excess of its storage capacity. There are substantial leakages of food grains in public distribution system. For all these years, the state has been succumbing to farm lobby pressures, thereby responding by raising minimum support price and also undertaking unlimited procurement. Kerosene and LPG subsidies accounts major part of petroleum subsidies. According to a government report, about half the subsidized kerosene supplies diverted and never reaching intended groups. Different approach has been adopted for fertilizer subsidy, where the subsidy amount is paid to industry than government. The most contentious issue surrounding fertilizer subsidies in India is how much of what is paid out actually finds its way into the pocket of the farmer, and how much is siphoned away by the fertilizer companies. Overall, there is substantial scope for improvement in the system and reducing subsidy weight of the government. In this year budget speech, finance minister has announced that government is considering direct cash subsidy on kerosene and fertilizers to genuine beneficiaries.

Subsidies can be reduced if Government has the political will to undertake hard decisions. However, coalition governments which try to appease various social groups find it extremely difficult to do so. The political economy of subsidies prevents the government not to go ahead with a policy of reduction of subsidies. One side, central government keen on reducing the subsidy and other side states are coming up with a plethora of subsidy policies shows, lack of integrated planning between center and states to curb the irregularities and reducing the subsidy expenditure. There is large gap between policy and practice. Government subsidies are meant for protecting the poor and government subsidy policies should be reinforced in such a way that they should reach only to the right beneficiaries. But, to do this, Government requires great amount of courage.

Women Reservations: A Pending Issue

Since ancient times, Indian social structure is predominantly male dominant oriented. Though women are half of the population, they have never been given appropriate opportunities in state administration. Even now, representation of women in state administration is very low. At present, women representation in Lok Sabha is around 11 percent only. It certainly shows the unequal representation in the legislature. In order to increase the representation of women in administration, Government of India provided at least one third of reservations to women in Urban and Rural Local bodies. Further, women reservation bill was prepared to reserve one-third seats of the Lok sabha and state legislative assemblies. As per the bill, women reserved seats allotment will be on a rotational basis, and reservations will cease after 15 years of commencement of Act.


In 1996, Government of India introduced women reservation bill in the parliament, but failed to convert it to an Act. Later several attempts made by successive governments, but they failed to achieve consensus among the political parties. Last year, Ruling party with the support of the major opposition party, women reservation bill was passed in Rajya Sabha. After that, bill was supposed to introduce in Lok Sabha but due to some political strategies of respective parties, bill was not introduced.


Political power is an important element in Women empowerment. Women reservation is a tool to access the political power for women. It will give adequate opportunities to underprivileged women to be part of the government and policy making. At present, in India, the talent pool of politicians is often from men, but women reservation will widen the catchment area. It will enhance the administration abilities of women and in turn the administration itself. For instance, after reservations, significant positive changes were observed in rural and urban local bodies, where women were representing. Many countries are already providing women reservations and registered impressive gains. Women reservations give an opportunity to women to raise their voice on their problems, concerns and demands. In the long term, it will enhance the position of women in our society.


There may be few disputable issues associated with the bill like rotational basis of allotment of seats, creamy layer issue etc. This bill may not be the best or only solution to empowerment of women. However, let not the perfect be the enemy of the good.

Food Security

Few weeks ago, the expert committee on National Food Security Bill headed by Rangarajan submitted its report to Prime Minister. Initially, NFSB was recommended by National Advisory Council (NAC). The government appointed expert committee to review it. Food Security Bill aims at providing food as a basic right of the citizen. It also aims at providing food affordable and to meet the dietary needs of the people. To achieve the aims of food security bill, it adopted food grains on subsidy method. As per the initial draft bill, 90% of the population becomes eligible to get the subsidized food grains. But later it was reduced to 75% of the population, i.e. 90% of rural and 50% of urban population become eligible to get rice, wheat, sugar, etc. at subsidized prices. Below poverty Line (BPL) households should have a monthly entitlement of 35 kgs at Re 1 per kg for millets, Rs 2 per kg for wheat and Rs3 for rice. Above Poverty Line (APL) should get a monthly entitlement of 20 kgs at a price not exceeding 50% of the Minimum Support Prices.

However, Rangarajan committee differs with the NAC recommendation on Food Security and concluded that it may not be feasible to implement the bill in its current form. Three major aspects were the bone of contention, First, production rate and procurement of food grains, as per the report, the food grains required to implement the food security is about 69 million tons but the current expected rate of production will be about 56 million tons. Second, negative impact on market prices and effect on vulnerable sections like middle class families. Third, burden on exchequer and consequences.

Food security is essential for our country to address dietary needs of the population. But, the draft bill deals food security in a narrow view, whereas, it actually has wider scope. Food security has three important elements, food availability, food access and food use. The draft food security bill prominently deals with food access and very little about other two. Food availability includes production, diversifying the food pattern in order to get appropriate nutrient diet, understanding the future needs and planning accordingly, etc. The major concern for India is too much dependency on certain crops and varieties like Rice and wheat, which ultimately resulting in high demand and pressure on those crops. India should plan in such a way that the productions of other food grains like Jowar, Bajra, Finger millet, etc. should be encouraged. Through this not only pressure on the main food grains will decrease, but also helps to increase the nutritional levels of population. Food use, it includes using food resources of the country in a sustainable and optimum manner. For example, India has about 7000 kilometers coastal line, but still, sea food in Indian diet is negligible. Food access means not only providing food grains for subsidised prices but also to meet the consumption demands of the population. Subsidised food is short term strategy; policy makers should also concentrate on long term strategies to meet the consumption demands.

I think, Rangarajan committee has rightly recommended that subsidized food grains shall be given to only BPL families (46% rural and 28% urban population) instead of 75% of the population. However, subsidised food grains and proper distribution alone are not food security. Food security is about production and availability of food grains according to the needs of population. It is unfortunate that Indian think tank is more concerned about populist policies than policies for India.