Creative Nuisance

Musings From My Soul

Should the government review fertiliser and food subsidies to curb expenditure?

with 5 comments

The following is the article that I have published in Financial Express (08/02/2010) for their Debate on Union Budget 2010-11. The online version of the article can also be found on http://www.financialexpress.com/news/should-the-government-review-fertiliser-and-food-subsidies-to-curb-expenditure/576748/.

Should the government review fertiliser and food subsidies to curb expenditure?

The Union government provides subsidy support for various sectors on the premise that otherwise, the cost of these goods and services would be too high for the masses to afford. Over time, subsidy has also become a populist method to woo voters. But fiscal responsibility would suggest that a degree of pragmatism should be injected into the whole discourse. Considering the sensitivity of the issue, the task poses tough challenges for any government.

The finance minister should review the existing unreformed food and fertiliser subsidy regime to curb the burgeoning expenditure. Growing levels of the two subsidies add to non-Plan expenditures, exacerbating the fiscal deficit. It’s a fact that the subsidy bill underwrites lower capital expenditure in the farm sector. It’s estimated that administrative costs of the public distribution system (PDS) amount to 85% of the total expenses for the system. For farmers, minimum support prices act as a hedge against price shocks.

The government should think about steps like investing more in rural farm and physical infrastructure to offset a probable reduction in subsides. The farm sector needs reforms involving innovative institutional and governance mechanisms to check lower yields and soil degradation. The PDS requires correctives to blunt the inefficiencies, corruption and leakages plaguing it. Providing direct subsidy to marginal farmers, reducing the magnitude of subsidies across the board, inviting free market self-corrective actions and bringing farmers nearer to the ultimate consumer through superior communication and transport facilities are some steps that can lessen the subsidy burden. Appropriate targeting is easier to attain if we switch from indirect subsidies to direct income support.

[Add a comment if you like the article]

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Written by Abhishek

February 8, 2010 at 12:24 PM

5 Responses

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  1. Subsidies are like drugs, once you have it you become addicted to it. Subsidies are being used by the political parties are election tool to garner votes thereby throwing the nation in fiscal mess.
    Now these very subsidies has prevented the massive investment in farm sector which is incentive for competitiveness. Fertilizer subsidies, though necessary, haven’t contribute much to scientific farming and the efficiencies of Indian farms.

    Tarun

    February 8, 2010 at 1:22 PM

    • The way of distributing subsidies is wrong. The government should direct themoney in another way so that the targetted sector should benefit from these.

      Abhishek Datta

      February 9, 2010 at 6:04 PM

      • Kinda disagree with you on this, most of these great plans falls prey to misuse. Better to give people opportunities rather than roties…

        Tarun

        February 9, 2010 at 7:05 PM

  2. I am quite an illiterate when it comes to financial terminologies…REad it thrice to get the depth of what you were saying…

    Congrats buddy for the publishing thing 🙂

    PS:I have also started a cricket blog..Do roam someday 🙂 The link is
    http://www.totalgadha.com/tgtown/loserreturns

    Nish

    February 9, 2010 at 11:10 AM

    • OOh thanks!! I dont think that article was quite a difficult one…. for if you go through some other pages on the net, you would really need some more pairs of teeth to replace the ones that would fall during the process.

      Abhishek Datta

      February 9, 2010 at 6:06 PM


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