Creative Nuisance

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

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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.

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