Plug leaks, hit the target

Distribution of subsidised foodgrain to the poor has increased subsidy bill: Survey.

The Economic Survey has recommended decontrolling petrol and diesel prices, taking advantage of a low inflation rate and global crude prices, which includes limiting subsidised cooking gas for domestic consumers to 6-8 cylinders per year.

These subsidies which are given on food, fertiliser and petroleum products saw a rapid increase in 2008-09 as pricing of these products came under severe strain in the face of the global commodity price shock, according to the survey.

“The subsidy policy should be reformed to reduce leakages and ensure targeting,” recommended the latest economic survey.

Government subsidies as part of the gross domestic product (GDP) surged to around 2.5 per cent in the financial year 2008-09. This figure had been constantly decreasing since 2002-03 to around 1.1 per cent in 2007-08.

The survey also suggested converting the fertiliser subsidy from a part-producer to a wholly farmer-user nutrient-related subsidy with freedom for producers to set prices of fertilisers with different formulations.

The previous financial year was marred by a steep rise in international fuel prices, which put pressure on petroleum and fertiliser subsidies.

Moreover, distribution of subsidised food grains to the poor, including the 65.2 million families below the poverty line (BPL), has led to a 40 per cent jump in the food subsidy for the government amounting to Rs 43,668 crore (for wheat and rice only) in 2008-09 over the previous fiscal.

The share of subsidies as a part of the non-Plan expenditure increased to around 25 per cent in 2008-09 compared with 8 per cent in 2007-08.

However, due to a drop in global commodity prices in 2009, subsidies are expected to marginally decline in the current financial year.