Pointing out anomalies in subsidies distribution in the country, the Economic Survey 2015-16 on Friday revealed that over Rs 1 lakh crore worth subsidies meant for the poor and needy go to the better-off and to those who did not deserve them.
It said that the maximum subsidies worth over Rs 40,000 crore went to the rich in lPG category followed by electricity Rs 37,000 crore, kerosene Rs 5,501 crore, gold Rs 4,093 crore, Railways Rs 3,671 crore, aviation and turbine fuel (ATF) Rs 762 crore, while subsidy on PPF accounts hold Rs 11,900 crore alone. The survey also called for curbing these irregularities to some extent in the coming fiscal.
The survey, prepared by Chief Economic Adviser (CEA) Arvind Subramanian with some senior economists in the Finance Ministry, said that the Government could expand the use of direct transfer of benefits through the JAM Trinity (Jan Dhan, Aadhaar, Mobile) to other areas to reduce the leakages and provide more fiscal space to the Government.
As per the survey, the Government spends nearly 4.2 per cent of gross domestic product (GDP) subsidising various commodities and services. However, “in many cases, the beneficiaries are disproportionately the well,” the survey said. Explaining how the benefits were given to the well-off, it cites case study on small savings schemes and tax or subsidy policies on six commodities — cooking gas, railways, power, aviation turbine fuel, gold and kerosene.
According to the survey, the subsidy on account of six commodities is Rs 91,350 crore. “If we add the subsidies inherent in just PPF schemes, the total subsidy to the well-off amounts to above Rs one lakh crore.”
“This represents substantial leakage from the Government’s kitty, and an opportunity foregone to help the truly deserving,” the survey added.
Taking the case study of lPG subsidy, a consumer receives a subsidy of Rs 238.51 per 14.2 kg cylinder as in January 2016, which amounts to a subsidy rate of 36 per cent (ratio of subsidy amount to the market price).
The study, however, found that 91 per cent of these subsidies are accounted for by the better-off as their share of consumption of lPG in the total consumption is about 91 per cent; while the poor account for only 9 per cent of consumption, hence only 9 per cent of subsidies go to them. “So, this subsidy, aimed at benefitting the poor, is hardly being used by them,” the report said.
“As lPG is subsidised heavily in comparison to other energy related commodities like petrol, diesel, etc, which are taxed at very high rates, the effective subsidy to the better-off on account of lPG is more than the actual direct subsidy of 36 per cent,” it added.
The survey further said, “While deciding where next to spread JAM, policymakers should consider the challenges of beneficiary identification, distributor opposition and beneficiary financial inclusion. Spreading JAM to other areas will reduce leakages and provide more fiscal space to the Government,” it said.
It also pointed out that all sections of the administrated economy - from poor households to state and local Governments and their employees - receive funds from the same Sarkari financial pipe that delivers subsidies - and which JAM can improve by reducing delays, leakages, and administrative burden. “The policy areas that appear most conducive to JAM are those where the Central Government has significant control and where leakages - and hence fiscal savings due to JAM - are high. This combination is met for fertiliser and within-Government fund transfers,” it said.