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Government bites the bullet

Mar 30, 2000

The time to take tough decisions has come (actually it has been long overdue, but better late than never) for the present government, which has announced a rise in prices of grains sold through the public distribution system (PDS). This is the second such revision in prices over the last one month. The incumbent National Democratic Alliance (NDA) seems to be finally making the right decisions although they may have difficult political connotations.

A large chunk of the government's Rs 228 bn subsidy bill is accounted for by food subsidies. However, in view of the large fiscal deficit, which is expected to cross Rs 1,110 bn in FY01, sustaining this expenditure has become increasingly difficult for the government. And to put things in perspective, this figure pertains only to the explicit subsidy bill of the government. The actual bill, which includes hidden subsidies, is a multiple of this estimated to be 10% of GDP.

The need for subsidised food for the poor is not disputed by anyone. But in India, a large chunk of the subsidies ultimately benefit the well off leaving little for the poor. In light of this, it is essential that the government rework the method of directing subsidies. Also there is a case that the price at which goods are sold to the poor atleast cover the cost of the same.

The NDA government seems have bitten the bullet. The key test would however lie in its ability to convince its coalition partners regarding the justifications of such a move. If it were to fail, it would not be long before governments start dishing out fresh subsidies to all and sundry.

March 30, 2000

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