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Will our stand on subsidies change?
Mon, 16 Feb Pre-Open

On multiple occasions we have written about the need to limit the spending on subsidies by the government. This is not because we are opposed to the same in principle. We recognise that India is not a rich nation by any stretch of the imagination. Thus, some amount of subsidy, given in various forms, will be necessary for years to come. However, that does not mean rationalisation of subsidies should not be done. We believe that the government should pursue the same with determination.

It is well known that due to corruption in the bureaucracy, a large part of the funds meant for the poor, do not reach them. Instead of fixing this problem, successive governments have kept increasing dole outs over the years. This has strained the government's finances and has resulted in a large pile up of debt. It is no coincidence that as subsidy payouts have increased to 2% of GDP; the interest payment on existing debt has become the single biggest expense for the government.

So what is the way out? There is no easy answer. There is no doubt that overall subsidy payout needs to be curbed. However, the government will have to tread cautiously we believe. There are four large categories of subsidies: food, fuel, agricultural and education. Thanks to the deregulation and the fall in crude prices, fuel subsidy payouts will reduce over time. However, not much can be done about the other three categories. For example, the food security bill has ensured that food subsidies are here to stay.

The Modi government was elected on the back of promises of economic growth, not higher subsidies. Thus, we expect the government to come out with a clear road map for future subsidy payouts. We have not yet seen such a plan emerge. We hope the budget will provide more clarity on this issue. Subsidies are an extremely serious policy issue and it is high time that the government comes out with a well defined plan for the same.

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