The well-off fattening on subsidies: Is there a coded message in the Economic Survey?

New Delhi – “Does this difference in language reflect a difference in our attitude? Why any dole for industries is called incentive or subvention, while for farmers it is derogatorily called subsidy?” said Prime Minister Narendra Modi in January.

This sentiment of Modi has got reflected strongly in the Economic Survey 2015-16 tabled in Parliament on Friday. An entire chapter of it has been dedicated to ‘Bounties for the well-off.’

Echoing a similar sentiment, Chief Economic Advisor, Arvind Subramanian said in a press conference after the tabling of the two-volume survey report, “When we talk of subsidies, it’s kerosene, electricity, LPG, railway, etc and we’re very generous to the well-off. Rs 1 lakh crore of bounties go to them. It’s not the middle class or the rich but the mega rich who benefits from tax exemptions.”

Economic Survey 2015-16 has come up with startling statistics on subsidies and exemptions being enjoyed by the super rich in India.

Here’s a list of bounties for the super-rich:

* Rs 1 lakh cr: Subsidy going to well-off.
* Rs 62,000 cr: Exemptions in corporate taxes.
* Rs 40,151 cr: LPG subsidy to rich.
* Rs 37,170 cr: Electricity subsidy.
* Rs 11,900 cr: Small savings subsidy.
* Rs 5501 cr: Kerosene subsidy.
* Rs 3671 cr: Railway subsidy.
* Rs 4093 cr: Gold subsidy.
* Rs 762 cr: ATF.
* Rs 53,000 cr: Urea subsidy—out of it only 35% goes to small farmers.

Citing the example of fertilizer subsidy, per se urea, Subramanian pointed out, “Fertiliser subsidy amounts to Rs 75,000 crore. Out of Rs 53,000 crore subsidy exclusive of arrears to urea, the small farmers get only 35%. Due to black marketing and leakages, 80% of small farmers buy urea paying more than the MRP. The benefits of the subsidy are enjoyed by the well-off.”

What could have been the hidden message of the government behind this move? Is the government trying to do away with or reduce the quantum of subsidy in the upcoming budget on 29 February? Or is it trying to distance itself from the ‘mega-rich’?

Rajiv Kumar, senior fellow, Centre for Policy Research opined, “It’s a good idea; a huge savings can be made this way if leakages could be plugged as the survey suggests. Shifting the disbursal of subsidy on fertilizers to DBT can’t be argued as it’ll be beneficial to farmers.”

According to the survey report, “Subsidies to the well-off need to be scaled back. Regaining legitimacy must be as much about phasing down these bounties as it’s about better targeting of subsidies for the poor. The tax exemptions which often amount to redistribution towards the richer private sector need to be reviewed and phased out.”

A month ahead of the budget, Modi in January end had said, “My point is that there cannot be any ideological position on such matters (subsidies). We have to be pragmatic. We have to eliminate bad subsidies, whether or not they are called subsidies. But some subsidies may be necessary to protect the poor and the needy and give them a fair chance to succeed. Hence my aim is not to eliminate subsidies, but to rationalise and target them.”

However, there are contrarian views to what the Economic Survey said.

“Whatever has been said regarding subsidy is based on mistaken notion. Do the rich use kerosene? Regarding fertilizer subsidy, it needs to be clear whether the government wants to promote chemical fertilizer or not? If not, then it should promote organic fertilizer and provide subsidy to it. In order to balance the fiscal deficit, the government will go for a cut on subsidy, cut on social sector expenditure, cut on higher education spending. It looks as if the government wants to prepare grounds to cut subsidy that ultimately hurt poor,” remarked Jayati Ghosh, professor of Economics, Jawaharlal Nehru University.

Economist and professor Arun Kumar views it as “a political move”.

“How many mega-rich are there? Only a handful and in a bid to stop the subsidy benefits going to them, the large section of beneficiary—the poor can’t be done away with. There seems to be confusion at macro level. If subsidies are done away with or drastically reduced, prices will go up, with cascading effect on poor. Keeping with upcoming assembly elections in few states, the government which is pro-corporate wants to project itself as pro-poor and anti-super rich with this statement. It is rhetoric more, reality less. The government has to increase allocations in social sector – basic education, health, drinking water, etc vis-à-vis bringing down fiscal deficit. For this the indirect taxes and wealth tax need to be increased,” said Kumar.