Economic Survey: Wiping every tear from every eye

The current economic survey makes a clear case about why the price subsidy is not the government's best weapon of choice in the fight against poverty.

twitter-logoAnand Adhikari | February 28, 2015 | Updated 09:14 IST
Anand Adhikari, senior editor, Business Today
Economic Survey: Wiping Every Tear From Every Eye

Anand Adhikari, senior editor, Business Today
Hold on to your thoughts (or expectations) of 'achhe din aane waale hain.' Let's first wipe the tear from every eye. That's the reality of the day. That's the reality of India.

The NDA government's first full-fledged economic survey authored by Arvind Subramanian, chief economic advisor in the Narendra Modi-led government, has a full chapter on 'Wiping Every Tear From Every Eye'.

The phrase sounds familiar, right? The father of the nation Mahatma Gandhi said it first as his mission in life. In his famous speech 'Freedom at midnight', the first prime minister of the country, Jawaharlal Nehru mentioned, "The ambition of the greatest men of our generation has been to wipe every tear from every eye. That may be beyond us, but as long as there are tears and suffering, so long our work will not be over."

That mission of Gandhi and ambition of Nehru is still a dream, or a pipe dream.

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In fact, former Prime Minister Manmohan Singh of the Congress-led UPA government often invoked the same reference to convey his government's inclusive growth agenda to uplift the poor. But then, Congress was also forced to do that as the previous NDA government had lost the election on its 'India Shining' agenda. There was no looking back for the Congress in terms of doling out goodies to the poor, though it was directionless in the sense that poor never benefited.

Almost 68 years after Independence, the issue of poverty in India comes back to haunt us. It never fades away.

The chapter talking about 'Wiping tears' actually talks about India's subsidy culture. The figure is humongous at Rs 3,78,000 crore, almost 4.24 per cent of GDP. The country's fiscal deficit is around 4.1 per cent.

For decades, the Central as well as state governments have encouraged the culture of subsidy in rice, kerosene, diesel, water and passenger fares for political gains. Ultimately, the government pays the balance from its pocket. Besides, subsidies are never properly targeted. LPG is a good example where the rich and the better-off use it more than the poor.

The current economic survey makes a clear case about why the price subsidy is not the government's best weapon of choice in the fight against poverty.

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Let's first start with power. Today, only 67.2 per cent of the households in India are electrified. The data shows that bottom-of-the-pyramid household consumers on average use 45kWh per person per month (or 10 per cent of the total subsidy amount) while the top quintile consumes 121 kWh (capturing 37 per cent of the power subsidies). And if one considers kerosene, which is directly associated with poor, the data shows only 46 per cent of the total consumption of subsidised kerosene is by households below the poverty line. Where does the rest go? The same is true for subsidies in many other items where the rich or the middle class gets more of the subsidy pie.

The current government looks to be committed to target subsidies better. That means subsidised cover going away from middle class or lower middle class. So, no achhe din. And what would be the end result of better targeting of subsidies by using technology or tools like Aadhaar?

This clearly will have a positive impact on the country's fiscal deficit. The funds so saved will be utilised for capital expenditure, which will support growth of the economy. The inflationary pressure emanating from higher fiscal deficit will also get reduced. That means lower interest rates for borrowers.

The message is clear: let's first wipe the tear from every eye and then the 'achhe din' will surely come one day.

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