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The Curious Case of Subsidies in India

The Curious Case of Subsidies in India

By Anupriya Singh

Edited by Sanchita Malhotra, Associate editor, The Indian Econmist

Hajipur dwellers have closely witnessed the rise and fall of Ram Vilas Paswan. But through-out they have been faithful to their leader. Today when he is a cabinet minister, Paswan fulfilled his promises by ensuring 24/7 electricity supply in every household of his constituency. It is a feat still distant for many houses of Patna, which is just an hour drive away. Likewise in Gujarat, Narendra Modi’s Jyotigram project provides electricity to rural households. But both Modi and Paswan overlooked the crucial kerosene subsidy scheme pertaining in India.

Since decades, rural India has been enjoying the access to kerosene for lighting purposes at a highly subsidized rate. Post the success of projects like the Jyotigram, various rural households no longer need kerosene lamps when the 100 watt bulb glows the entire day. But they are still entitled to claim the subsidized kerosene against their ration cards. Fighting the corrupt and leaky distribution system, what little reaches the poor is diverted to the black market as a consequence. Substantial proportion of this subsidized kerosene is used to adulterate diesel. By adding subsidized kerosene to Rs.55/liter diesel, these adulterators literally make gold. Experts of this field like Mr. Ashok Gulati have long advised to opt for cash transfers instead of subsidies to counter the same. But this solution too opens to a dead end as it will make things easier for those ration card holders who sell their share of subsidized items for cash and incurring crores of loss to the government coffers.

Agreed, there are many villages still surviving beneath the full moon’s shadow sans electricity. With the dawn of the era of environment friendly renewable energy, solar lamps can be a perfect substitute for the traditional kerosene lamps in rural India. A good quality solar lamp costs between Rs. 1,500-Rs. 2,000 and can be distributed in lieu of subsidized kerosene. With no access to subsidized kerosene, these solar lamps will be the most economical and sole option available for affordable lighting in rural households. It also rules out the chances of beneficiaries selling the lamps for easy cash. Apart from the positive environmental implications, this scheme can save crores of tax payers money annually wasted over non-essential kerosene subsidy solely due to bad planning by the policy makers.

The subsidy on urea is another example of bad foresight on the part of the policy planners of the nation. The dirt cheap, highly subsidized urea is being overused by the farmers across the nation (5-6 times more than the stipulated amount in many cases). As a result, it gives greenery but no grains. The green fields may appear pleasant to the eyes but shows no such effect on the pockets of the debt-ridden farmers. Predictably, the farmers fall spirally in the vicious circle of moneylenders and debts. Loss of fertilization of the soil is another implication of overuse of urea.

Abolishment of such a widespread subsidy in a democratic, republic nation like ours requires immensely strong backbone. What follows such a political step is agitations, strikes, disrupted houses of parliament by opposition, TV anchors crying hoarse over government’s injustice towards the needy, newspapers running special editions etc. In such a scenario, it is next to impossible for any political party to put forth perfectly logical reasons for such an action. Arun Jaitley in his maiden budget speech read “a new urea policy will also be formulated”. Well Mr. Jaitley, it is high time you introduce the proposed policy that will mark the inception of reforms for the pertaining non-requisite subsidy schemes (a domain left untouched by many governments fearing adverse political consequences). The nation is in dire need of one such political move when certain subsidy cases are practically equivalent to flushing money down the drain.

Anupriya is a second year undergraduate student in Economics at Lady Shri Ram College for Women, New Delhi. An avid reader, she wants to travel across India to comprehend the varied façade of the Indian culture and traditions. Apart from academics, Anupriya has also dabbled in extracurricular activities like debate and documentary making. She has won numerous awards for her documentaries on social issues. Sports, primarily football, and painting constitute her main interests.

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