rationalization of subsidies
DESCRIPTION
TRANSCRIPT
Rationalization of Subsidies in India
SMBA 7
Bala Iyer, Pawan P, Dipesh P, Arti & Rajesh
Meaning:
Derived from the Latin word 'subsidium', it implies coming to assistance from behind.
Definition:The Oxford English Dictionary defines subsidy as "money granted by State, public body etc to keep up the prices of stationeries etc"
Objectives:
A wedge between consumer prices and producer costs
Achievement of social policy
Government subsidies may be defined as the difference between cost of delivering various publicly provided good & services and the recovering arising from such deliveries.
Subsidies TG: Income Level, Social Group & Merit etc
Exclusion errors and inclusion errors
Error:
S = RX + (d + i) K + i ( Z + L ) - ( RR + I + D )Where:RX = revenue expenditure on the serviceL = sum of loans advanced for the service at the beginning of the periodK = sum of capital expenditure on the service excluding equity investment at the beginning of the period.Z = sum of equity and loans advanced to public enterprises classified within the service category at the beginning of the period.RR = revenue receipts from the serviceI + D = interest, dividend and other revenue receipts from public enterprises falling within the service category.d = depreciation ratei = interest rate
EFFECTS OF SUBSIDIESAllocative effects:
Redistributive effects:
Fiscal effects:
Trade effects:
Unintended economic effects:
Economic Subsidies
Agriculture &Cooperation
Irrigation&
Flood Control
Power &
Energy
IndustryTransport
Communication & others
Social Subsidies
Education Health
Water Supply&
SanitationRural
Housing and others
In India subsidies can be classified in two categories
Types of Subsidies
Fertilizer Subsidies (60000 Cr)
Food Subsidy
Irrigation Subsidies
Power Subsidies
Subsidization of Agriculture
The proportion of subsidies that go to the poorest quintile is only 0.07 per cent as compared to 52.6 per cent(8.2%) for the richest quintile.
ALLOCATION OF SUBSIDIES
2012-13
2012-2013 Rs. In Cr
Oil Subsidy 43580
Food Subsidy 75000
Fertilizer Subsidy 60974
Total Subsidy 179554
Oil SubsidiyFood SubsidyFertilizer Subsidy
The following steps would need to be taken as part of the operational strategy to reform the subsidy regime:
(i) Each Department/Ministry/Enterprise should prepare a comparative picture of per unit costsand per unit receipts for all chargeable services;
(ii) Each unit should prepare a plan for reducing staff strength, by putting limit on freshrecruitment and developing a scheme for redeployment of staff, and introduction of voluntary andsometimes compulsory, retirement schemes.
(iii)Strategies of private provision of publicly provided private goods by sub-contracting, unbundling of public sector activities, and privatisation should be continually explored;
(iv)A mechanism for automatic (or linked to an index of cost) upward revision of fees and user charges should be introduced as guided by User Charges Commission or similar bodies;
(v)New public enterprises should not normally be set up any more; and
(vi)There should be a periodic review as to the utility of continuing a subsidy and a decision should be taken even at the initial stage of its introduction as to the life of the subsidy
Laying the foundation stone for Rs 20,000-crore integrated refinery expansion project of the BPCL in Kochi, the Prime Minister said "To meet our target of rapid, inclusive and sustainable development, we must undertake a phased rationalization of energy prices to bring them in line with global prices."
To ensure supply of energy at affordable prices, Singh said the country would need large investments in oil and gas exploration, buying assets abroad and distribution infrastructure.
Current Affairs
Thank You