Are subsidies necessary?

The word 'subsidy' has been used again and again as the root cause of India's fiscal problems. The government's populist programs have been a burden on the fiscal front. In the absence of commensurate revenue streams the fiscal balance has gone awry. So would it be wrong to say that India should simply do away with the subsidies?

Like any other question, there are two views to this one too. The first one is that of the Kelkar Committee. It suggests that the subsidies should be completely removed. The committee has suggested that the various subsidies on fuel and food grains should be removed. This can be done by hiking prices of the same by one-third till 2014-15. The hikes and subsequent elimination of subsidy can be undertaken in a phased manner to minimize the pain for the country's residents. Over time, this would help the government in maintaining healthier fiscal balances and using its money to promote growth in key areas in the country. Healthier fiscal balance combined with policy reforms would give India the boost that it needs. This in turn would help promote investment interests of the private sector as well as bring in long term foreign capital. The combined effect would be long term growth for the country.

The other view is that of the Finance Minister. As per him, in a country like ours where the number of poor is significant, subsidies cannot be done away with. In his opinion, subsidies will always remain a part and parcel of India. What is missing is a proper delivery system to ensure that the subsidy reaches the beneficiaries directly. If the process is streamlined, then the subsidies would no longer be a burden. In addition policy reforms are the key to long term growth and the government has already embarked on the path to ensure the same.

It is true that subsidies are a burden currently. It is also true that a significant number of people in the country are poor and therefore need help. But what is not true is that by keeping prices artificially depressed through subsidies the government is trying to help the poor man. All it is doing through this populist measure is to ensure that it gets enough votes to remain in power for another term. What the government needs to do is to do things in tandem. This means that it needs to get on with the policy reforms and at the same time start cutting back on the subsidies. Doing just one without the other would not help achieve the desired result. And the desired result is one we all want - India to shine in the long term.

Subsidies will always be necessary because of corruption existing at all levels in the state and central government.

What benefits are to go to the poor are stolen by the middlemen with the connivance of interacting government officials.

The government first raises the prices of petroleum products by imposing more than 60% in multiple taxes and duties and then the government says the oil companies are making losses and there are huge under recoveries.

Like coal, oil is an essential fuel. Why can't the government supply the petroleum products to the poor and for essential services by supplying it at Cost Plus basis, without imposing the multifarious taxes and duties.

Yes, for the rich, the government should charge whatever duties are reasonable. If the government just decides to get rid of the corruption monster and bring back the black money stashed away in tax havens, all problems would be solved. Oh, yes, these leeches who go by the names of MPs and MLAs should just give up the free gas and fuel which they get from the government, free of cost.