A simple but strong point was made by Prof. Amartya Sen in the recent public discussion held in Delhi University, "Every time I am here I have to carry a pullover at the height of summer because everything is, you see that Tokyo keeps the temperature 23 degrees, Singapore at 22 degrees, Bangkok at 22, Beijing at 22. We keep at 16 or 17 on subsidized power, air conditioning at 16 or 17. So I think we have to think of how it is valid?"
The other eminent speaker of the discussion Mr. Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, made the important point about subsidiary "....there is no doubt that the subsidy structure that has evolved did not evolve from a presumption that look, let's do something for the poor. It was there, it was allowed to develop and there is a huge understandable, political resistance to be withdrawing subsidy. Most people are not aware to what extent these things are being subsidized. I mean for example, let's take diesel. Total expenditure in the Budget on food subsidy, which is, everybody agrees is a priority. We ought to do a better job, etc. There is no dispute on that. [It] Does not exceed Rs. 70,000 crore. The subsidy on diesel is Rs. 91,000 crore. "
So the big question is, does common man or aam aadmi of India really need the subsidiary he is getting?
Lets begin with subsidized electricity. In the same speech, Prof. Sen points out that about one third of people in India are without proper power. In addition to that, many states like TN, AP are reeling under severe power crisis, which has lead to closing of many industries and leaving many people to be jobless; and not surprisingly, these state's power utilities are in worst financial mess. The main reason being,: these utilities sell power at loss making rates. Hence no fund is available for modernization and expansion. (Incidentally India's average transmission loss is one of the highest among similar developing countries; In a country with almost 400 million without power, that is criminal!).
The details above, clearly show how valuable electricity is. Now going back to Prof. Sen's point: Can we be so careless about such a valuable commodity? The answer is blatant, such people should be penalized, not subsidized!! A great example is what happened in Gujarat. Mr Modi was strong enough to remove free power to farmers. [He actually calls it a curse]. Though he received strong resistance initially, now people of Gujarat receive uninterrupted power and of course they are very happy about it now. This is just the case of one sector. In Railways, tickets charged were at unviable rates until recently, when prices were revised. (Sadly the proposal to provide diesel at market price to bulk consumers has nullified all the gains). So are LPG which are sold at almost half the market price, and of course diesel for which govt and up-stream oil companies share 91000 Cr an year of subsidiary bill. And what do people do, they use domestic LPG for commercial purpose, smuggle kerosene and diesel to other countries where these commodities are sold at market rates and the biggest of all, super rich people drive ultra low mileage SUVs and luxury cars using subsidized diesel.
As pointed by Mr Ahluwalia, people do not realize, how much of subsidiary they are getting and importantly the purpose of subsidiary. The main beneficiary of such subsidiary are not actually poor people, but "aam admi" as mentioned by Prof. Sen "... middle class, which has renamed itself aam admi i.e. they are relatively poor of the rich, that's the category and has a tendency to be vocal and all has to cooperate[with their demands]." These are the people who actually can avail all facilities at market price but still want to enjoy subsidiary because they are used to it. That sounds ridiculous, isn't it?
So what is the end result. Many govt. entities are under severe financial crunch or cannot be world class because of lack of funds. Worst of all, India is facing a risk of financial downgrade which can be disastrous to India inc, because of huge fiscal deficit. And what is there to check the fiscal deficit? This is what Mr Ahluwalia said about it: "You know, all the Fiscal Responsibility act does, is it forces the government to say what is its fiscal deficit going to be and somewhere, in November or so, report back are we on track or not, and if we are not on track, then explain to Parliament why the fiscal deficit is higher. There are no penalties other than what Parliament can impose. Now if Parliament had the approach, that if you've exceeded the fiscal deficit, we should have a vote of no confidence, there would be an immediate penalty. The problem quite honestly is that if you go to Parliament and say I had to exceed my fiscal deficit because I doubled the following subsidies, and I increased all these various others expenditures, generally you get applause. There is no perception I feel, generally amongst politicians, even amongst public that high fiscal deficit cause damage and that sort of view does it little bit as a free launch." People and importantly politicians, should realize the financial state of a country and act accordingly; if there is prolonged mismatch, history gives only one answer for it: economic crash!
This actually doesn't mean, there should be no subsidiary, subsidiary should be given only to people who really deserve it. It should help development, not hamper it! Though the slew of tough measures in reducing subsidiary currently being taken, the revenue generated should be used to address the basic problem like healthcare, education and malnutrition. If all these saved money ends up in a 2G like scam or in Swiss bank, the whole objective will be defeated. Such tough measures should be backed up by strong political will . This week's financial and railway budget will be a clear indicator of how much will, the government has, to move towards a more sustainable economy. On one hand, this being the last budget before 2014 election, UPA may want to be more "aam aadmi" friendly and on other side, the lurking threat of financial downgrade; it would be interesting to see which side Mr Chidambaram takes!
The other eminent speaker of the discussion Mr. Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, made the important point about subsidiary "....there is no doubt that the subsidy structure that has evolved did not evolve from a presumption that look, let's do something for the poor. It was there, it was allowed to develop and there is a huge understandable, political resistance to be withdrawing subsidy. Most people are not aware to what extent these things are being subsidized. I mean for example, let's take diesel. Total expenditure in the Budget on food subsidy, which is, everybody agrees is a priority. We ought to do a better job, etc. There is no dispute on that. [It] Does not exceed Rs. 70,000 crore. The subsidy on diesel is Rs. 91,000 crore. "
So the big question is, does common man or aam aadmi of India really need the subsidiary he is getting?
Lets begin with subsidized electricity. In the same speech, Prof. Sen points out that about one third of people in India are without proper power. In addition to that, many states like TN, AP are reeling under severe power crisis, which has lead to closing of many industries and leaving many people to be jobless; and not surprisingly, these state's power utilities are in worst financial mess. The main reason being,: these utilities sell power at loss making rates. Hence no fund is available for modernization and expansion. (Incidentally India's average transmission loss is one of the highest among similar developing countries; In a country with almost 400 million without power, that is criminal!).
The details above, clearly show how valuable electricity is. Now going back to Prof. Sen's point: Can we be so careless about such a valuable commodity? The answer is blatant, such people should be penalized, not subsidized!! A great example is what happened in Gujarat. Mr Modi was strong enough to remove free power to farmers. [He actually calls it a curse]. Though he received strong resistance initially, now people of Gujarat receive uninterrupted power and of course they are very happy about it now. This is just the case of one sector. In Railways, tickets charged were at unviable rates until recently, when prices were revised. (Sadly the proposal to provide diesel at market price to bulk consumers has nullified all the gains). So are LPG which are sold at almost half the market price, and of course diesel for which govt and up-stream oil companies share 91000 Cr an year of subsidiary bill. And what do people do, they use domestic LPG for commercial purpose, smuggle kerosene and diesel to other countries where these commodities are sold at market rates and the biggest of all, super rich people drive ultra low mileage SUVs and luxury cars using subsidized diesel.
As pointed by Mr Ahluwalia, people do not realize, how much of subsidiary they are getting and importantly the purpose of subsidiary. The main beneficiary of such subsidiary are not actually poor people, but "aam admi" as mentioned by Prof. Sen "... middle class, which has renamed itself aam admi i.e. they are relatively poor of the rich, that's the category and has a tendency to be vocal and all has to cooperate[with their demands]." These are the people who actually can avail all facilities at market price but still want to enjoy subsidiary because they are used to it. That sounds ridiculous, isn't it?
So what is the end result. Many govt. entities are under severe financial crunch or cannot be world class because of lack of funds. Worst of all, India is facing a risk of financial downgrade which can be disastrous to India inc, because of huge fiscal deficit. And what is there to check the fiscal deficit? This is what Mr Ahluwalia said about it: "You know, all the Fiscal Responsibility act does, is it forces the government to say what is its fiscal deficit going to be and somewhere, in November or so, report back are we on track or not, and if we are not on track, then explain to Parliament why the fiscal deficit is higher. There are no penalties other than what Parliament can impose. Now if Parliament had the approach, that if you've exceeded the fiscal deficit, we should have a vote of no confidence, there would be an immediate penalty. The problem quite honestly is that if you go to Parliament and say I had to exceed my fiscal deficit because I doubled the following subsidies, and I increased all these various others expenditures, generally you get applause. There is no perception I feel, generally amongst politicians, even amongst public that high fiscal deficit cause damage and that sort of view does it little bit as a free launch." People and importantly politicians, should realize the financial state of a country and act accordingly; if there is prolonged mismatch, history gives only one answer for it: economic crash!
This actually doesn't mean, there should be no subsidiary, subsidiary should be given only to people who really deserve it. It should help development, not hamper it! Though the slew of tough measures in reducing subsidiary currently being taken, the revenue generated should be used to address the basic problem like healthcare, education and malnutrition. If all these saved money ends up in a 2G like scam or in Swiss bank, the whole objective will be defeated. Such tough measures should be backed up by strong political will . This week's financial and railway budget will be a clear indicator of how much will, the government has, to move towards a more sustainable economy. On one hand, this being the last budget before 2014 election, UPA may want to be more "aam aadmi" friendly and on other side, the lurking threat of financial downgrade; it would be interesting to see which side Mr Chidambaram takes!
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