JOIN USFinance Minister Arun Jaitley’s Budget on Monday may push for eliminating certain subsidies and aggressively rationalising some which are being diverted to the well-off in the name of the poor.
After Prime Minister Narendra Modi, Chief Economic Adviser Arvind Subramanian, too, has suggested that not the middle class, not rich but only the mega rich are benefiting from tax exemptions and subsidies.
The Economic Survey says subsidy on urea, the most commonly used fertilizer by the poor, is lapped up by big farmers because they are well connected to the party in power. Similarly on gold, cooking gas, kerosene, electricity, aviation turbine fuel and railway fares, he said the benefits the government was trying to give to the common man was actually benefiting the rich.
The chief economic adviser said that there are evidences of cross-border smuggling of urea in the border states where small farmers have to buy urea from the black market paying 60% more than the market price, let alone subsidy.
The eastern states bordering Bangladesh and Uttar Pradesh bordering Nepal are cases in point. “Bad subsidies need to be eliminated,” he said.
He advocated linking fertilizer subsidy with the Jandhan-Aadhaar-Mobile (JAM) platform.
Modi also made a similar point. The prime minister recently said: “Some subsidies may be necessary to protect the poor and the needy and give them a fair chance to succeed. Hence my aim is not to eliminate subsidies, but to rationalise and target them.”
Urea is the most controlled fertilizer by the government which intervenes at every stage–production, consumption, import and distribution. Though it is meant for small farmers who cannot afford costly fertilizers, nearly 80% of farmers buy urea at prices greater than the market price (MRP). Small farmers pay 50% more than the administered price for urea. Urea is artificially made costlier also due to its diversion for industrial use.
According to Subramanian, targeted subsidies are no answer because targeting the poor is difficult. “Gold is the rich demerit good. The rich consume most of it and the poor spend negligible fraction, yet gold is only taxed at about 1-1.6 per cent… About 98 per cent of this subsidy accrues to better-off and only 2 per cent to poor,” the Economic Survey stated.
“Aviation turbine fuel (ATF) is taxed at about 20 per cent, while diesel and petrol are taxed at about 55% and 61%. The real consumers of ATF are those who travel by air, who essentially are well off,” Subramanian said.
He says that 50 per cent of the kerosene given under PDS is consumed by well off, giving enough hints that the Budget may sound harsh measures on diversion and seek to go for better targeting. The Survey also suggests taxing the Public Provident Fund (PPF) because it is benefiting the rich. “The PPF is not-so-small savings and tax benefits are claimed by mostly those in the 20 and 30 per cent tax brackets,” it says.