Budget does away with run-away subsidies and populism, wants tighter focus

After several years of relentless increases in spending on populist schemes such as the National Employment Guarantee scheme, food, fertilizer and fuel subsidies, the government has finally applied the brakes in the budget for 2011-12.

Instead of increasing budgets to rope in more people under the schemes, the government has proposed to make the schemes more efficient, reduce wastage and increase the ‘catchment’ area served by each scheme.

The reduction of wastage will be done by channeling subsidies in the form of cash directly to the beneficiaries’ bank accounts, instead of trying to give it in kind through discount-priced commodities such as fertilizers and food.

“The idea behind the cash transfer is that the people for whom it is meant, should get it. It should not be siphoned off. It was actually not reaching the people,” said Sushama Nath, finance secretary, explaining the new priorities.

Except for the employment guarantee scheme (NREGS), the others would be converted into the ‘cash subsidy’ model.

It is estimated that nearly half of the subsidized items — such as food grain, kerosene and fertilizers — end up in the hands of corrupt officials, traders and the rich classes through illegal diversions.

Once the diversions are checked, Nath said, the nation’s goal of bringing 75% of its citizens in the food security net too can be met with the same food subsidy of Rs 60,000 crore a year, instead of the projected Rs 85,000 crore.

Similarly, the government now spends around Rs 70,000 crore on fertilizer subsidies and Rs 40,000 crore on employment guarantee scheme. Another Rs 25,000-35,000 crore is spent on subsidizing LPG and kerosene for the poor and rich alike.

All the subsidies have increased uncontrollably over the last five years. While food subsidy bill has more than doubled, fuel bills have increased from around Rs 10,000 crore and the employment guarantee scheme went from Rs 25,000 crore last year to Rs 40,000 during the current one.