Rs 1 lakh crore worth of subsidies go to the 'well-off'

The Economic Survey 2015-16, presented in the Lok Sabha on Thursday by Finance Minister Arun Jaitley, said that there was uneven distribution of subsidies worth Rs 1 lakh crore subsidies going to the better-off and those who did not deserve them.

The survey, which was prepared by Chief Economic Advisor (CEA) Arvind Subramanian and his team of economists in the Finance Ministry, also said that the government could further expand the use of direct transfer of benefits through Jan-Dhan Yojana, Aadhaar and mobiles (JAM), with fertilizer subsidies and within-government transfers as two most promising areas for introduction of the JAM.

The survey said that the relatively well-off sections of society were getting the undeserved subsidies on account of commodities and services like gold, cooking gas, kerosene, electricity, railway fares, aviation and turbine fuel (ATF) plus the small savings scheme.

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“The total amount given as subsidy is no less than Rs 91,350 crore not to forget that this is an underestimate of the actual subsidy to the better-off because of the underestimation of the consumption by the rich in the NSS,” it said.

“If we add the subsidies inherent in just the PPF schemes, the total subsidy to the well-off amounts to above Rs 1 lakh crore. This represents substantial leakage from the Government’s kitty, and an opportunity foregone to help the truly deserving,” the survey added

The survey said that addressing the interventions and rectifying these anomalies will be beneficial from financial year and political economy welfare perspective, and will credibility to other market-oriented reforms.

The last economic survey had laid down the genesis of the JAM trinity to reduce subsidies and the latest survey gave pointers on how to expand its scope further. The concept was widely used in reducing subsidy leakages in LPG and foodgrain.

“While deciding where next to spread JAM, policymakers should consider the challenges of beneficiary identification, distributor opposition and beneficiary financial inclusion. Spreading JAM to other areas will reduce leakages and provide more fiscal space to the government,” it said.

It said that all sections of the administrated economy, from poor households to state and local governments and their employees receive funds from the same Sarkari financial pipe that delivers subsidies – and which JAM can improve by reducing delays, leakages, and administrative burden.

“The policy areas that appear most conducive to JAM are those where the central government has significant control and where leakages — and hence fiscal savings due to JAM — are high. This combination is met for fertiliser and within-government fund transfers,” it said.