With the sharp decline in oil prices, the government has marginally pruned expenditure on subsidies, which account for 13% of the total Central spend.
With the sharp decline in oil prices, the government has marginally pruned expenditure on subsidies, which account for 13% of the total Central spend. The government’s push towards direct benefit transfer (DBT) of subsidies is a welcome step, especially the plans to extend DBT to fertiliser, where only one-third reaches the intended beneficiaries. It will reduce leakages and market distortions and ensure that subsidies reach the poor and the targeted. In fact, the results are showing: The total beneficiaries of DBT in LPG has reached 151 million and leakages have come down by 24%.
The Economic Survey has underlined that benefit of subsidies also gets cornered off by the well-off in small savings schemes, railways, electricity, gold etc to the tune of Rs 1 lakh crore. For instance, the implicit subsidy on Public Provident Fund is Rs 12,000 crore or 6 percentage points as it is exempt from tax at all stages. While the survey underlined that benefits of tax incentives goes mostly to the rich, the budget proposed to tax 60% of the EPF corpus on withdrawal. The government had to withdraw the proposal after public protest but it is likely that it will keep moving in the direction to ensure that the subsidies are limited to the needy only as far as possible.