1. Rationalization of Subsidies in
India
SMBA 7
Bala Iyer, Pawan P, Dipesh P, Arti &

2. Meaning:
Derived from the Latin word 'subsidium', it implies coming to
assistance from behind.
Definition:
The Oxford English Dictionary defines subsidy as "money granted
by State, public body etc to keep up the prices of stationeries etc"
Objectives:
A wedge between consumer prices and producer costs
Achievement of social policy
Government subsidies may be defined as the difference
between cost of delivering various publicly provided good &
services and the recovering arising from such deliveries.

3. Subsidies TG:
 Income Level, Social Group & Merit etc
 Exclusion errors and inclusion errors
Error:

4. S = RX + (d + i) K + i ( Z + L ) - ( RR + I + D )
Where:
RX = revenue expenditure on the service
L = sum of loans advanced for the service at the beginning
of the period
K = sum of capital expenditure on the service excluding
equity investment at the beginning of the period.
Z = sum of equity and loans advanced to public enterprises
classified within the service category at the beginning of the
period.
RR = revenue receipts from the service
I + D = interest, dividend and other revenue receipts from
public enterprises falling within the service category.
d = depreciation rate
i = interest rate

5. Allocative effects:
Redistributive
effects:
Fiscal effects:
Trade effects:
Unintended economic effects:

6. Economic Subsidies
Agriculture &
Cooperation
Irrigation
&
Flood Control
Power
&
Energy
Industry
Transport
Communication
& others
Social Subsidies
Education Health
Water Supply
&
Sanitation
Rural
Housing and others
In India subsidies can be classified in two categories

7. Fertilizer Subsidies (60000 Cr)
Food Subsidy
Irrigation Subsidies
Power Subsidies
Subsidization of Agriculture

9. The proportion of subsidies that go to the poorest quintile is only 0.07 per cent as
compared to 52.6 per cent(8.2%) for the richest quintile.

10. 2012-2013 Rs. In Cr
Oil Subsidy 43580
Food Subsidy 75000
Fertilizer Subsidy 60974
Total Subsidy 179554
Oil Subsidiy
Food Subsidy
Fertilizer
Subsidy

12. The following steps would need to be taken as part of
the operational strategy to reform the subsidy
regime:
(i) Each Department/Ministry/Enterprise should prepare a comparative picture of per unit costs
and per unit receipts for all chargeable services;
(ii) Each unit should prepare a plan for reducing staff strength, by putting limit on fresh
recruitment and developing a scheme for redeployment of staff, and introduction of voluntary and
sometimes compulsory, retirement schemes.
(iii)Strategies of private provision of publicly provided private goods by sub-
contracting, unbundling of public sector activities, and privatisation should be continually
explored;
(iv)A mechanism for automatic (or linked to an index of cost) upward revision of fees and user
charges should be introduced as guided by User Charges Commission or similar bodies;
(v)New public enterprises should not normally be set up any more; and
(vi)There should be a periodic review as to the utility of continuing a subsidy and a decision should
be taken even at the initial stage of its introduction as to the life of the subsidy

13. Laying the foundation stone for Rs 20,000-crore integrated refinery expansion
project of the BPCL in Kochi, the Prime Minister said "To meet our target of
rapid, inclusive and sustainable development, we must undertake a phased
rationalization of energy prices to bring them in line with global prices."
To ensure supply of energy at affordable prices, Singh said the country
would need large investments in oil and gas exploration, buying assets
abroad and distribution infrastructure.