Subsidies To Poor
By Dhurjati Mukherjee
Several economists are known to frown upon the ruling dispensation’s thrust over the past few years on aiding interests of the business class and the upper echelons of society rather than the common man. This they have warned shall not yield chosen result in the long run. As economic difficulties are not being obliterated by issues related to religion and politics which are hitting the headlines. Obviously, the common man will see himself at the receiving end as plans and programmes reflect misplaced priorities in the development process.
The mismatch apparently may have had an impact on the Reserve Bank of India. The grape wine has it that former governor was eased out as he did not help in tax rates being reduced to favour the rich and business class. The apex bank instead has been critical of States announcing farm loan waivers, free power to agriculture and households, free transport and cash transfers to women and youth. According to the RBI, these expenditures will lower the funds available to undertake expenditure in building social and physical expenditure, which is difficult to deny.
Subsidies given by the States, is understood to have grown 2.5 times to over Rs 4.7 lakh crore, the budgeted level for the current fiscal. The apex bank pointed to the high revenue ‘expenditure to capital outlay’ (RECO) ratio in several States but failed to point out the huge administrative expenses of most of these, which are obviously not directly related to asset creation.
In a situation where subsidies are criticised, the question arises can funds not be generated for expenditure specially related to health and education – areas which are languishing in the backward districts of the country? Here again the government is not interested to tax the rich and the super wealthy, which can garner funds for social infrastructure development. Moreover, if those business houses that have looted money from the banks are brought to book – not in the present lackadaisical manner – but in a speedy manner, good amount of funds would be forthcoming.
The most important thing that comes up in this debate is the need for the government to come out with a white paper on subsidies given to the poorer sections while direct and indirect subsidies are cornered by the business class. Some time back, a former Dy. Governor of the RBI had stated that the latter get much more benefits from the government. But these are never taken into consideration and debated as most political parties are funded by the corporate houses.
It may be mentioned that loans written off by commercial banks between FY15 FY24 totalled Rs 12.3 lakh crore. Of this, 53 percent or Rs 6.5 lakh crore of the write-offs were by public sector banks in the last five years (FY20-24), according to data provided by the government in Parliament. The loan write-offs by the banking sector peaked in FY19 at Rs 2.4 lakh crore, which allowed an asset quality review that began in 2015. It fell to the lowest level of Rs 1.7 lakh crore in FY24 which was only one percent of the total bank credit of around Rs 165 lakh crore outstanding at that time.
Coming to those under investigation by the Enforcement Directorate, it is understood that so far it has restituted Rs 22,280 crore worth of assets to victims of various scams, including return of over Rs 14,000 crore to various banks from the sale of assets of fugitive businessman, Vijay Mallya and Rs 1053 crore of diamond merchant, Nirav Modi. Also, the ED restituted properties worth over Rs 4000 crore of Bhushan Power & Steel to the JSW Group after it was approved by the Supreme Court on December 11. But the Union Finance Minister while dishing out these figures did not mention what percentage of the amount has been received and the time taken to recover the amount. Financial analysts believe that powerful business tycoons like Mallya could get away without a proper repayment plan due to weak regulation and political pressure.
Another aspect of the situation could be to compare say the amount spent on airport modernisation with the amount spent on slum upgradation and renewal. In such a comparison, it will again be seen that the well-to-do and the rich, who largely use the airport have to be given additional comfort while those languishing in slums can wait for years to get sanitation and toilets. The former will make headlines in newspapers, but the latter will be seen as subsidies.
One may also refer to the recent criticism of Finance Minister Nirmala Sitharaman of the Congress regime for following the ‘socialist model’ as it had reportedly ruined the economy for four decades and failed to eradicate poverty. No valid economic justification has been given by her, and it seems that her only objective was to find fault with the previous regimes for regulating business houses and not allowing them a free play.
The Congress rightly observed, in this connection, that the BJP may brag of high growth, but such growth has been cornered by the upper echelons of society. It is a fact that around 60 percent of India’s total income is going to the top 10-12 percent, whereas the bottom 50 percent gets a little over 10 percent. The corresponding percentages are 25-30 percent for Europe, 40 percent for China and 40-45 percent in the US, according to Piketty and other international sources.
There is a general trend among a section of economists and planners to highlight subsidies to the rural sector. Applying western standards to measure things appears quite ridiculous as in our country a huge population live and work in the villages and most of them have to struggle for a dignified existence. The grave dimensions of rural poverty and squalor are not known to most economists and planners and, as such, they cannot quite comprehend the conditions on which they survive. Would it be irrelevant here to mention the fact that since 2009, the Central government has been giving just Rs 1000 per month to cooks in government schools when the national minimum wage has been fixed at Rs 5340?
Therefore, questioning of subsidies appears to be wholly unjustified. Even if we go by standards fixed by Nity Aayog, between 2005-06 and 2019-21, the share of Indians facing multidimensional Poverty Index (MPI) fell from 55 percent to 16.4 percent. In absolute terms, the number came down from 64 crore to 23 crore. But these are official figures and may not truly represent the stark reality. However, despite the overall decrease in MPI, certain States continue to lag pulling the national average down. Experts believe that there is a large population below the poverty line and subsidies and incentives, in some form or other, must be disbursed. Short-changing a large section should be unacceptable. — INFA