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Govt needs to gradually bring down subsidies: Rajan

Last Updated: Tuesday, December 18, 2012 - 16:54

New Delhi: The government needs to gradually bring down misdirected subsidies and limit the benefits to needy persons, said Chief Economic Advisor Raghuram Rajan.

"Subsidies are difficult to tackle because people get use to that... How do bring down subsidy? We need to do it perhaps by small increment every time. But eventually we have to get to point where it is targeted to poorest of poor", he said at the Delhi Economic Enclave today.

He further said: "Everybody thinks he is 'aam admi'. So aam admi is affected by removal of subsidy. Of course they are affected. (If) you were to start removing subsidies, then should not you start by removing subsidies on richest people?".

The government in the Budget had pegged subsidy outgo towards food, fuel and fertiliser at Rs 1.80 lakh crore for 2012-13. The amount is estimated to go up in view of various international and domestic factors.

The government, as part of the first batch of supplementary demands, has sought an additional Rs 28,500 crore to meet the increased fuel subsidy bill.

There is a need to bring down "misdirected subsidy", Rajan said, adding that the issue is often raised by "very vocal" middle class.

Referring to the issue of capping of subsidised LPG cylinders, he said, there are about 12-13 crore connections and many of them belong to people in upper class.

The government, Rajan said, wanted to curtail the fuel subsidy by limiting the supply of subsidised LPG to six per year per household.

"We said, let us limit this subsidy to at least to those who don't need it. It is painful to my mother, it is painful to my uncle...But truth is it is a misdirected subsidy", he added.

On why the government is giving too much subsidy or tax incentives to corporate houses, Rajan said, "I think, broadly speaking, what we want is to broaden the base and as far as possible remove specific exemptions."

Moreover, he said, sometimes it also becomes necessary to boost give a boost to the industry through interest subvention and other measures.


First Published: Tuesday, December 18, 2012 - 16:51
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