Jul 16, 2011

Subsidy for the poor is bad; subsidy for the rich is good and always welcome

Subsidy has become a bad word. The moment the word 'subsidy' is mentioned one thinks of another crumb being thrown at the poor; as if tax-payers money is once again being wasted in the name of social security for reasons that are purely political. Over the years, neoliberal economists have successfully managed to create an impression in public perception that all subsides are wrong and need to be phased out. World Bank/IMF have in fact been forcing governments to remove subsidies as part of the fiscal prudence exercises needed to prop up the sagging economy. Let us face it, an average educated person finds subsidy despicable.

I wasn't therefore surprised to read New York Times commentary: "Politics gives some US subsidy program staying power" (NYT, July 14, 2011, http://nyti.ms/qDXRo4). Pitching for removal of wasteful subsidies, and most of these obviously fall in the agriculture sector, the writer tells us how these programs operate more or less like vampires, always coming back when you thought they were dead and gone.

Illustrating his argument with some telling examples, like Washington's Essential Air Service programme that results in an annual burden of $ 1.6 million for just three flights, he adds: "A close look at two programs highlights the age-old politics protecting government spending. The peanut and cotton storage program, which costs $1 million a year, has repeatedly survived cuts thanks to bipartisan support. Under the program, the government picks up storage costs for cotton and peanut farmers when they defer selling crops until prices rise. The peanut storage credits have been around since 2002. The cotton subsidy dates to the 1990s." 

Talking about agricultural subsidies I am reminded of another report "Government's Continued Bailout for Corporate Agriculture," published by the Environment Working Group in 2010 that listed the massive US farm subsidy support over the years. Accordingly, the US had paid a quarter of trillion dollars in farm subsidy support between 1995 and 2009. What makes the farm subsidy conundrum more complicated is the role the highly subsidised commodities play in international trade. Take cotton for example. US cotton subsidy have been known to be killing small cotton growers in western Africa, Asia and Latin America who cannot compete against the heavily subsidised cotton being imported from America. 

I am not in favour of wasteful subsidies. These must be curbed. 

But why is that no economist, and for that matter no policy maker, is ever willing to point a finger at the massive subsidies that are being doled to the industry, services and banking sectors in the name of improving efficiency? If subsidies are bad, these are bad for the industry too. Take the case of India where a similar debate has been raging for quite sometime now. Since 2004, the government has waived taxes, including income tax reductions, for the business and industry to the tune of Rs 22 lakh crore. These tax exemptions are clubbed under the category of 'revenue foregone' and presented in every annual budget. I haven't yet seen any economist or a TV anchor ever pointing a finger to these 'wasteful' subsidies. Perhaps the reason is simple. In some way or the other we all are beneficiaries of the same subsidised system. 

I was surprised to read another report the other day. The government has decided to provide a subsidy (you can call it an investment) of Rs 100,000 crore in the next 10 years for the opulent IT industry. I thought the IT sector has already been one of the major recipients of government subsidies all these years, and is now a cash rich sector. On the other hand, the government finds it unable to take anymore the burden of cooking gas cylinders for the average households. Well, the reason is simple. The outgo on LPG falls under the category of subsidy whereas the subsidy for IT sector is an investment for improving efficiency and thereby add to job creation. 

This is what is called 'tough love'. Tough for you and me, and love for the rich.  


Anonymous said...

These two videos are not available now on youtube.
Can I listen these videos?
Bharat Svabhiman & Lecture of Shri Devinder Sharma Part 1

Bharat Svabhiman & Lecture of Shri Devinder Sharma Part 2

Prof (Dr.) Ramakumar,V. said...

The National agricultural policy (prepared by ICAR before 2000supports grain agriculture mainly wheat production on a western model of high input- high output. See India’s investments on food grain production
 India had 5000 tractors in 1950 is fast touching 3 lakh figure as small farmers had been tempted by loans only to fall to debts.
 A good share imported petroleum s is used for agriculture. Oil pool account shows a deficit >Rs. 12,000 crores
 Installed capacity of electricity of 2000 MW in 1950 has risen to 85,000 MW; of which one third is used as subsidised power for hi-tech agri.
 Land irrigated without any rationale is currently facing the ills of stagnation flooding and diseases and depletion of ground wwater in others. A rationale for its use is as important as water itself.
 Despite subsidy for fertiliser we import fertiliser worth Rs. 2400 to 4000 Crore per annum. Subsidies are shared more by the manufacturers than farmers.
 Import of food is not considered a good policy But dependence on import of inputs like fertiliser, chemicals and petroleum for producing food is on the rise .
Export of oil cakes (animal feed) affects factor productivity of dairy production.**
 Policy of subsidies for pesticides and fertilizer and support price at output stage encourage their irrational use by rich farmers
 Intensive agriculture helped increase the quantity, but nutritive value of grains did not improve similarly. Deficient grains and residues affect the health and fertility of men & livestock.
 241million tons of food grain production is meaningful only if it is within the buying power of 35% who live below poverty line
The agri. policy needs specific actions (plans) towards this.