Subsidies & Expenditure Rationalisation: Major subsidies have remained at a constant 6 paise per rupee over three consecutive budgets. Does this reflect genuine rationalisation or deferred reform? Examine.

Question

PocketIAS · Accepted Answer

Introduction:

Major subsidies holding steady at ~6 paise per rupee over three budgets suggests control, but whether this reflects durable reform or temporary adjustment requires closer scrutiny.

Body:

On one hand, there are signs of genuine rationalisation. The government has increasingly relied on Direct Benefit Transfer (DBT) to plug leakages, particularly in food and LPG subsidies. Better targeting, digitisation (Aadhaar seeding), and pruning of beneficiaries have improved efficiency. In sectors like petroleum, calibrated duty cuts and market-linked pricing have reduced explicit subsidy burdens. This indicates a shift from universal subsidies to targeted welfare, aligning with fiscal consolidation goals.

However, the constancy also reflects elements of deferred reform. Food and fertiliser subsidies remain structurally high due to MSP policies and political economy constraints. Under-provisioning in Budget Estimates followed by upward revisions is common, masking the true fiscal burden. Volatility in global commodity prices (e.g., fertilisers) often leads to off-cycle adjustments, while some liabilities are managed through arrears or delayed payments, effectively postponing fiscal pressure. Moreover, limited progress in power sector reforms and cross-subsidisation indicates that deeper structural issues remain unaddressed.

Thus, the stability in subsidy share may be partly an accounting outcome rather than a reflection of comprehensive reform.

Conclusion:

While targeting and efficiency have improved, true rationalisation requires tackling structural drivers—especially in food, fertiliser, and power—ensuring that subsidies are transparent, fiscally sustainable, and aligned with long-term productivity.

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