Critically comment why decontrol of urea prices, fewer subsidized cylinders a year and withdrawal of kerosene from the public distribution system (PDS) are considered as “economic reforms”. (200 Words)
Subsidies are like spoon-feeding a child. It is useful in infant stage because child is not capable of self-developing himself, But continuing spoon-feeding a child is harmful for his all-round development and also for parents as they can’t engage in other activities which are more important. Hence, phasing out subsidies slowly is what is required as one of the ―Economic Reforms.
Decontrolling the price in economy means, leaving the price control to the dynamics of market rather than artificially lowering the price by providing backdoor subsidies. Why Decontrolling the price is required as Economic Reforms:
Urea:
- Most of subsidized urea are collected by rich and bigger farmer and never reach marginal farmer.
- Major part of urea reaches to Bangladesh, Burma and Nepal through black marketing. Also, Chemical industries uses this urea as their raw material.
- Overuse of urea leads to Eutrophication, pollutes water bodies, deoxygenate water and hence deplete diversity of marine life in rivers.
- Urea subsidy is opposed by WHO because it distorts real price of crops.
- Continuous use led to depleted nutrients for what urea is not providing.
Hence Urea subsidy should phase out. Nutrient Based Subsidy is a good step toward it.
Fewer Cylinder to each family:
- Many subsidized cylinder end up in restaurants, hotels, LPG kit to cars and black market.
- Oil companies are not achieving their potential and losing on their economic edge against private companies.
- Use of subsidized gas by gas power plant is also nonscientific and ecological unsustainable.
Hence it should be limited to 6-9 cylinders per year.
Kerosene at PDS:
- Though Kerosene is an outdated fuel but still some fraction of population in rural areas use it for lighting and cooking. But providing kerosene to everyone is not efficiency. All kerosene ends up in black market for adulterating the diesel, fueling pumps in fields, Smuggled to neighboring nations.
- Rural populations these days are also electrified so no need to give subsidized kerosene, instead solar lamps can be distributed.
Hence solving such basic issues and phasing out subsidy is a big step toward bridging
fiscal deficit and bringing economic reforms.
Some economists argue that the government should continue with “good subsidies‟ and do away with “bad‟ subsidies. In your opinion, which subsidies do you consider as good and bad in India? Explain why. (200 Words)
Subsidy culture has been long prevalent in India, starting from the early independence days, and continuing even today, without assessing the necessity of most of them, leading to a large scale budgetary allocation, which could have been easily avoided or reallocated to some other needy sector.
Some of the bad subsidies include:
- The one which harm the environment, like subsidies on nitrogenous fertilizers, which have led to their overuse and harmed the soil, along with increasing the deficit.
- Schemes which give only a short term relief, without any skill development in the persons involved, which makes them overly dependent on the scheme, like MGNREGA.
- Subsidies/ schemes started, without much brainstorming, due to which the target population does not benefit much. Example, the loan waiver initiative only benefitted the well-off farmers who have borrowed from the formal sector, and not the farmers who use the informal credit system.
The good subsidies can be seen as:
- Subsidies on public transport, to reduce pollution and congestion on roads and reduce petrol consumption.
- Subsidies on medical equipment or medicines, during some epidemic, which can ensure that all sectors of populations receive medication.
- Subsidies for loans given for secondary agriculture initiatives, to reduce the burden on primary agriculture activities, and reduce disguised unemployment in agriculture.
- Subsidies to ensure flourishing of MSME, so as to reduce the top to bottom approach of progress currently employed by the govt.
- Subsidies to encourage renewable energy usage at public places and in residential areas, like Prakash Path in New Delhi, which is to be nationalized after full scale implementation in the capital.
Such subsidies are better than the former, because they help in skill development of the masses, reduce the government expenditure to facilitate the lower classes, help in reducing pollution and consequently help in lowering the fiscal deficit of the country, due to the resources can be allocated more efficiently in other needy places to help in the development of all sectors of the country.