SUBSIDIES AND ECONOMIC COMPULSIONS
The government during the last three years had been consistently reducing the subsidy in almost all spheres of economic activity. The major impact was on the subsidy on fertiliser and the same on the cooking gas and petroleum products as the change in these affect the people at large and there is a huge political cry to restore status quo ante. Very recently there was a report in the media that the government is planning to do away with subsidy totally on cooking gas and with that in view had advised the OMC to increase the price of cooking gas at INR 4/- per month per cylinder of 14.20 Kg of cooking gas. This created a furore in the parliament with the opposition parties demanding that the subsidy cannot be removed and to be continued. The Minister of Petroleum had given his assurance in the parliament that there is no plan to remove subsidy for the cooking gas.
Similarly in the food security act enacted by the parliament a few years back, it was decided that the essential commodities will be made available through the PDS to card holders only if they satisfy certain conditions. If person is an income tax payer, or owning a four wheeler, or a house with three rooms or more, then the person is not be eligible for goods through PDS. This was one of the clauses in the bill passed into act by the parliament. Essentially what is meant here is if a person can afford all the above, he/ she can also afford to buy the articles in open market rates in shops outside the PDS and not depend on the subsidised essential commodities.
The subsidies on many items eat into the overall funds available for the development of the nation. But in a society with a large population still not out of woods and not having a decent meal a day, such subsidies go a long way in providing a lively-hood to many. The successive governments have been troubled with the mounting subsidy bill and its dent on the financial position of the government. No government has been able to tackle this problem effectively so far. The present administration has been trying to effect the payment of subsidy directly to the beneficiary's account with any bank and billing the sales at non subsidised rates. This has been effectively done in case of cooking gas and in a small measure in respect of fertiliser.
The sale of essential commodities through PDS also has to be regulated and the cost of subsidy paid to the card holder directly into the bank account instead of billing at subsidised rates. There may be a lot of misinformation spread by the opposition parties in collusion with the media if such a move is started by the government, as in the present case. This will curb selling the PDS goods in black market and may prevent leakage of subsidy as the goods are procured at market prices (except sugar) and sold in PDS at subsidised rates. The burden on the governments be it the central or states has been increasing year after year with many governments in the states have already reached a point where they cannot borrow any further and entering into a debt trap. The case of TN is a classic example. The state is sitting on a mountain of debt and any further debt will be sufficient only to pay the interest on the existing debt. There are serious doubts about the economic sustainability of many welfare schemes of the state initiated by various regimes in the past.
In this background, if the provisions of the Food Security Act are implemented and the subsidy also is paid directly into the beneficiaries' bank accounts instead of billing the sales at subsidised rates, the government may be able to plug the loophole to an extent.
This apart, there is a serious question of the social media uprising against any move of the government to curtail the subsidy on cooking gas or stop the sale of essential commodities through PDS to persons who are owning a car, a refrigerator, a house with three rooms or more or income tax payee. Now everything is dumped in the door steps of the Prime minister of the country as if he alone is responsible for such decisions taken by the government. Posts, comments, memes etc are flying thick and fast in the social media questioning the wisdom of the government. Who are the people behind such posts? Mostly well heeled, middle class people who have one or more wards working or settled abroad, have a house of their own, mostly living on pension. These posts reflect the mental make up of most of the countrymen. If some concession is extended to some one who is economically not that well off, why the same cannot be extended to me. There is a wrong message spread among the viewers and readers of such social media posts that the government had been writing off the tax revenue of corporate but scrap the subsidy which is beneficial to the common man. There is a comparitive able in respect of tax revenue foregone in successive years and the amount of subsidy.
The corporate houses manage to show a lesser income and profit and try to pay a lesser profit. Whereas the MOF based on the earlier tax collection and the increased economic activity project the tax collection at a higher level. When the actual tax collection falls below the projections, the balance amount of the earlier projection is written down first as a revised estimate and in the final statement as written off. If a corporate estimates a sale of a few thousand crores for its product and the market conditions change warranting writing down the projected sales estimate, it does not necessarily mean the non performance is written off. In macro economics, when tax collection is based on many economic activities and past tax collections, if the projected tax collections do not happen, the revised estimates will definitely be lower than the earlier estimate. The balance in the final analysis will have to be shown as non collected or written off. It does not mean that the actual tax due from the corporate is written off. Contrarily in case of a subsidy, the amount already collected as various taxes is being spent by providing subsidy for various items. Therefore, any plugging of loopholes will reduce the outflow of the hard earned money. This can be explained with a simple example:
In case of organized labour the wage settlements happen after prolonged negotiations. The demands are made by the unions with the managements and after several rounds of negotiations the settlement is reached. There will be a great difference between what was demanded and what was agreed upon finally. If a person who is a member of the union and takes into account the demanded revision in pay and allowances as true and budgets for his expenses, he may end up with a negative income and may be forced to borrow. Similar is the case with the government in tax revenue collection. Based on economic indicators it expects a certain amount of tax collection but when in reality it does not happen, the government is forced to show the gap as written off and forced to borrow in the market to meet the gap for the various activities already initiated.
One more outcry in the social media is about the pay and allowances to the elected representative in various legislatures and parliament and the subsidized canteen facility in such legislatures or parliament. Singapore has a practice of calling on experts in many fields to serve in the government so that their expertise in their chosen field will be available to the common good of the nation. If a practicing doctor is asked to be in the ministry for the specific term, then the pay and allowances for the doctor will be determined by the average income earned by the doctor in the previous three years before he became a public servant. In that way the government ensures that the person's income level is not affected for having chosen the public service. At the same time the anti corruption laws in that country and practice against corruption are very severe. If the law makers are being paid a huge sum of money as pay and allowances, then it is the duty of the government to ensure that any avenue for corruption is plugged and the person/s are taken to task if found corrupt. The legal system in the country is so exhaustive that it will take years before a case against a public servant on corruption charges come to a conclusion. Therefore, what is essential is to plug such loopholes and start working towards a corruption free society. The odious comparison of the pay and allowances of the elected representatives and the subsidy can then become a farce. Until then such comparisons will happen and common man will be fooled into believing what he sees or reads in the social media.
Similarly in the food security act enacted by the parliament a few years back, it was decided that the essential commodities will be made available through the PDS to card holders only if they satisfy certain conditions. If person is an income tax payer, or owning a four wheeler, or a house with three rooms or more, then the person is not be eligible for goods through PDS. This was one of the clauses in the bill passed into act by the parliament. Essentially what is meant here is if a person can afford all the above, he/ she can also afford to buy the articles in open market rates in shops outside the PDS and not depend on the subsidised essential commodities.
The subsidies on many items eat into the overall funds available for the development of the nation. But in a society with a large population still not out of woods and not having a decent meal a day, such subsidies go a long way in providing a lively-hood to many. The successive governments have been troubled with the mounting subsidy bill and its dent on the financial position of the government. No government has been able to tackle this problem effectively so far. The present administration has been trying to effect the payment of subsidy directly to the beneficiary's account with any bank and billing the sales at non subsidised rates. This has been effectively done in case of cooking gas and in a small measure in respect of fertiliser.
The sale of essential commodities through PDS also has to be regulated and the cost of subsidy paid to the card holder directly into the bank account instead of billing at subsidised rates. There may be a lot of misinformation spread by the opposition parties in collusion with the media if such a move is started by the government, as in the present case. This will curb selling the PDS goods in black market and may prevent leakage of subsidy as the goods are procured at market prices (except sugar) and sold in PDS at subsidised rates. The burden on the governments be it the central or states has been increasing year after year with many governments in the states have already reached a point where they cannot borrow any further and entering into a debt trap. The case of TN is a classic example. The state is sitting on a mountain of debt and any further debt will be sufficient only to pay the interest on the existing debt. There are serious doubts about the economic sustainability of many welfare schemes of the state initiated by various regimes in the past.
In this background, if the provisions of the Food Security Act are implemented and the subsidy also is paid directly into the beneficiaries' bank accounts instead of billing the sales at subsidised rates, the government may be able to plug the loophole to an extent.
This apart, there is a serious question of the social media uprising against any move of the government to curtail the subsidy on cooking gas or stop the sale of essential commodities through PDS to persons who are owning a car, a refrigerator, a house with three rooms or more or income tax payee. Now everything is dumped in the door steps of the Prime minister of the country as if he alone is responsible for such decisions taken by the government. Posts, comments, memes etc are flying thick and fast in the social media questioning the wisdom of the government. Who are the people behind such posts? Mostly well heeled, middle class people who have one or more wards working or settled abroad, have a house of their own, mostly living on pension. These posts reflect the mental make up of most of the countrymen. If some concession is extended to some one who is economically not that well off, why the same cannot be extended to me. There is a wrong message spread among the viewers and readers of such social media posts that the government had been writing off the tax revenue of corporate but scrap the subsidy which is beneficial to the common man. There is a comparitive able in respect of tax revenue foregone in successive years and the amount of subsidy.
The corporate houses manage to show a lesser income and profit and try to pay a lesser profit. Whereas the MOF based on the earlier tax collection and the increased economic activity project the tax collection at a higher level. When the actual tax collection falls below the projections, the balance amount of the earlier projection is written down first as a revised estimate and in the final statement as written off. If a corporate estimates a sale of a few thousand crores for its product and the market conditions change warranting writing down the projected sales estimate, it does not necessarily mean the non performance is written off. In macro economics, when tax collection is based on many economic activities and past tax collections, if the projected tax collections do not happen, the revised estimates will definitely be lower than the earlier estimate. The balance in the final analysis will have to be shown as non collected or written off. It does not mean that the actual tax due from the corporate is written off. Contrarily in case of a subsidy, the amount already collected as various taxes is being spent by providing subsidy for various items. Therefore, any plugging of loopholes will reduce the outflow of the hard earned money. This can be explained with a simple example:
In case of organized labour the wage settlements happen after prolonged negotiations. The demands are made by the unions with the managements and after several rounds of negotiations the settlement is reached. There will be a great difference between what was demanded and what was agreed upon finally. If a person who is a member of the union and takes into account the demanded revision in pay and allowances as true and budgets for his expenses, he may end up with a negative income and may be forced to borrow. Similar is the case with the government in tax revenue collection. Based on economic indicators it expects a certain amount of tax collection but when in reality it does not happen, the government is forced to show the gap as written off and forced to borrow in the market to meet the gap for the various activities already initiated.
One more outcry in the social media is about the pay and allowances to the elected representative in various legislatures and parliament and the subsidized canteen facility in such legislatures or parliament. Singapore has a practice of calling on experts in many fields to serve in the government so that their expertise in their chosen field will be available to the common good of the nation. If a practicing doctor is asked to be in the ministry for the specific term, then the pay and allowances for the doctor will be determined by the average income earned by the doctor in the previous three years before he became a public servant. In that way the government ensures that the person's income level is not affected for having chosen the public service. At the same time the anti corruption laws in that country and practice against corruption are very severe. If the law makers are being paid a huge sum of money as pay and allowances, then it is the duty of the government to ensure that any avenue for corruption is plugged and the person/s are taken to task if found corrupt. The legal system in the country is so exhaustive that it will take years before a case against a public servant on corruption charges come to a conclusion. Therefore, what is essential is to plug such loopholes and start working towards a corruption free society. The odious comparison of the pay and allowances of the elected representatives and the subsidy can then become a farce. Until then such comparisons will happen and common man will be fooled into believing what he sees or reads in the social media.
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