India has a lot of scope for reducing some food and fertilizer subsidies

April 11, 2019

According to Paul Mauro, the International Monetary Fund’s (IMF) Fiscal Affairs Deputy Director, India can reduce some food and fertilizer subsidies, while also taking steps to ensure that the growth is inclusive and poverty is reduced.

There is a lot of scopes for reducing untargeted food and fertilizer subsidies and for enhancing revenue administration, including for the GST and the economy is growing in excess of 7 percent, and the objective here is to make sure that that growth is inclusive and it filters down to poverty reduction.

In evaluating the proposed schemes, one has to look at the whole package of how they will benefit the people and how they will be financed.

“Ultimately what matters is the combined distributional impact of the transfer policies and also of the taxes that would finance them.”

The Fiscal Monitor report, that was released at the news conference, noted that the “recently announced farm-income-support programme alongside weaker-than-expected goods and services tax revenues led to a deterioration (of the deficit situation) relative to the previous central government budget outturn”.

The ‘Pradhan Mantri Kisan Samman Nidhi’ (PM-KISAN) scheme announced in the interim budget will give small and marginal farm households guaranteed annual income support of Rs. 6,000.

The report also noted that “the general government deficit declined by a one-third percentage point of GDP in the fiscal year 2018-19”.

The report said that digitization helped reduce fraud and also introduced economies. For example, the adoption of an electronic platform for managing a social assistance program in India resulted in a 17 percent decline in spending with no corresponding decline in benefits.

The use of smart ID cards to identify beneficiaries of specific programmes and improve beneficiaries’ access to information in Andhra Pradesh helped reduce leakage by 41 percent, the report added.

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