Economic survey favours reform in subsidies

The Economic Survey on Thursday prescribed reforms in the subsidy regime in oil, food and fertiliser sectors and asked the government to review the possibility of direct cash transfer to the targeted people.

"There is a merit in reviewing their (subsidies) impact vis-à-vis cash transfers that are targeted and avoid leakages and systemic failures in the present subsidy regime," said the Economic Survey for 2008-09 presented in Parliament.

The survey said the government should reform petroleum, fertiliser and food subsidies to reduce leakages and ensure targeting in order to provide benefit to the needy.

"Limit LPG subsidy to a maximum of 6-8 cylinders per annum per household. Phase out kerosene-supply subsidy by ensuring that every rural household has a solar cooker and solar lantern," the survey stated.

As regard fertiliser subsidy, it said it should be converted from a part-producer subsidy to wholly farmer-user nutrient related subsidy. Also, freedom should be given to producers to set prices of formulations with different mix of nutrients.

"Reforms of subsidies remains an important fiscal policy agenda," the survey said.

In the fiscal 2008-09, the government provided food subsidy of Rs 32,667 crore (Rs 326.67 billion) in the Budget to meet the difference between economic cost of foodgrain and their sales realisation through Targeted Public Distribution System (TPDS). The amount has been revised to Rs 43,668 crore (Rs 436.68 billion).