India’s chief economic advisor Raghuram Rajan cautioned the government in the economic survey tabled in Parliament today about the need to curb subsidies and prioritise spending. He said that addressing key fiscal risks of diesel and LPG subsides is the need of the hour for achieving fiscal consolidation, and also highlighted that reach of subsidies on LPG is highly unequal amongst the poor and rich in rural and urban areas.
Take a look at the chart below which shows that the proportion of subsidies that go to the poorest is only 0.07 percent as against 52.6 percent for the rich in rural households.
Meanwhile, even though the allocation to the poor is low in urban households the distribution is more equitable. While the poor get 8.2 percent, the richest receive 23 percent.
Even when the LPG Transparency Portal, which enabled consumers to track last-mile delivery of domestic LPG cylinders , was inaugurated last year, it threw light on how the VIPs of India were misusing the subsidy on cylinders.
Industrialist and Congress MP Naveen Jindal’s residence in New Delhi, for instance, was shown to have received 369 refills of LPG cylinders in a single year! Vice-President Hamid Ansari’s official residence consumed over 170 subsidised LPG cylinders in a year; Union Minister Salman Khurshid and his wife used 62 cylinders (under two connections); and Mayawati used 91 cylinders under two connections. ( Read more here). But despite such misuse, the government has hiked the number of subsidised LPG cylinders to 9 a year from six earlier.
So clearly, if the rich are once again the biggest beneficiaries of subsidies, Finance Minister P Chidambaram should bite the bullet and plug such leakages if he cannot do away with subsidies all together. (Read more about subsidies and Budget 2013 here)