The Telegraph
Since 1st March, 1999
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- In this democratic socialist republic, the real burden falls on the poor

Subsidy, the cognoscenti are agreed, is sin. Most of India’s nagging economic problems, they allege, are because of the widespread practice of subsidy operations, which have fast immiserized the government. The focus of attention is particularly on food subsidy, reportedly costing the Centre more than Rs 20,000 crore each year. This subsidy is by and large on account of the public distribution system persisted with since World War II. The system, so runs the verdict, is crazy: the cost of purchase, warehousing and distribution of foodgrains channelled through ration and fair price shops is huge, and cannot be recovered from the consumers, most of whom are poor. Since, despite the subsidy, the price of publicly distributed grains is beyond the capability of the poor to pay, they in any case draw a minor fraction of the total annual releases. The bulk of the subsidy is on account of sales to constituents of comfortably placed middle and upper classes concentrated in urban areas, who should be able to do without such subsidy.

But this is only a part, a minor part, of the story. It depends on how you look at things. The retail price of publicly distributed foodgrains is high mainly because, over the years, producers and traders have been paid fancy prices for the grains they have handed over to the government. Such farmers and traders make up a solid vote bank in the countryside; political leaders have found it opportune to mollycoddle them in all seasons. Add to the price paid to farmers and traders the cost of storage, the cost of distribution and interest charges. The final price arrived at is certainly not one which the millions of hungry people in this country can afford. In a sense, therefore, the food subsidy is being offered not to the poor consumers but to the big farmers and traders. Since the latter have to be placated, prices of foodgrains sold through the PDS have to be pitched high.

These facts tend to get lost in the raucous mêlée of politics. The support and procurement prices offered to farmers and traders cannot be lowered; at the other end, the bulk of the potential consumers being exceedingly poor, they are unable to buy the publicly distributed grains. Therefore, the grains accumulate in government godowns; the attendant cost is heavy. All told, it is a chaotic situation.

The innocent citizenry, the overwhelming majority of them, are conversant with neither economics nor politics. They can hence be forgiven if they shoot their mouth and raise a foolish question: since stocking of surplus grains is an expensive proposition, why does not the government lower the retail price further, so that some more consumers could be attracted' If, that comes to that, why cannot some of the grains be distributed even freely, that is, at zero price, thereby running down a part of the accumulated stocks'

Foolish questions can only be countered by equally silly responses. The rules of the World Trade Organization, we will be told, do not allow subsidy either to foodgrain producers or to consumers. We are a signatory of the Marrakesh treaty, which set up the WTO. Unless we scrupulously observe the conditionalities insisted upon by the organization, we will be chucked out of it and come to a sticky end. For that matter, even the World Bank and the International Monetary Fund disapprove of subsidy operations. Besides, we are expected to appreciate the hard realities of the world: the United States of America can pay billions and billions of dollars as subsidy to its farmers, no international body will raise a squeak.

But it is a different law where a poor country such as ours is concerned. Because of the WTO’s edict, our government cannot donate the stocked up grains to the poor. It is not even permitted to feed the deteriorating grains to animals. If you are prevented from availing of all such opportunities for reducing the accumulated stocks and thus bringing down the quantum of subsidy, perhaps the very last resort is dumping the millions and millions of tonnes of surplus grains into the Indian Ocean. Some time ago, an official committee had made precisely this suggestion. The rules of the world set by international agencies bossed over by the US are harsh. You cannot be permitted to use the grains to feed the poor, or even to feed the animals, but, so what, you will be allowed — and even encouraged — to dump them in the deepest waters.

The issue though is really not so much the heartlessness of the global system that has emerged in the course of the recent decades. Heartlessness of those who have plenty towards those who have very little is an established fact of life; there is little point in getting worked up over it. What is more relevant is the accompanying cynicism. A pretence has been carefully constructed that the annual food subsidy exceeding Rs 20,000 crore is the fault of consumers who are reluctant to pay the proper price for the foodgrains. The actual fact is otherwise: the food subsidy, including what is spent on carrying the stocks, is because it has been politically expedient to offer relatively high prices to traders and farmers. It is necessary in class interest to shift the blame to the other end of the social spectrum. The practice is akin to giving a dog a bad name before it is destroyed.

Why talk of food subsidy alone' It is a matter of definitions. Close to Rs 200,000 crore has been borrowed by industrial and commercial tycoons from our banks, they have not bothered to return this money. Is this not subsidy to the rich' The government is currently bailing out the Unit Trust of India to the extent of as much as Rs 15,000 crore. Nominally, this is being done to mollify distressed investors who have been taken for a ride. But is not this bailout too another form of subsidy to the rich, meaning the thieves, both inside the UTI and outside, who have looted the institution’s resources and rendered it bankrupt'

On budget-eve every year, taxpayers look forward to a lowering of tax rates to be hopefully announced by the finance minister. Is not such reduction of tax rates also a species of subsidy' Unlike in the case of food subsidy, however, the rationale for this subsidy cannot quite be expressed as a kind of welfare activity for the poor. The few million who pay income and other forms of direct tax in this country belong to the topmost stratum of society; the government very consciously subsidizes them via the tax concessions.

To come to the epilogue. The most important cricketer, over whom the entire nation loves to go berserk, has been, according to reports, gifted a very fancy sports car by the foreign manufacturers. The cricketer wants to bring the car back home. The import duty payable has been estimated to be of the order of Rs 2.5 crore. The cricket wizard, again according to reports, approached a powerful Union minister, who has graciously interceded with the ministry of finance, and the duty on the car has been completely waived. Is this not subsidy' The cricketer concerned earns, for all one knows, maybe a hundred crore of rupees each year, but he too apparently deserves to be subsidized. The particular individual could have played a role model here. He could have come before the podium and informed his countrymen that he wants to set an example and is happy to pay the import duty of Rs 2.5 crore in full; this gesture on his part would, he would hope, persuade other affluent people as well to stay away from the pastime of tax evasion and avoidance.

No such luck. In this mahan country, it is the mahan people, that is, those who have fantastic wealth, who receive public subsidy. The real burden falls on the wretched poor. India is, no fooling, a democratic, socialist republic.

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