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Prepared by Andrea Richter Hume.
Speech given at the Institute of Economic Growth (New Delhi - December 15, 2007).
The estimate for subsidies includes off-budget bonds issued to compensate the Food Corporation of India and oil producing companies for losses incurred from the provision of goods at administered prices.
The term “social protection” includes (i) policies generally considered part of a “social safety net,” i.e., that protect people when they fall into poverty, and (ii) policies that provide “social insurance,” e.g., old age income support and disability insurance.
This follows a widely used categorization of social protection measures in India, e.g. Dev et al. (2007).
The goods and services under reference are those categorized as social services (education and health) and economic services (e.g., in the spheres of agriculture, energy, and industry).
Government of India (2004), p. 4. Data limitations preclude the calculation of more recent estimates of implicit subsidies.
A 1997 discussion paper of the Government of India critiqued the subsidy regime as unduly large, non-transparent, largely input-based and poorly targeted, generally regressive, and inducing waste and misallocation of resources (Srivastava et al. (2003), p. 1).
India has a long history of food subsidies, which were first provided in 1939 in the context of food shortages. See Planning Commission (2005 and 2007) for a detailed analysis of India’s food subsidy program, including reform ideas.
The distribution of BPL cards has been problematic: only 41 percent of the poorest rural households and 29 percent of the poorest urban households held BPL cards, indicating that a fair process has not been followed their distribution.
Castañeda, et al. (2005) evaluates targeting methodologies in five Latin American countries and the U.S.
A system of quasiautomatic fuel price adjustments had been introduced in early 2002, but was suspended in late 2003 when global oil prices began to rise. Since then, prices have been adjusted only partially. See “Dealing with Higher Oil Prices in India,” E. Fernandez, India—Selected Issues (IMF Country Report No. 06/56).
A cautious approach is needed when reducing kerosene subsidies, given kerosene’s importance in rural areas as a lighting source, in the absence of reliable electricity (Gangopadhyay et al. (2005), p. 2335).
Four states had volunteered to be part of a pilot study on using smart cards to deliver fertilizer subsidies, but subsequently all backed out, reportedly due to political opposition to the reform.
Spending on social pensions under the new eligibility and monthly pension standards would amount to less than 0.1 percent of GDP per annum.
The fact that work is guaranteed gives the program a significant social insurance element.
Rai (2007). A follow-up study by the Government of India found some irregularities, but questioned the allegation of significant misappropriation of funds.
The program was introduced following a lawsuit that challenged the government to use its vast stores of rice and wheat to alleviate hunger. In response, the Supreme Court ordered the government to provide cooked lunches in all of the country’s schools.
The Planning Commission is developing an integrated accounting system to monitor the progress of its flagship programs. A step in that direction is the planned monthly web-publication (by the Comptroller General of Accounts) of expenditure data on 27 central schemes entailing an annual cost of about 2 percent of GDP. (Hindu Business Line, September 13, 2007).